Are the rich richer, the poor poorer? Political calculators say yes and no

March 26, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- Have the rich been getting richer and the poor been getting poorer in recent years?

The liberal answer is yes. The conservative answer is no.

In this election year, the suggestion of a dramatically increasing disparity in income provides powerful political fodder and provokes intense political argument.

Already, the rich-getting-richer theme is being sounded loudly by Democrats in Congress and on the presidential campaign trail.

The charges can only intensify as President Bush continues to push for more tax breaks for the wealthy.

It is good, hard politics. But is it good, hard mathematics?

Certainly a slew of reports has advanced the contention that the 1980s were years of so much for the haves and so little for the have-nots that the gap between rich and poor is now wider than ever.

A study by the Democratic-controlled House Ways and Means (( Committee, using Congressional Budget Office figures, found that from 1977 to 1989 real income fell by 8.8 percent for the lowest fifth of the population while it rose by 29 percent for the highest fifth.

The conservative Heritage Foundation analyzed a different period, 1982 to 1989, on the grounds that using 1977 as a base is -- in the words of Daniel J. Mitchell, a distinguished fellow in political economics at the foundation -- "a sleazy way of blaming [former President Jimmy] Carter on [former President Ronald] Reagan."

"Whether you want to begin in '81, '82, '83 as a base, you see the Reagan years were very good ones for the poor, the rich, the middleclass, for everybody."

A study by Mr. Mitchell, using Census Bureau household income figures, found that a broad income decline in the 1970s for almost all groups was reversed during the Reagan years.

Inflation-adjusted household income for the bottom fifth of families rose 11.9 percent from 1982 to 1989, reversing a decline of 12.7 percent from 1978 to 1982.

For black Americans, a group broadly hostile to the policies of Reagan and George Bush, inflation-adjusted income jumped jTC

16.5 percent from 1982 to 1989 after declining by 10.2 percent from 1978 to 1982.

In his report, Mr. Mitchell wrote: "The Census Bureau's household income statistics underscore John F. Kennedy's contention that 'A rising tide lifts all boats.' When the economy prospers, the poor are just as likely to realize the benefits of economic growth as are those in higher income classes.

"Similarly, if policy-makers adopt anti-growth policies, for the stated purposed of 'helping' the poor, all income groups suffer."

In an interview, Mr. Mitchell challenged the popular practice of comparing the share of total national income of a percentage of the rich with the share of total income of a similar percentage of the poor.

"As a share of total income, over time, yes, the rich have gradually gotten a larger share of it. But that says absolutely nothing about what is happening to the standard of living of the poor.

"All the numbers actually reveal is that the rich are getting richer at a faster rate than the poor are getting richer. The other side is either being stupid, or they are being misleading. They are using that to try to convince people that the poor are getting 'poorer."

The liberal Center on Budget and Policy Priorities, using CBO figures, has worked out that the average after-tax income of the poorest fifth of the population declined 10 percent from 1977 to 1988, while the richest 1 percent gained 122 percent.

In dollar terms, the richest 2.5 million Americans had almost as much income as the 100 million Americans with the lowest incomes.

Isaac Shapiro, senior researcher at the center and author of the report "Selective Prosperity -- Increasing Income Disparities Since 1977," said he chose to compare 1977 with 1988 because they were both peak years of economic recovery.

"The reason most economists compare peak-to-peak or depth-to-depth is because you are comparing equivalents," he said.

The Heritage Foundation study, he said, compared the depth of recession in 1982 with the peak of recovery in 1989.

He added: "Economic growth did help a lot of people from 1982 to 1989, but it helped the poor a lot less than you would expect, and it helped the rich a lot more than you would expect. Given the overall economic growth that occurred over this period, you would have expected poverty to decrease more than it did.

"In a recovery, income inequality has typically decreased. From 1982 to 1989 you had widening income inequality."

Robert D. Reischauer, director of the non-partisan Congressional Budget Office, said, "The numbers we produced suggest that the rich, the upper-income groups, did disproportionately well during this period. Their share of total income rose."

The richest 1 percent of the population enjoyed 25 percent of the totalincome growth from 1977 to 1989 to boost their share of total income from 8.7 percent to 13.0 percent, he said. The poorest 20 percent saw their share of total income drop from 4.9 percent in 1977 to 3.7 percent in 1989.

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