Yes, the rich are richer be cause they have more money

Robert Kuttner

October 23, 1990|By Robert Kuttner

LET ME TELL you about the very rich. They are different from you and me," F. Scott Fitzgerald wrote. "Yes, Scott," Ernest Hemingway is said to have replied. "They have more money."

How much money the very rich have, and whether they should part with some of it, is now the subject of intense debate. On network television, Wyoming Republican Sen. Malcolm Wallop insisted that the outright confiscation of all the wealth of people making over $100,000 would run the government for just five months.

William Safire of the New York Times repeated the canard in his column: "Squeezing the richies may be egalitarian fun but is not where the big money is." Really? You could have fooled me.

Sorry, gentlemen. Hemingway was right. The wealthy have a lot of wealth, and they have significantly increased their share of total U.S. wealth and income during the 1980s. Here are the actual numbers, according to the Economic Report of the President and the Congressional Budget Office:

Gross national product this year is about $5.5 trillion. Personal income is about $4.3 trillion. Of that, the richest 1 percent get about 12.5 percent, or $537 billion -- more than the combined total income of the bottom 40 percent. The richest 5 percent earn over a trillion dollars, or just about the total annual cost of running the government. (The average income of those in the top 5 percent is about $120,000 a year.)

The reason for this debate is that for the first time in a decade an opposition economic program is on the table. Liberal Democrats -- a majority of the House and nearly a majority of the Senate -- want to cut the deficit by restoring some taxes on the rich (by less than half of what the Reagan program cut.) The White House would prefer to raise the taxes of and cut benefits from the middle class.

The economic and political situation has been transformed for a simple reason. Borrowing from abroad -- the secret weapon of the Reagan program -- is no longer an option. The dollar is sinking like a stone, and in 1990 the Germans and Japanese are no longer net buyers of U.S. Treasury debt.

This is why the president finally flinched. No-new-taxes-on-anybody, the old White House position, surely was better politics than Tax the Rich. But just as surely, Tax-the-Rich trumps Tax-the-Middle-Class.

For the first time in recent memory, the Democrats are functioning as an opposition party, back on the popular side of mass-pocketbook frustration. But that may not last. This week will go down in political history either as the week the comatose Democratic Party and American liberalism spring back to life, or as the week of bipartisan budgetary mush.

Either the Democrats will hang tough, and force the president to say he is shutting down the government so that he can tax the middle class rather than the rich. Or the Democrats will agree in a spirit of bipartisanship to tax those who have been economically punished for a decade. The differences between the parties will be muddied, everybody will be blamed for unpopular taxes and a chance for a serious choice on the direction of the country will have been squandered.

The choice is quite stark. The Rostenkowski bill, which the House approved, gets 63 percent of all new tax dollars from people making over $200,000 a year. And it accomplishes this by raising the tax rate on the wealthiest Americans from 25.2 percent to 27 percent. The bipartisan bill voted down got 57 percent from people making less than $50,000.

The Senate bill puts much of the burden back on the middle class. Conservative Democrats Sam Nunn of Georgia, David Boren of Oklahoma, and Lloyd Bentsen of Texas, the Finance Committee chairman, want new oil and gas breaks. They also want to trade a slightly higher top rate of 33 percent -- bursting the so-called tax bubble -- for the capital-gains tax cut the president wants.

But very wealthy people get much of their income from capital gains. As Sen. Bill Bradley warned, cutting capital-gains taxes would overwhelm the positive effects of bursting the bubble. A big capital-gains cut would cost so much revenue that middle-class tax increases, or Medicare cuts, would have to be much more extreme.

A lot of people who should know better are lecturing the Democrats to swallow their principles and back a regressive tax increase for the good of the country. The New York Times editorialized: "The principle of taxing the rich more than the poor might be noble. But the (Rostenkowski) amendments amount to demagogy."

Shame on the Times! Is it not demagogy when Bush threatens to take his ball and go home if the Democrats attempt to add a surtax to the very wealthy rather than soak the middle class?

Conservatives who are attempting to charge liberals with "class warfare" have a very hollow argument. The real class warfare has been going on for a decade -- against middle-income taxpayers, who are being charged more but getting less from their government.

One way or another, Congress will pass a budget. The issue is very simple:

On whose backs will it be balanced?

Robert Kuttner writes regularly on economic matters.

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