MEDFORD, MASS - Brazil's President Luiz Inácio da Silva - "Lula," as he is widely known - has made Brazil's gaping gulf between its few rich and many poor a focus of his new administration.

The United States should do the same. While not as vast as Brazil's, the gap between the rich and the poor in the US is too wide - the widest among all the rich democracies.

According to World Bank data, the poorest 10 percent of Brazil's population receives just 1 percent of the country's total income, while the richest 10 percent receives almost half. In the US, the poorest 10 percent receives 1.8 percent of total income, while the richest 10 percent gets almost a third.

In no other rich democracy does the poorest 10 percent receive less than 2 percent of the total. (The average for rich countries is 2.9 percent.)

Don't leap to the conclusion that this extreme inequity in US income distribution reflects the policies of the Bush administration. The data are for a Clinton boom year - 1997.

In fact, Census Bureau data show a steady erosion of income inequity since the 1970s.

The Census Bureau estimates that in 2001, about 33 million Americans - 11.7 percent of the population and disproportionately African-American and Hispanic - lived below the poverty line. For a family of four, that meant an income of less than $18,000 per year, or $4,500 per capita.

At this level of affluence, the persistence of poverty for tens of millions of Americans is a national disgrace.

A national consensus is needed aimed at ending poverty, consistent with the vision of the late Harvard political philosopher John Rawls. For Rawls, the good society was the society in which a principal goal was the well-being of those worst off.

Progress toward the goal of eliminating poverty can be achieved through, for example, steady increases in the minimum wage (Lula has proposed increases that would double the Brazilian minimum wage in four years), progressive tax reform, and more extensive and effective unionism for low-wage workers.

Some will argue that a high minimum wage, a true living wage, would reduce the competitiveness of American products.

The Harvard Business School's Michael Porter has the right answer in his book "The Competitive Advantage of Nations": "The primary economic goal of a nation is to produce a high and rising standard of living for its citizens ... cheap labor [is not a] meaningful definition of competitiveness ... the ability to compete despite paying higher wages would ... represent a far more desirable national target."

The US also needs an immigration policy that reduces the flow - legal and illegal - of the more than 1 million people who come to the US annually, as the Commission on Immigration Reform urged in 1995. That report has since been ignored by both Democratic and Republican administrations.

The stream of mostly uneducated and unskilled immigrants increasingly feeds the reservoir of the poor, drives down wages and benefits at the low end, and competes for public services with poor citizens, adding severe pressure on beleaguered state and local budgets.

The Democrats are looking for a message, a vision. The goal of ending poverty and the measures necessary to achieve it fit well with Democratic Party ideology. At the same time, the Republicans are committed to a compassionate conservatism that should also embrace the goal.

o Lawrence Harrison teaches at the Fletcher School of Law and Diplomacy at Tufts University. He is coeditor with Samuel Huntington of 'Culture Matters.'

Why should I apologize for making lots of money?***I AM A MEMBER of a small, elite group widely vilified by the press and in letters to the editor. I am an easy target.

My sin is that I am in the financial top 10 percent of the country - those making $100,000 or more - the 35 percent tax bracket, a member of the so-called rich. So it is much easier to paint a picture of me with black heart and ice in my veins, cake crumbs all about, as I grow fat on the backs of the downtrodden.

However, I feel no need to defend my position. Over the years I have worked hard and earned every dollar of the obscene wealth I am accused of hoarding.

What is different about my life and how I came to be here compared with those liberals so willing and anxious to separate me from my compensation?

I worked two jobs to put myself through college. While many my age were off to sporting events or dating or cooling off at swim parties on muggy August nights, I was working in a sweltering factory, assembling bicycles until 2 in the morning. I can't say for sure where the bleeding hearts were then, but they were not standing next to me night after night, sweating over that endless assembly line.***

One nation, with all these differences*** HERE's a quick guide to some basic differences between Democrats and Republicans, according to my Democratic friends.

Democrats are for the little people in this country. Republicans are for the big and powerful.

Democrats care about such matters as the well-being of the nation's children and about old people who need prescription drugs.

Republicans think only of themselves. They don't give a darn about old folks or children.

Republicans are uncaring and greedy, and, after Trent Lott let the cat out of the bag recently, most likely racists.

Republicans are only interested in making more money.

Democrats embrace big government in order to help people. They like government and departments with the exceptions of the CIA, FBI and the Pentagon, which they loathe.

Republicans distrust all government even when receiving corporate welfare, with the exceptions of the Pentagon, CIA and FBI, which they love.

Republicans think government is too large, too intrusive and too costly. They wouldn't lose any sleep if the departments of Education and Energy got shrunk by Rick Moranis.

Democrats point out that they, too, pay taxes and are happy to do so in order to fund all the programs that help little people.***

Regarding Lulinho's efforts in Brasil:

RUBBISH.

I've seen how the Rich, Poor and Middle Class in Brasil live. The quality of life for their Middle Class is only a step or so above what we would call poor in this country. The big claim for the Middle Class in Brasil is that they can look down on the poor and say "At least I'm not him."

