[Congressional Record Volume 141, Number 109 (Friday, June 30, 1995)]
[Senate]
[Pages S9491-S9492]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
LIFTING THE YACHTS, SWAMPING THE ROWBOATS
Mr. DASCHLE. Mr. President, if you look past the headlines and the
hype connected to the conference agreement on the budget resolution, I
think the American people can get a pretty good sense of who's looking
out for whom in the Republican budget.
Republican budget writers talked about putting tax money back into
the hands of wage earners. Republican budget writers talked about their
big tax cuts to fuel the Nation's economic engine.
But the only engine this budget primes is the full-throttle expansion
of incomes for the wealthiest Americans. The Republican budget does
nothing to address the fact that middle-income families have been stuck
in neutral for the past 20 years, while many low-income Americans are
sliding into reverse.
Republican budget priorities will only serve to drive deeper and
wider the wedge between Americans at either end of the earnings scale.
This country always had, and always will have, the rich, the poor,
and the middle class. Like never before, however, these economic groups
are pulling away from each other, and it's tearing at the social fabric
of our Nation.
Every year, families in the top 5 percent in terms of income now
make, on average, the rough equivalent of what 16 low-wage families
combined struggle to earn in a year. In the past two decades, America's
top earners enjoyed an average 25-percent increase in cash income. Down
at the bottom, the lowest wage workers actually felt a 7-percent drop
in pay over the same period.
According to a survey published last Sunday in the Washington Post,
no other industrialized nation on Earth has a greater income gap
between top and bottom than the United States. And in between, the
middle class grows larger in number, but their paychecks are stuck in a
rut. Hourly wages of workers with average skills are sliding. The
absolute incomes of low- and middle-income Americans are actually below
those of people in other industrialized countries that are poorer than
the United States.
That, Mr. President, is unacceptable. This country was built on the
promise of hope that people can, indeed, come up from nothing. That you
can work hard from the bottom and eventually reach the top. That you
can build a better future for your family through your own honest
efforts.
That promise is becoming a lie to an ever-increasing number of
Americans. The road to prosperity now crosses a bridge that spans
further than many Americans can see.
Mr. President, Democrats believe in prosperity. We believe in
economic progress. We want to help American workers earn more. We
want more Americans to be wealthy. We would like more low-wage workers
to join the ranks of the middle-class. We would like more middle class
workers to join the ranks of the rich.
But it seems to me that the Republican budget aspires to no such
progress.
It seems to me that the Republican budget will punish those Americans
now mired in this stagnant status quo, and provide a kind of winner's
bonus to those traveling on the fast track.
While we don't know yet exactly who will get their hands on this $245
billion tax cut, we do know that the House bill gave over half the tax
cuts to the 2.8 percent of families making more than $100,000. It is
safe bet to assume that the wealthiest 1 percent will get at least a
$20,000 tax cut. That little bonus alone is more than twice the annual
income earned by families at the bottom of the scale.
And what do we offer to those families who are struggling to move up?
Education cuts that hit 65 million children. Student loans that cost
$3,000 more per student; $100 billion in so-called welfare reforms, and
cuts in the earned income tax credit. And I will not even begin to talk
about the harm that will be felt by their plan for Medicare and
Medicaid.
It is painfully clear where the priorities lie in the Republican
budget. And its not just Democrats who have figured it out. According
to Stanford economist Paul Krugman: ``Quite obviously these programs
would make unequal incomes even more unequal, particularly at the
extremes--the very rich and the very poor.'' Frank Levy, an economist
at MIT says:
We're going through a period in which trade and technology
are like an economic natural disaster for the half of the
working population that does not have a college degree . . .
the last thing you would want to do right now is to have
Government make a bad situation worse by extending tax breaks
to the rich.
Democrats and Republicans agree on producing a budget that comes into
balance within a decade. But Democrats refuse to forget the working
Americans who must struggle to live their lives, pay their mortgages,
educate their children, and provide for their families over that same
decade. These are the families Democrats will neither abandon nor
betray in the face of this $245 billion gold rush within the just-
passed Republican budget.
Finally, Mr. President, I commend to my colleagues' attention an op-
ed printed in last Sunday's Washington Post, ``America's Tide: Lifting
the Yachts, Swapping the Rowboats,'' by Gary Burtless and Timothy
Smeeding. I ask unanimous consent that it be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the Washington Post, June 25, 1995]
America's Tide: Lifting the Yachts, Swamping the Rowboats
(By Gary Burtless and Timothy Smeeding)
During the early postwar era, most American families could
expect to see their incomes grow from one year to the next.
During both the 1950s and 1960s, median family income
adjusted for inflation rose about a third. With incomes
growing this fast, few people (and even fewer politicians)
bothered to inquire very closely into the distribution of
income. A rising tide lifted all boats, the rowboats as well
as the yachts.
