The Triumph Of "Trickle Up" Economics

CBS' Dick Meyer Stands On The Income Gap Precipice And Ponders The View

(CBS)  This commentary was written by CBSNews.com's Dick Meyer.

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Trickle Up economics has just scored its greatest success and it is being covered up. I wonder why. Could it be embarrassment?

The Internal Revenue Service recently released its fun-filled report on 2005 individual income taxes. The headline is that the super-rich were even more super than in any year since 1986 when the IRS first had comparable data. The news pages of The Wall Street Journal duly took note, but not many others did.

The top 1 percent of all taxpayers earned 21.2 percent of all the money that individuals in the country earned in 2005. So one-hundredth of the taxpayers earned one-fifth of all income. (The data are available here.)

To get into that top 1 percent, you must have at least $364,657 in "adjusted gross income" -- income after various deductions and corrections. You're in-pocket income would be much higher.

The only year the super-rich 1 percent did this well was 2000, when they earned 20.8 percent of what we all earned. From 1987 to 1996, by contrast, the top 1 percent never snagged more than 16 percent of total income. In some years they only took 12 percent.

You might be more startled by this factoid: the top 10 percent of taxpayers gobbled up 46.44 percent of all 2005 income. The bottom 50 percent earned just 12.83 percent. The income for the median taxpayer was $30,881, a 2 percent drop from 2000 after inflation.

That's Voodoo Economics with a heavy dose of Texas Trickle Up. Growth at the top, flat in the middle. And 2006 could have been even better for the winners.

This concentration of wealth and income is almost certainly the most intense since the Depression era. The immediate cause is the astounding boom in the financial services industry, especially the happy people in hedge funds and private equity funds, though their poor cousins in investment banking are doing OK, too. About half of the 45 new faces in the 2007 Forbes 400 came from either hedge funds or private equity.

It would be wrong, however, to demonize the Wall Street wizards. The trend of super-sizing the super-rich is deeper than that and actually began in 1993, according to the Census Departments Historical Income Tables.

From 1947 to 1992, the top 5 percent of all families never consumed more than 17 percent of the national "aggregate income." But since 1993, that top 5 percent has never earned less than 20 percent of the national bundle.

Before 1985, the middle class -- the middle 20 percent of families -- always earned at least 17 percent of "aggregate income." The middle 20 percent essentially kept pace with the top 5 percent. Since 1993, the families in the middle have never gotten more than 15 percent of the pie. This is called a trend.

Just as it would be wrong to pick on the persecuted fund managers, it would be wrong to proclaim this primarily an issue of unfair taxation.

The new IRS figures I was talking about also show that the top 1 percent of earners (the ones who snagged that 21 percent of national income) also paid 39.4 percent of all federal income taxes. The bottom 50 percent paid only 3 percent of the national income tax bill. Looked at broadly, this is more than fair, though many super-duper rich find ways of paying at lower rates than their secretaries, as Warren Buffett has pointed out.

All of the Democratic presidential candidates talk about the issue without talking about the issue. They discuss changing the tax laws, upping the capital gains rate or changing the taxation of hedge funds and private equity. These options ought to be debated, but they miss the fundamental concern, which is a matter of values and political philosophy. On those bigger issues, the Trickle Up crowd seems to have won -- not just in Washington but in the nation.

The real world triumph of Trickle Up is a victory for people who believe two things: the worst off and average in society benefit when the most well off benefit proportionately more; society should not try to alter the distribution of income and wealth that a free and fair market produces.

This is the reigning de facto political philosophy reflected in the IRS statistics.

This is not necessarily an accurate description of empirical reality; i.e., it is not at all clear that the worst off and the average benefit when the best off benefit most, and it is not universally accepted that the market is free and fair. Nonetheless, people who believe these things have won.

So who believes these things? Democrats say only Republican politicians and the fat cats they love to love. I say this is the prevailing view of both political parties and the generation of Americans who now control the major financial, political and economic institutions in our country: the baby boomers.

Tax laws, securities regulations, and eloquent office-seekers cannot prevent a macro-organism of 300 million people from doing its thing -- from rewarding those it values and even worships. That is the meaning of the statistic stating that one-fifth of the national income is acquired by one one-hundredth of the taxpayers.

We avoid the values issue when we think this historic concentration of wealth is caused by the government.

The income gap is the result of the invisible hand of the market, of countless decisions of boards of directors to increase executive pay, of pension funds to pay high management fees, of companies to eliminate pension funds and so forth. Trickle Up reflects the country, not just Washington, and not just Wall Street.

