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Editorial Commentary
.SATURDAY, NOVEMBER 5, 2011.
Hard Come, Easy Go
That's a very popular subject, because without money and class, America might have much less Pride, Envy, Gluttony, Lust, Wrath, Greed and Sloth, and we in the media would have much less to write about.
The headline number—and often the only number reported—was that people earning the top 1% of incomes were paid a much higher share of total national income in 2007 than in 1979. After adjustment for inflation, taxes and government payments to individuals—the top 1% earned, received or stole (according to the writer's perception) 17% of national income in 2007. The members of the top 1% in 1979 received 7% of income.
Less frequently noticed—and dismissed as trivial when noticed—was the fact that virtually everyone in the U.S. was better off in 2007 than their counterparts were in 1979. Incomes were up across the board. Although the top 1% saw real after-tax incomes rise 277% from 1979, even the lowest 20% of income-earners were gaining 18% after inflation.
Decade of Losses
The results of a study often depend on the starting and ending points. Many of the rich in 1979 were a lot poorer than they had been at the beginning of the decade. Their investments—especially their income-producing investments such as bonds and utility stocks—had been devastated by inflation. Indeed, when the effects of inflation are taken into account, the 1970s were more destructive of stock-market wealth than the 1930s. Some of the people in the top 1% may have had capital gains to cash in 1979, but not many.By 2007, the investing class was awash in capital gains. The Dow Jones Industrial Average was up 1,300%, residential real estate was up 300% in price, and 3,000% increases in equity were not uncommon, thanks to leverage typically 10-to-1 or more. Even long-term bond prices had done better than anyone had expected in 1979.
The CBO report says capital gains accounted for 80% of the increase in the share of national income received by the top 1% of income earners. Since capital gains are earned by investors, it's not surprising that the change outraged those who believe that capitalists are the enemy.
"It is class warfare," thundered syndicated columnist Robert Scheer, a longtime warrior on what he imagines to be the side of the poor. "This war was sparked by the financial overlords who control all of the major levers of power in what passes for our democracy."
He blamed "three decades of rampant upper-crust greed unleashed by the Reagan Revolution of the 1980s [that] will be well-marked by future historians recording the death of the American dream." He concluded despondently, "Those who have seized 40% of the nation's wealth still control the big guns in this war of classes."
National Wealth
Scheer apparently believes that the nation's wealth belongs to the nation and not to the individuals who created it.The same assumption lurks beneath Elizabeth Warren's recently famous claim that rich and productive Americans don't succeed by themselves. While campaigning for the U.S. Senate in Massachusetts, Warren said:
"There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: You moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did."
There's something to this, but less than meets the ear. The country as a whole does build roads, staff public schools, pay the police and fire departments and defend the nation against all enemies, foreign and domestic. And those who have the biggest stake in the country receive the biggest returns on the investments. But the country makes its investments primarily with taxes, paid primarily by the very same business owners, investors and high-income workers.
In the halcyon year of 2007, the top 1% of taxpayers paid 40% of federal income taxes, to say nothing of their overweighted shares of income, sales and property taxes levied by states and localities. The next 9% of income-earners paid 30% of federal income taxes, and the next 15% of taxpayers paid 15% of federal income taxes.
The bottom half of Americans who earned an income paid less than 3% of federal income taxes on more than 12% of national income, and most of the members of the bottom 20% received more federal charity back than they paid in income taxes. Although the workers among them are docked for a payroll tax, those taxes don't go to roads, schools, public safety or national defense; they fund part of the benefits such people can receive in Social Security and Medicare.
Building on Success
Twelve reasons why there is more inequality in the U.S. are Bill Gates, Larry Ellison, Sergey Brin, Larry Page, Michael Dell, Paul Allen, Steve Balmer, Michael Bloomberg, Jeff Bezos, Steve Jobs, Steven Spielberg and Oprah Winfrey—just a few of the people on the 2007 Forbes 400 list who earned most or all of their money after 1979, and changed our country for the good by doing so well. They created millions of direct and indirect jobs, and paid billions in taxes to all levels of government. The rest of the 1% also did their part, creating smaller businesses or investing in stocks and bonds to make businesses grow.The "rest of us," also known as the 99%, received a lot more wages, capital gains, benefits and public works from the fortune-builders in America between 1979 and 2007 than we paid for, and it's high time such folks as Scheer and Warren expressed gratitude, instead of fanning the flames of Pride, Envy, Gluttony, Lust, Wrath, Greed and Sloth.
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