The New York Times front page this morning practically announced that it is on the payroll of the Democratic National Committee. It leads with a preposterous "story" about the incredible unfairness of the tax laws resulting from the Reagan years, perfectly timed to do maximum damage to the legislative and political process. If the Administration and Congress had any hope of fashioning a growth package this year to deal with the stumbling economy, the Times may have finished it off with this demagogic piece. It's been the lead story on network radio all day and will dominate the evening news, becoming fact that will feed the already raw divisions between the GOP Administration and Democratic Congress.
The story asserts: "Even Among the Well-Off, the Richest Get Richer," with a statistical spin purporting to show: "An outsized 60 percent of the growth in after-tax income of all American families between 1977 and 1989 -- and an even heftier three-fourths of the gain in pretax income -- went to the wealthiest 660,000 families, each of which had an annual income of at least $310,000 a year, for a household of four." The story, written by Sylvia Nasar, a reporter with a Ph.D. in Keynesian economics, is ridiculous nonsense. It takes numbers massaged by the Democratic Congressional Budget Office and massages them still further with the help of Paul Krugman of MIT, another Democrat who is among the most political economists in the country, and presents them as fact by a newspaper which, until this morning, had kept its relentlessly liberal Democratic editorials on the editorial page.
The very idea that the top 1% of the population got 60% of the gains from 1977 to 1989 is preposterous. If I were to massage the numbers, totally ignoring massive growth in unreported income and wealth during the period, I could get the number to 23%, but never to 60%. When Nasar writes about 75% of the gain in pretax income going to the "wealthiest" 660,000 families, she is doing a double distortion. First, by swallowing Krugman's manipulations, she leaves the impression that this small number of households gobbled up three fourths of the extra $1 trillion or so, when in fact it was only the percentage increase of each household that so far outdistanced reported income of households in the lower brackets. And, she identifies these as the "wealthiest" families, when neither she nor the Government has any idea how much wealth these 660,000 families have. Forbes has a hard enough time figuring out the wealth of the top 400. What she seems to have done is find that pretax income of the top families went up by 77% per household, but their aftertax income went up by only 60% -- of course, because of the extraordinary increase in taxes paid at the top.
There are dozens of distortions that account for the top 1% showing so much more income, broadly including the one reference made by the Times: More income goes unreported in the lower income brackets. The one distortion that invalidates the entire premise of the Times story, though, is the fact that an enormous amount of income in the middle class does not have to be reported. It is the income thrown off by the several trillion dollars in pension wealth. In 1977, all the pension funds in the United States, public and private, were under water, bankrupt if forced to "mark to market." The Social Security System was $4 trillion in the red, on an actuarial basis. State and local government pensions were unfunded by more than $100 billion in aggregate. Private pension funds were unfunded by similar amounts. These are the assets of the nation's broad middle class, the workers, teachers, cops and firemen. The Reagan years lifted all of these assets out of the red into the black -- a gain in middle-class wealth of several trillion dollars. Moreover, the dividends and capital gains on this vast increase did not have to be reported, because the tax law permits pension funds to accumulate until they are realized at retirement. By any horseback guess, this stupendous increase dwarfs any of the numbers the Times reported today.
Even the top 660,000 families reporting income in any given year include a high percentage of ordinary folks who have a once-in-a-lifetime sale of an asset that makes them "income rich" for one year. Sylvia Nasar knows this. Professor Krugman knows this. The Congressional Budget Office knows this. Only the readers of the Times do not know this. One wonders if Arthur Sulzberger, Jr., the young publisher of the Times, has any understanding of what the liberal intellectualoids on his staff are doing to the country. The Times' silk-stocking agenda has brought the once great City of New York to its knees, a true fact that Vice President Quayle has been recently noting. It now seeks to export its rubbish to the rest of the country. The Times editors should be ashamed of themselves for allowing such partisan claptrap to be splashed atop the front page. The intellectual dishonesty reminds me suddenly of why I used to be a liberal Democrat.
The Times article abuses the data outrageously. In 1989, the top 1% of families earned $369.5 billion (in constant 1977 dollars), an increase of 77% from $208.7 billion in 1977. That is an increase of $160.7 billion. Meanwhile, total personal income increased to $2,306.5 trillion in 1989, from $1,607.5 trillion in 1977 -- a gain of $699 billion. The increase in the income of the top 1% of families represents 23% of the total increase in personal income. This is obtained by taking the difference between the $369.5 billion income of the top 1% in 1989 and their income of $208.7 billion in 1977, and dividing by $699 billion. Not a single number quoted by Nasar supports her assertion that "an outsized 60 percent of the growth in after-tax income of all American families between 1977 and 1989 -- and an even heftier three-fourths of the gain in pretax income -- went to the wealthiest 660,000 families." She appears to mean that the pre-tax gain of the top 1% of families was 77%, but that their after-tax income gain was only 60% -- or that the wealthiest taxpayers paid a disproportionately larger share of their added income in taxes.