In World War II, men of every class and region were drafted, shipped out and sacrificed. As that generation seized powering America in the '50s and '60s, the spoils of postwar prosperity were distributed more evenly than wealth and income are today.

That generation -- corniness isn't always inaccurate -- pulled together to pass the landmark Civil Rights legislation of the '60s and helped bring more equal and respectful treatment to women, homosexuals and ethnic minorities.

Their children, boomers like me, rode on the educations and headstarts we were given, declared America a meritocracy and accordingly deemed ourselves entitled to our success, Patagonia fleece and a piece of the national pie our fathers and mothers thought too big and too greedy. No capital gains rate can combat the cumulative power of the kids with the chips.

Boomers in that top 1 percent are fat and happy to be there. Boomers in the middle are fat and happy to go into their boom-down years backed by Social Security and Medicare benefits their kids will never see.

Trickle Up has won. But who is taking credit?

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E-mail questions, comments, complaints, arguments and ideas to
Against the Grain. We will publish some of the interesting (and civil) ones, sometimes in edited form.

[samthetvcat]

PS Great comments in this section - I''ve really enjoyed everybody''s insights and opinions (with the exception of a couple lol : )

[samthetvcat]

"We came from a low income family where my father often could not find work as a carpenter.

I did not have health insurance as a child. I rarely saw a doctor. I almost never went to the dentist. We didn''t go on vacations. We never ate out and my mother earned some money from taking in laundry she stayed home. We had one car not two.

We got toys at christmas time. to have an ice cream sundae was an exceptional treat. stocking stuffers were oranges and chocolates and nuts not expensive small items"
Posted by alanrobisch2

Oops, I forgot to add a comment down below (lol!). Anyway, so what''s your deal - are you saying you attribute your deprivation to your dad''s laziness? If so, maybe your dad was actually like that, but that doesn''t mean everybody else is like that.

And what does paying off the Iraq War debt have to do with people needing to do more ''hard work''?

[samthetvcat]

We came from a low income family where my father often could not find work as a carpenter.

I did not have health insurance as a child. I rarely saw a doctor. I almost never went to the dentist. We didn''''t go on vacations. We never ate out and my mother earned some money from taking in laundry she stayed home. We had one car not two.

We got toys at christmas time. to have an ice cream sundae was an exceptional treat. stocking stuffers were oranges and chocolates and nuts not expensive small items

Posted by alanrobisch2 at 07:27 PM : Oct 18, 2007

[alanrobisch]

Get a clue fools!! Especially those of you who''''ve never had a physical labor job cause you''''ll have one in the future.


Posted by bm6005

I did I worked on a dairy farm and as laborer. Global changes are fueling the movement whether you like it or not and most among the elite feel that if we don''t learn to compete we will sink. We can''t hide behind high tariff barriers

[alanrobisch]

GW was born on third base and has been bragging about the triple he hit ever since.

Posted by ianlou at 11:21 AM : Oct 19, 2007

Its true it takes money to make money but my wife''s best friend''s husband started at the bottom and now makes a 6 figure income through hard work. He works virtually a 7 day week and 12 -14 hour day. I am well aware that hard physical work does not pay off as well but currently union scale for a carpenter is 45.00 an hour

[alanrobisch]

Check out the employment rate in Michigan Smart A$$

Posted by ianlou

I''m talking about national unemployment rates which I''m sure you are aware, I realize that many auto worker worker jobs have been lost

[alanrobisch]

Screw you, you arrogant little twit!! Oh yea just like your hero the arrogant big twit, boosh!!


Posted by bm6005 at 01:36 PM : Oct 19, 2007

You made my point. This is I thought a place to exchange ideas and have an informed debate not just make nasty attacks

[ubrew12]

Income bracket_____% Change in income* (1970-2000):
Bottom 90%________-22.5%
90-95%______________0.4%
95-99%_____________19.5%
99-99.5%___________47.0%
99.5-99.9%_________90.0%
99.9-99.99%_______227.0%
Top 0.01%_________412.0%
*as a share of ALL U.S. income. Source: ''Perfectly legal'' by David Cay Johnston

Pretty much says it all...

[bm6005]

another among the intelligentsia posts again try doing something besides venting
Posted by alanrobisch2

Screw you, you arrogant little twit!! Oh yea just like your hero the arrogant big twit, boosh!!

[roger3815]

Mission accomplished!