But since the early 1970s, the nation's experience has been
much more discouraging. In the past 20 years, incomes have
not grown at all, and for families near the bottom of the
distribution, incomes have done even worse--they have shrunk.
Instead of routinely hearing news about growing incomes,
Americans now read dismal reports of swelling poverty rolls,
rising inequality and shrinking wages. It would be wrong to
conclude from these reports that the United States has not
enjoyed prosperity since 1973. On the contrary, the nation
added more than 40 million jobs and enjoyed three of its
longest postwar expansions.
But American prosperity is extremely uneven. Families and
workers at the top of the economic ladder have enjoyed rising
incomes. Families in the middle have seen their incomes
stagnate or slip. Young families and workers at the bottom
have suffered the equivalent of a Great Depression. Though
the nation is in the midst of a robust expansion, recent
census statistics offer no hint that the trend toward wider
inequality has slowed. Poverty rates continue to rise,
especially among children and young adults. Hourly wages of
workers with average or below-average skills continue to
slide. At the same time, the percentage of U.S. income
received by the top 5 percent of households continues to
climb, reaching new postwar highs almost every year.
Although the United States continues to have a large middle
class, the disparity between those at the top of the income
scale and those at the bottom has widened significantly.
Measured in constant 1990 dollars, a family in the bottom
one-fifth of the U.S. income distribution received about
$10,400 in gross cash income in 1973. In the same year, a
family in the top one-fifth received about $77,500, or
roughly 7\1/2\ times the average gross income of those at the
bottom.
By 1992, average gross income in the bottom fifth of the
distribution had
shrunk almost 7 percent, falling to just $9,700. Average
gross income in the top fifth of the distribution had
climbed to $98,800, a gain of more than 25 percent. The
average income of a family in the top fifth of the
distribution now amounts to more than 10 times that of
those at the bottom of the distribution.
Gains among the very wealthy have been even more
impressive. Those in the top 5 percent of the distribution
saw their incomes climb nearly a third in the past two
decades so that the average family in the top bracket takes
in the equivalent of what 16 families in the bottom bracket
earn. The rising tide is now lifting the yachts, but swamping
the rowboats.
Not only have U.S. income disparities soared since the
early 1970s, the gap between rich and poor has grown much
faster than it has elsewhere in the industrialized world.
When the recent inequality trend began, the United States
already experienced wider income disparities than other
countries with similar standards of living.
[[Page S9492]]
Income disparities can be measured in a variety of ways.
The accompanying table contains information about the
distribution of income in 13 rich industrialized countries.
The statistics were compiled by the Luxembourg Income Study
and are based on household surveys conducted in the mid-
1980s. They reflect personal incomes adjusted for differences
in family size. Each country on the list is ranked according
to its median after-tax income, measured in U.S. dollars
using purchasing-power-parity, a calculation used by
economists to compare one nation's real income to another's
in a way that adjusts for differences in the capacity to
consume goods and services in each country.
Not surprisingly, the United States ranks near the top of
industrialized countries in median income. With the exception
of a few tax havens, we are still the richest nation on
earth. But this method of analyzing income does not attempt
to define or talk about the size of the middle class; rather
it is a means of evaluating the disparity between rich and
poor. And by that measure, we are the most unequal rich
nation on earth.
Many people become uneasy when the gap between rich and
poor grows too wide. No social scientist or philosopher can
tell us when this threshold has been passed. But most of us
sense that when the gulf separating rich, middle class and
poor grows too large, the social fabric is at risk. Low-
income citizens, and those whose incomes used to be closer to
the middle but have fallen, may begin to feel a weaker bond
with the rest of society and see less reason to respect its
rules and institutions.
In recent years, opinion leaders have been increasingly
willing to lift their voices in defense of inequality and
even to suggest that widening income gaps play a useful
social function. The New York Times, in a recent front-page
story, described the United States as ``the most economically
stratified of industrial nations.'' Shortly after the story
appeared, it was attacked in three separate Washington Post
columns--by George Will, James K. Glassman and Robert J.
Samuelson. Each critic mentioned different shortcomings of
the story, but all agreed that the United States is doing a
lot better than its lowly rank in the inequality sweepstakes
might suggest.
Glassman argued, for example, that U.S. incomes are
extremely mobile.
Americans who are comfortably well off for one or two years
often find themselves in tough circumstances a few years
later. The starting pitcher who earned $2 million three
years ago can find himself throwing in the minor leagues.
Similarly, Americans currently stuck on the bottom can
climb their way up the income scale through pluck and hard
work. The office messenger can hope for promotion to CEO.
Though valid, the argument of higher social mobility does
not go far toward explaining the widening gap between rich
and poor or why the U.S. disparity is so much higher than in
other wealthy countries. Growing inequality might not
represent a social problem if the increase in inequality in a
single year were matched by a similar increase in income
mobility from one year to the next. The problem is, there has
been no increase in income mobility to offset the sharp rise
of inequality.
