We're Number One : What's right about the rich - Percent

National Review, Nov 6, 2000 by Alan Reynolds

Vice President Gore has complained that Gov. Bush would use more of our surplus on tax cuts for the top 1 percent than for new spending programs. But when it comes to the top 1 percent, a big chunk of the surplus is not "our" money but theirs; after all, the top 1 percent pays a third of all income taxes, and would pay an even larger proportion under the Bush plan.

Who are Gore's "wealthiest 1 percent," anyway? It turns out he was using dubious estimates of income from an outfit called Citizens for Tax Justice, notorious zealots for soak-the-rich taxation. The census actually provides income figures only for the top 5 percent. For the top 1 percent, the only official figures come from Congress's Joint Committee on Taxation (JCT). The JCT defines the top 1 percent as everyone with cash income, taxable capital gains, and employee benefits adding up to more than $296,828 per year.

The JCT calculates that the top 1 percent earns 15.4 percent of all income, but pays a whopping 33.6 percent of all income tax. Since they pay a third of all income taxes, but receive less than a fourth of the income-tax cut proposed by Gov. Bush, it's undeniable that the Bush plan is tilted toward those with more modest incomes. These facts annoyed Al Hunt of the Wall Street Journal, who titled a recent column "The Biggest Whopper: The Bush Tax Cut." Hunt snarls at the "formerly nonpartisan" JCT, and prefers to rely on a five-page "study" from Citizens for Tax Justice (CTJ). He finds the blatant bias of this notorious left-wing advocacy group "irrelevant," because he accepts their contention that they use "an accepted standard model" from the Institute on Taxation and Economic Policy. In fact, that institute is merely an appendage of the CTJ, sharing the same address. Al Gore relied on these same fabricated figures in the first debate.

Hunt goes on to echo the CTJ's claim that "91% of the benefits of the estate tax cut would go to the top 1%, as would 42% of the overall reductions." This comment inadvertently reveals that the Gore-CTJ complaint is not really about Bush's reduction of income-tax rates at all, but about the estate tax. Even the CTJ itself claims only that 26 percent of all Bush income-tax cuts would go to the top 1 percent, and that figure was itself boosted by including relief from the marriage penalty. Easing the brutal taxation of second earners is indeed beneficial to families with high incomes, because most get high incomes by having two salaries.

The CTJ's pretense that over 40 percent of the Bush tax cuts are "targeted to the top 1 percent" is based entirely on the doubtful suppositions that ending the estate tax would cost a lot of federal revenue, and that 91 percent of the benefits would go to the top 1 percent. But many people have already figured out how to avoid the estate tax; and the "benefits" of cutting it are not actually enjoyed by those who have died (of whom many might be in the top 1 percent of earners) but by their younger heirs (of whom very few are in the top 1 percent).

What kind of people are the top 1 percent? The Census Bureau does not give us a direct statistical answer; the closest it offers is fascinating information about the top 5 percent. In 1998, the latter group included nearly 3.6 million families who earned more than $145,199. Here is a quick portrait of these "rich" families, and how they got that way:

* Ninety-six percent were married.

* Ninety-five percent received some of their income from saving and investing.

* Ninety-three percent were still collecting salaries; on average, more than 2.1 family members worked.

* Seventy-one percent had at least a bachelor's degree; 36 percent had advanced degrees.

* Sixty-four percent were over age 45; the average age was above 49.

There is little reason to suppose that the top 1 percent is much different from the top 5 percent: That is, they are unusually hard-working, well-educated married people who are getting older and have taken care to save and invest. The top 1 percent does, of course, include quite a few famous entertainers, athletes, CEOs, politicians (e.g., the Clintons), and journalists. Al Hunt and his wife, Judy Woodruff, are surely among the top 1 percent, as are many other hardworking and talented two-earner families. Al Gore's solo income of $240,930 in 1999 was only slightly below the top 1 percent. But few members of the top 1 percent are famous, since the group includes more than a million households.

Why are these people so wealthy? The Census Bureau provides detailed information about five income groups, ranging from the top 20 percent to the bottom 20 percent, and these statistics suggest three main reasons why some families earn more than others, and why some make it to the top 1 percent.

First, families with two workers earn more than those with no workers. In 1999, median income among family heads who worked full-time all year was $58,502. Among families with two earners, median income was $74,711-enough to put half of all two-earner families in the highest fifth of the income distribution. Among families in which the household head worked part-time for less than half the year, by contrast, median income was only $32,821. But that was not nearly low enough to be counted among the lowest fifth (those earning less than $21,600). Among families in the lowest fifth, 47 percent had no family member who worked at all during the year, and another 28 percent had members who worked only part-time and/or part-year. Those in the top fifth work many more hours than those in the bottom fifth.