Busting the 1% vs. 99% Inequality Myth

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Inequality: President Obama's class-envy strategy is built on a false premise - that the rich get richer at the expense of the poor. Amazingly, such zero-sum thinking is influencing public opinion.

Twice as many Americans support the anti-Wall Street protesters as oppose them. And even Rasmussen is polling that nearly half of Americans support proposals to soak the rich.

This is an emotional response to both the hard economic times and dishonest political rhetoric. People are buying into the notion peddled by the left that the rich steal from people. It's a pernicious myth left over from preindustrial Marxism.

The left says current levels of income inequality echo the late 1920s and the Gilded Age. They've zeroed in on the richest 1%, citing Census Bureau data showing these top earners "grabbing" more income than the bottom 90%.

But the census stats are misleading.

For one, they are a snapshot of income distribution at a single point in time. Yet income is not static. It changes over time. Low-paying jobs from early adulthood give way to better-paying jobs later in life.

And income groups in America are not fixed. There's no caste system here, really no such thing even as a middle "class." The poor aren't stuck in poverty. And the rich don't enjoy lifetime membership in an exclusive club.

A 2007 Treasury Department study bears this out. Nearly 58% of U.S. households in the lowest-income quintile in 1996 moved to a higher level by 2005. The reverse also held true. Of those households that were in the top 1% in income in 1996, more than 57% dropped to a lower-income group by 2005.

Every day in America, the poor join the ranks of the rich, and the rich fall out of comfort.

So even if income equality is increasing, it does not mean income mobility is decreasing. There is still a great deal of movement in and out of the richest and poorest groups in America.


The beauty of our free-market system (what's left of it), is that even among the thousands of Wall Street protesters thumping, "We are the 99%," there are those who might not be able to say that a decade or so from now. Some might go on to profit from an Internet start-up. Others might get a rap contract. Anything's possible in America.

One of those street agitators might even become president, following in the shoes of Obama, who's now one of the 1-percenters he mocks.

Another problem with the census data is they don't include the noncash income received by the lowest-income households. Each year, the poor get tens of billions of dollars in subsidies for housing, food and health care. None of these transfer payments, a lot of it paid for by the 1%, is counted as income by the Census Bureau.

One report estimates that the share of total income earned by the lowest-income group would rise roughly 50% if such welfare were considered.

Likewise, the share of total income earned by the top income quintile would drop about 7% if taxes paid to fund welfare were considered.

Census doesn't take into account the equalizing effects of taxes. Though they earn more than 45% of total income, the top 10% of taxpayers pay over 70% of the total income-tax burden. The top 1%? They shoulder a whopping 40% of the tax load.

Federal Reserve and other data - which include all financial and nonfinancial assets, including bank accounts, investments, houses and cars - give a more complete picture of the gap. When you count all wealth, not just income, inequality has not gotten worse.

The top 1% account for 35% of total wealth, compared with 37% in 1922. In fact, the worst wealth disparity ever was in the 1990s under President Clinton.

 

 

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