The poor in Brasil are just what you'd picture for the "King of the 3rd World". We're talking dirt poor, shanty-town dwelling, ignorant and lacking any access to proper infrastructure, medicinal or educational facilities. That's pretty low on the scale consideration being "Poor" in America means that you most likely don't get "cable".

To top it off, people are going to (shockingly) discover that Lula's idea of equality among the classes will be to deprive both the Rich and Middle Class of their wealth and squander it to placate the Poor, while never doing anything to actually resolve their issues. He will only destroy the rest of the economy in the process.

But there is a bright side for Brasil: Lula has promised to give them Nukes! So while the people are starving in their sleep, their dreams can be comforted that if anyone does try to sneak into their country to steal the two breadcrumbs that "Lulinho" has left for them, those bastards will eat hot, fiery atomic death. That should help them sleep at night.

Income Mobility and the Fallacy of Class-Warfare Arguments Against Tax Relief

by D. Mark Wilson
Backgrounder #1418

March 8, 2001 | Download PDF

The dynamic U.S. economy is characterized by an extraordinary degree of income mobility that has been all but ignored in the recent debate on reducing federal income tax rates and phasing out the death (estate) tax. Opponents of tax relief are criticizing commonsense reforms because they claim that "only the rich" will benefit. Yet the notion that low-income or high-income groups are composed mostly of the same people over time is an illusion.

The comparison of average incomes and taxes paid by groups would be meaningful only if America were a caste society in which the people comprising one group remained constant over time. Most Americans, however, understand that family incomes change frequently, and the research on income mobility reveals that most family incomes increase significantly over time.

This is one reason why Americans with modest incomes tend to resist "soak the rich" class-warfare arguments: They hope to be rich themselves one day. Policymakers should ignore this class-warfare rhetoric and redesign America's tax code so that its barriers to upward mobility are reduced.

PATTERNS OF INCOME MOBILITY

Many academic studies have found remarkably consistent results that suggest there is substantial income mobility in the United States.¹ For example:

A 1992 Treasury Department study showed that between 1979 and 1988, 86 percent of those in the bottom income quintile moved to a higher quintile, and 35 percent in the top income quintile moved to a lower quintile.²
A 1995 Federal Reserve Bank of Dallas report showed that almost three-fourths of those in the bottom quintile in 1975 were in a higher quintile by 1991, and almost 40 percent in the top quintile moved down to a lower quintile over the same period.³
A 1996 Urban Institute study showed that large numbers of Americans move into a new income quintile, with estimates ranging from 25 percent to 40 percent in a single year. The same study found even higher mobility rates over longer periods: about 45 percent over five years and 60 percent over 9-year and 17-year periods.⁴
In 1998, the Census Bureau reported that, on average, over 41 percent of Americans increased their inflation-adjusted income by 5 percent or more per year from 1984 to 1994.⁵ The primary reasons for changes in income from year to year were changes in marital status, changes in the number of workers in the household, and moving into or out of full-time, year-round employment.
A 2000 Economic Policy Institute study showed that almost 60 percent of Americans in the lowest income quintile in 1969 were in a higher quintile in 1996, and over 61 percent in the highest income quintile had moved down into a lower income quintile during the same period.⁶

The direction of income mobility is also important. The upward movement of workers in the second-lowest and middle-income quintiles is larger than the downward movement. From 1969 to 1994, the income of 53 percent of workers in the second-lowest income quintile had increased enough to move them up into a higher income quintile, and 38.7 percent of workers in the middle quintile had moved up compared to 37.9 who moved down.⁷

CONCLUSION

Much of the debate and political rhetoric on tax relief have focused on how much income the top one-fifth or 1 percent of families would receive versus the bottom one-fifth and other fifths. Yet this approach is statistically meaningless because the mix of individuals and families who make up the various income groups changes constantly.

The fact is that the U.S. economy, while not without its problems, remains dynamic, open, and productive enough to enable Americans to rise as far and as fast as their dreams, hard work, and perseverance will take them. What is needed is commonsense tax reform that reduces the burden of excess taxation for all Americans.

D. Mark Wilson is a Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

Endnotes

1. Daniel P. McMurrer and Isabel V. Sawhill, "How Much Do Americans Move Up and Down the Economic Ladder?" Urban Institute, Opportunity in America No. 3, November 1996. This report reviewed seven income mobility studies published from 1992 to 1996.

2. Income Mobility and the U.S. Economy: Open Society or Caste System? Joint Economic Committee, U.S. House of Representatives, 102nd Cong., 2nd Sess., January 1992. Quintiles are calculated by dividing the number of families or people into five groups of equal size and classified by income.

3. W. Michael Cox and Richard Alm, "By Our Own Bootstraps: Economic Opportunity and the Dynamics of Income Distribution," Federal Reserve Bank of Dallas 1995 Annual Report, pp. 2-23.

4. McMurrer and Sawhill, "How Much Do Americans Move Up and Down the Economic Ladder?"

5. U.S. Bureau of the Census, Moving Up and Down the Income Ladder, No. P70-65, July 1998.

6. Lawrence Mishel, Jared Bernstein, and John Schmitt, State of Working America: 2000-01 (Ithaca, NY: Cornell University Press, 2000), p. 77.

7. Ibid.

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