Financial Meltdown Provides Final Verdict on Reaganomics
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Two days before Christmas, with hardly anyone at all paying much attention, the nonpartisan Congressional Budget Office delivered up a final report card on the Reagan era. The highest grades? They went, almost exclusively, to the super rich.
You won't, to be sure, find any As, Bs, and Fs in this new Congressional Budget Office report card. And the CBO's researchers certainly didn't set out to grade America on the years since Ronald Reagan became President a generation ago. But they've done just that. On taxes and income distribution, their new report makes vividly clear, the United States desperately "needs improvement."
That may or may not be the message Senate Finance Committee chair Max Baucus from Montana had in mind, last year, when he asked the Congressional Budget Office to dig a little deeper into the data on taxes and income than the CBO had dug in a report released late in 2007.
The CBO's December 2007 study, Historical Effective Tax Rates, 1979 to 2005, had looked at the federal taxes Americans at different income levels have been paying since the year before Ronald Reagan's election. But the report had a hole. Nothing in it indicated how the really rich have fared in the near three decades that the basic principles of Reaganomics -- tax rate cuts, deregulation, and privatization -- have set the public policy pace.
Senate Finance Committee chair Baucus asked the CBO to fill that hole -- by focusing on the richest of the rich. The CBO's new report meets that request, with dramatic results.
Americans in the overall top 1 percent, the 2007 CBO data showed, did quite well in the Reagan era's first quarter-century. Their average incomes, after taking inflation into account, essentially tripled, rising 201 percent.
But these top 1 percent stats, the new CBO data help us understand, hardly tell the full story. The truly stunning income increases over recent decades have gone to the tippy-top of the U.S. income distribution, not the top 1 percent, but the top tenth -- and top hundredth -- of that top 1 percent.
The higher up you go on the income ladder, in other words, the sweeter the Reagan era.
Between 1979 and 2005, the bottom half of the top 1 percent saw their average incomes only double, after inflation. These incomes increased 105 percent. The next highest four-tenths of the top 1 percent somewhat raised the income bar. Their average incomes, after inflation, rose 161 percent.
That brings us to the top 0.1 percent of Americans. Their incomes, from 1979 to 2005, rose a staggering 294 percent after taking inflation into account. Not bad at all. But the top 0.01 percent did even better. The 11,000 households in this rarified air took home an average $35.5 million in 2005, a 384 percent increase over average top 0.01 percent incomes in 1979.
Need some perspective here? Let's compare Americans at the top to Americans in the middle. Between 1979 and 2005, the average income of America’s statistical middle class -- the 20 percent of Americans in the exact middle of the U.S. income distribution -- rose, according to the CBO figures, a mere 15 percent. That's less than 1 percent a year.
But many average Americans never actually saw that less than 1 percent. That's because the CBO takes a kitchen-sink approach to defining income. CBO researchers include in their "comprehensive income" calculations all the standard household revenue streams -- wages, dividends, interest, and the like -- and lots more, too, from food stamps and Social Security to employer-paid health benefits.