Gap between rich, poor in U.S. continues to grow

Data likely to stir debate over federal tax cuts

September 05, 1999|By NEW YORK TIMES NEWS SERVICE

The gap between rich and poor has grown into an economic chasm so wide that this year the richest 2.7 million Americans, the top 1 percent, will have as many after-tax dollars to spend as the bottom 100 million.

That ratio has more than doubled since 1977, when the top 1 percent had as much as the bottom 49 million, according to new data from the Congressional Budget Office.

In dollars, the richest 2.7 million people and the 100 million at the other end of the scale will have about $620 billion to spend, according to an analysis of the budget office figures. The analysis was done by the Center on Budget and Policy Priorities, a nonprofit organization in Washington that advocates federal tax and spending policies that it says would benefit the poor.

The analysis, released last night, seems certain to stoke the debate that is about to resume in Washington over projected federal budget surpluses and possible tax cuts.

The data from the budget office show that income disparity has grown so much that four out of five households, or about 217 million people, are taking home a thinner slice of the economic pie today than in 1977. When adjusted for inflation, as the income figures have been, these households' share of national income has fallen to just below 50 percent from 56 percent in 1977.

But among the most prosperous one-fifth of U.S. households, or about 54 million people, whose share of the national income grew, that fatter slice of the pie was not sliced evenly. More than 90 percent of the increase is going to the richest 1 percent of households, which this year will have an average $515,600 in after-tax income, up from $234,700 in 1977.

Since 1993, the economy has lifted the incomes of all groups tracked by the budget office, but the incomes of the richest Americans are rising twice as fast as those of the middle class. In addition, the budget office figures understate the economic power of the richest 1 percent because they exclude deferred forms of income such as restricted stock, which have grown rapidly in recent years as companies have expanded their pay plans from senior executives to store and plant manager levels.

Though the economic pie has grown over the past 22 years, the budget office data show that the poorest one-fifth of households have not shared in this bounty. The average after-tax household income of the poor, adjusted for inflation, has fallen 12 percent since 1977.

The poorest one-fifth of households will average $8,800 of income this year, down from $10,000 in 1977.

Congressional Republicans have passed legislation that would cut taxes by $792 billion over the next 10 years, legislation that President Clinton has promised to veto, saying it is imprudent and favors the rich.

Republicans say a tax cut is justified because federal tax revenue rose last year to 21.7 percent of the economy, the highest since World War II, and because the budget office expects surpluses as far into the future as its projections go.

Republicans acknowledge that most of their proposed tax cuts will go to taxpayers making $100,000 or more a year, but they say that since these high-income Americans pay 62 percent of federal income taxes, they should get most of the benefits of a tax cut.

Clinton, who says that budget surpluses may not materialize, wants to pay down the national debt before cutting taxes.

The budget and policy center's report states that one reason the rich are doing so well is the cumulative effect of tax cuts since 1977, when the top federal income tax bracket was 50 percent, compared with the current 39.6 percent. These tax cuts are worth an average of $40,000 this year to each of the slightly more than 1 million households that make up the top 1 percent, said Robert Greenstein, executive director of the Center on Budget and Policy Priorities.

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