[bm6005]

Huh I never would have guessed
Posted by alanrobisch2

That''s fairly obvious. It''s also obvious that you are a bush supporter. I also bet you believe he''s gotten anything in life on his own.... Hah, hah,hah,hah, He''s a spoiled little rich brat!!

[bm6005]

Now thats really awful you mean they had to put off getting a good job a 1.5 yrs and this was the president''''s fault really not a change in the global economy Huh I never would have guessed
Posted by alanrobisch2

No Moron. The president & congress strongly support offshoring into the global economy of slave labor. People like you will hopefully be sucking hind *** eventually when your job goes offshore. Get a clue fools!! Especially those of you who''ve never had a physical labor job cause you''ll have one in the future.

[ianlou]

This idea that some of you have, that wealthy people got their wealth because they have the "drive to get out and work for it" is just total BS. The average ditch digger works far, far harder than the average wealthy guy. And there are so many factors beyond your control that determine exactly how successful you can be at anything. Conversely, there are factors (such as being born wealthy and well-connected) that can overcome even the dullest of personalities (GW, for example, who is both lazy and stu/pid, yet somehow has risen to the "top of the heap").

It''''s a convenient psychological device, "I got mine because I deserve it", and it fits in very nicely with the republican mythology and allows them to feel good about being so evil, but it simply is not true.

Posted by MyIDonCBS at 10:08 AM : Oct 18, 2007

Well Said.
GW was born with a silver foot in his mouth.

GW was born on third base and has been bragging about the triple he hit ever since.

[ianlou]

p.s. Not unemployment during mr bush''''s presidency has been consistently at an all time low. I hear no point made of this

Posted by alanrobisch2 at 07:33 PM : Oct 18, 2007

Check out the employment rate in Michigan Smart A$$

[ianlou]

People can cut their taxes by moving to states with no state income tax, such as Nevada, Washington, Texas, Wyoming, Alaska, South Dakota, and Florida. All of the aforementioned states also generally have a lower cost of living in comparison to the states where its citizens are the most heavily taxed, (California, Massachusetts, New York, New Jersey, etc.).
There are ways to reduce your taxes, but it requires some research and a little self-education.

You''re peoposal is more about moving than research and education.

Some of us don''t want to move, especially to the land of Bush (Texas)

[jon_mccain]

First of all, an income of $365,000 doesn''''t come close to qualifying as even close to the super rich category. This is not an uncommon income for many people, in fact it is probably the beginning of middle-class.
Posted by drivelphobe

Wow, dumbazz just vetoed SCHIP because the few that qualified who might be making $80,000 a year were being touted as wealthy, now you are claiming the middle class starts at $365,000, which is it?

[wogerwabbit]

S**t flows downhill, not money.

[alanrobisch]

Both of my sons are engineers also and it took one a year and a half to land a job after graduation because all the high tech jobs went offshore. I say hang the present administration from their overly stuffed wallets.


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Posted by bm6005 at 09:36 PM : Oct 18, 2007
+ report abuse

Now thats really awful you mean they had to put off getting a good job a 1.5 yrs and this was the president''s fault really not a change in the global economy Huh I never would have guessed

[alanrobisch]

Yup, lot''''s of McDonalds jobs open Genius. Know anyone hiring any AMERICAN software engineers? Bush is an IQ 91 MORON!!


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Posted by bm6005 at 08:58 PM : Oct 18, 2007

another among the intelligentsia posts again try doing something besides venting

[ubrew12]

Morris: "The top 1 percent of all taxpayers earned 21.2 percent of all the money that individuals in the country earned in 2005"

Why earn anything at all if you own everything? It doesn''t matter what they earned... what matters is what they OWN. The top 1 % of Americans currently own 40% or more of AMERICA. That''s TWICE what they owned twenty years ago. THATS THE FIGURE THAT MATTERS!!!! If you''re rich enough, you don''t need to earn ANYTHING AT ALL, in a single year. WHAT MATTERS IS WHAT YOU OWN!!!.

In 1960, the richest 10% of American''s owned 55% of America. Today, they own 75%-80% of the country. That''s a level of ownership not enjoyed by the rich since the 1920''s. For those with an appreciation for history, the 1920''s were a time of excess that led directly to the 1930''s: the GREAT DEPRESSION!!!!

Yes, we are there again. Watch out for the next DEPRESSION. Income levels don''t determine ANYTHING. It''s OWNERSHIP LEVELS that determine how society is rewarded, and we are back in the 1920s again.

*** Meyers job is to convince you that this is NO BIG DEAL. Don''t believe him!!!