Alan Reynolds

Democratic presidential candidates advocating really humungous tax increases -- Howard Dean, Joe Lieberman and Gen. Clark -- appear to have lost ground to two favoring merely enormous tax increases, John Kerry and John Edwards. It would seem to follow that the latter two should rethink their plans before challenging the only candidate who thinks tax rates are plenty high enough, George W. Bush. Amazingly, however, the Democrats are pulling out the old "income inequality" card. It worked so well for McGovern and Mondale.

Business Week says Kerry and Edwards "believe a Democrat can repeal top-tier Bush tax cuts with impunity because income inequality has widened under Bush." Taking a less partisan and more statistically defensible line, the Socialist Equality Party says, "Until the Bush administration, the Clinton years saw the greatest growth in social inequality in American history."

Such claims suggest that the top 20 percent, or 5 percent of families, have been collecting a rising share of "our" personal income -- hence "income inequality has widened under Bush." Any candidate who says that has to be lying. The latest available data on income shares is for 2001, and they show no increase in inequality. The recession was no picnic for top earners: There were 690,000 fewer managerial jobs in 2002 than in 2000. If these cash income figures included capital losses, they would reveal ample pain among "the rich" in 2001-2002. The poverty rate did rise from 9.2 percent to 9.6 percent in 2002, but that was still lower than the poverty rate in any year from 1980 to 1998.

To defend President Clinton from socialist egalitarians, prolonged increases in real output per worker (like 1996-2000) translate into increases in real income per worker. Since there are typically two workers in top income groups and less than one full-time worker in the bottom income group, it is mathematically unavoidable that the gap between two-earner families and no-earner families must grow wider whenever the economy is doing well. Real median income among families with two full-time workers was 43.6 percent higher in 2001 than it had been in 1991 -- an annual increase of nearly 4.4 percent a year. Families with no full-time workers did not do that well.

Most important, it is simply a statistical hoax to make long-term comparisons between the average (mean) income in any top income group with averages in lower groups. That is partly because the upper threshold on the group just below the top rises over time whenever real incomes in general are rising. As a result, increases in general prosperity mean incomes that once would have been large enough to make it into the top 5 percent no longer qualify.


Alan Reynolds

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