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Trickle Down Triumph: In The '80s, The Poor Got...Richer


Economic Viewpoint

TRICKLE-DOWN TRIUMPH: IN THE '80s, THE POOR GOT...RICHER

During the past five years, disingenuous academics and their shills in the media have used discredited income statistics from the Congressional Budget Office to create the false impression that President Ronald Reagan rigged the tax system to make the rich richer and the poor poorer. In the latter stages of this campaign, the CBO felt compelled to issue a report in March, 1992, disassociating itself from the disinformation purveyed by the likes of Paul R. Krugman of Massachusetts Institute of Technology and Sylvia Nasar of The New York Times.

Now comes a report from the Urban Institute co-authored by liberal Democrat Isabel V. Sawhill and research assistant Mark Condon. Using well-established income survey data, Sawhill and Condon examined income growth and mobility during 1967-1976 and 1977-1986. They found that during the earlier period, the average family income of the poor (defined as those beginning the decade in the bottom income quintile) grew 12 times faster than the income of the rich (defined as those in the top quintile). During the latter period, the income of the poor grew 15.4 times faster than the income of the rich.

PRIMROSE PATH? The co-authors conclude that when individuals are followed instead of artificial income quintiles, "the rich got a little richer and the poor got much richer." Tracking individuals is crucial to understanding income distribution in the U.S. because there is so much income mobility: The rich and poor will always be with us, but they won't be the same people over time. Sawhill and Condon find that about half of those who began in the bottom quintile moved into higher quintiles (some all the way to the top) and about half of those who started at the top moved down (some to the bottom). More than two-thirds who started out in the middle moved up or down.

"This pattern," the co-authors note, "may be surprising to the general public, which has been led to believe that the poor were literally getting poorer over the last decade or two, and that the incomes of the rich were skyrocketing. This is simply not true."

A similar study was recently released by the U.S. Treasury, which tracked the personal income tax returns of 14,351 taxpayers over a 10-year period, 1979-88. The Treasury found even more income mobility than did the Urban Institute, primarily because the Treasury study--unlike the Urban Institute's--did not truncate income mobility by limiting the sample to those between 25 and 54 years of age.

The Treasury study found that by 1988, 86% of the taxpayers who started off in the bottom income quintile in 1979 had moved up. Of these upwardly mobile poor, 40% reached the top two income quintiles. The Treasury found that upward income mobility characterized the preponderance of taxpayers. For example, of those who began the decade in the middle income quintile, 33% remained in place, 19.7% fell into lower income quintiles, and 47.3% moved into higher income quintiles.

In contrast, the very rich who began the decade in the top 1% had a hard time maintaining their positions. Less than half remained in place at the end of the decade, with 52.7% losing ground and some falling all the way to the bottom quintile.

FACT SHOCK. The two studies, both thorough, based on valid data and scientific samples, show that the charge that Reagan's policies made the rich richer and the poor poorer is pure propaganda. This, of course, won't stop Democratic Presidential candidate Bill Clinton from repeating the charge ad nauseam throughout the political campaign.

The Treasury and Urban Institute studies on income mobility buttress the careful work of economist Marvin H. Kosters, recently nominated as Commissioner of the Bureau of Labor Statistics, and former commissioner Janet L. Norwood. Both economists found that during the 1980s, higher-paying jobs grew more rapidly than lower-paying ones, putting the lie to the charge that the 20 million new jobs created during the long Reagan expansion were low-wage, dead-end jobs. If these were in fact "hamburger-flipping" jobs, it would not be possible for the Treasury to find that by the end of the decade, more people who began in the bottom income quintile had reached the top than remained in the bottom.

These conclusions are further supported by recent Federal Reserve studies of the distribution of gains in wealth. The Federal Reserve found that during the 1983-89 period, the percentage gain in real net worth of the top income quintile lagged far behind the wealth increases experienced by the middle income groups.

In the assessment of the 1980s, facts have not had much influence. When disinformation is used to shape public discourse on economic policy, the country is pushed into dead-end directions. Clinton's recent claim that "during the 1980s the wealthiest 1% of Americans got 70% of the gains" has no basis in fact. The same bogus data show that the last time the Democrats were in the White House, the rich got 100% of the income gains. Imagine Governor Clinton's shock when he discovers that his "data" show that Reagan elevated the poor and middle class from a zero share of income gains to a 30% share.Paul Craig Roberts


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