The chance of receiving a large one-year increase in income
has never been very high. More to the point, the chance of
enjoying a big increase has not grown noticeably in the past
few decades. Americans with annual incomes that place them in
the bottom quarter of the income distribution have an 80
percent chance of remaining there for at least two years in a
row. Although studies over a longer period of time are less
conclusive, some research indicates that the probability of
moving out of the poorest class has hardly budged since the
1970s.
It might also be the case that Americans enjoy greater
class and income mobility than Europeans. U.S. incomes may be
more unequal at a given point in time, but, according to this
theory, Americans enjoy better opportunities for advancement
than residents of other countries. This is an inspiring
story, and one that is cherished by many Americans,
especially by conservatives. The problem with the theory is
that there is no evidence to suggest it is true.
Studies of income mobility suggest that the United States
ranks about in the middle of industrialized countries. To
analyze mobility, a team of economic researchers tracked the
same set of individuals over long periods of time in both the
United States and Germany. Their findings showed that the
level of inequality within each country actually declined,
but that the gap between the two countries grew, with the
United States showing wider disparities.
A more fundamental criticism of the Times story, suggested
by both Will and Samuelson, goes as follows: Although income
disparities are larger in the United States than elsewhere,
other societies pay too heavy a price to achieve equality.
Will concludes that ``. . . increasingly unequal social
rewards can conduce to a more truly egalitarian society, one
that offers upward mobility to all who accept its rewarding
disciplines.'' Samuelson argues, ``What determines the well-
being of most people is the increase of national income and
wealth, not their distribution.'' Other countries' attempts
to equalize incomes have led to higher joblessness and less
entrepreneurial activity than we see in the United States,
and hence to slower growth abroad. The United States accepts
greater inequality, but is rewarded by higher income and
faster growth.
Affluent readers may draw comfort from this reasoning.
Americans further down the economic scale might find the
logic less appealing. The size and growth of national income
undoubtedly helps to determine whether individual citizens
can enjoy a comfortable standard of living. Each citizen's
living standard also
depends, however, on the percentage of national income that
he or she is permitted to share. If a pie is to be divided
among 10 people, the person receiving the smallest slice
may prefer to share a small pie that is divided in roughly
equal slices rather than a larger pie that is divided very
evenly. A little arithmetic will show that it is better to
receive 10 percent of a small pie than 2 percent of a pie
that is twice as large.
Stacked against other industrial countries, the after-tax
incomes of those people at the lowest 10th percentile of
Americans tumbles toward the bottom (see chart). Low-income
Finns, for example, receive after-tax incomes that exceed
those of low-income Americans by 27 percent. Poor Americans
are poor not only by the standards of middle-class Americans,
but also in relation to low-income people in most other
industrialized countries.
Samuelson and Will may be right that wide income
disparities in the United States offer a powerful inducement
for Americans to work, save and invest (though it is
difficult to find evidence for this in U.S. saving or
investment rates, which tend to languish near the bottom of
the industrialized world). They may also be correct in
believing large and rising disparities contribute to U.S.
economic growth, though evidence for this is also weak.
Recent studies on the relationship between inequality and
growth in fact suggest that advanced countries with more
equal distributions grow faster than countries that are less
equal. Whatever the advantages of faster growth, they are
purely theoretical for many low-income Americans, These
Americans have not shared the general prosperity. Their
after-tax incomes have slipped even though national output
has increased.
Even more depressing is the fact that the absolute incomes
of low- and even middle-income Americans are below those of
residents in industrialized countries that are poorer than
the United States. A comparison of Canada and the United
States, based on 1991 income statistics, is particularly
striking. In 1991, gross domestic product per person was 13
percent lower in Canada than in the United States. Because
the Canadian income distribution is more equal than our own,
however, Canadians in the bottom 55 percent of the
distribution enjoyed higher after-tax incomes than they would
have received in the United States at a comparable position
in our income distribution. Of course, Americans in the top
45 percent of the U.S. income distribution received higher
incomes than their Canadian counterparts. But for a majority
of poorer and middle-class Canadians, the higher average
income of the United States has little practical
significance. These Canadians enjoy more comfortable incomes
in Canada than they would be likely to receive in the United
States.
The United States enjoys a high rank in one international
contest, however. Americans near the top of our income
distribution tend to receive much larger incomes than people
with a similar position in other industrialized countries.
It is probably safe to assume that Will, Glassman and
Samuelson are closer to the upper tier than the bottom tier
of the income distribution. From their perch, U.S. economic
performance undoubtedly looks quite satisfying. People
further down the economic scale can be forgiven. however, if
they doubt their economic good fortune as Americans. If wide
income disparities have big advantages for the U.S. economy,
low-income Americans are right to think the advantages should
eventually show up in a tangible way--in larger paychecks and
higher incomes. Whatever the virtues of our economic system,
one conclusion is certain: Our fatter paychecks have not gone
to the poor.
____________________