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Old 06-05-2005, 04:04 PM
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Default NYTimes (off-Topic):Richest Are Leaving Even the Rich Far Behind

June 5, 2005
Richest Are Leaving Even the Rich Far Behind

When F. Scott Fitzgerald pronounced that the very rich "are different from you and me," Ernest Hemingway's famously dismissive response was: "Yes, they have more money." Today he might well add: much, much, much more money.

The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known.

The Treasury Department uses a computer model to examine the effects of tax cuts on various income groups but does not look in detail fine enough to differentiate among those within the top 1 percent. To determine those differences, The Times relied on a computer model based on the Treasury's. Experts at organizations representing a range of views, including the Heritage Foundation, the Cato Institute and Citizens for Tax Justice, reviewed the projections and said they were reasonable, and the Treasury Department said through a spokesman that the model was reliable.

The analysis also found the following:

¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

¶The alternative minimum tax, created 36 years ago to make sure the very richest paid taxes, takes back a growing share of the tax cuts over time from the majority of families earning $75,000 to $1 million - thousands and even tens of thousands of dollars annually. Far fewer of the very wealthiest will be affected by this tax.

The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes. So the gap between the very richest and everyone else is almost certainly much larger.

The hyper-rich have emerged in the last three decades as the biggest winners in a remarkable transformation of the American economy characterized by, among other things, the creation of a more global marketplace, new technology and investment spurred partly by tax cuts. The stock market soared; so did pay in the highest ranks of business.

One way to understand the growing gap is to compare earnings increases over time by the vast majority of taxpayers - say, everyone in the lower 90 percent - with those at the top, say, in the uppermost 0.01 percent (now about 14,000 households, each with $5.5 million or more in income last year).

From 1950 to 1970, for example, for every additional dollar earned by the bottom 90 percent, those in the top 0.01 percent earned an additional $162, according to the Times analysis. From 1990 to 2002, for every extra dollar earned by those in the bottom 90 percent, each taxpayer at the top brought in an extra $18,000.

President Ronald Reagan signed tax bills that benefited the wealthiest Americans and also gave tax breaks to the working poor. President Bill Clinton raised income taxes for the wealthiest, cut taxes on investment gains, and expanded breaks for the working poor. Mr. Bush eliminated income taxes for families making under $40,000, but his tax cuts have also benefited the wealthiest Americans far more than his predecessors' did.

The Bush administration says that the tax cuts have actually made the income tax system more progressive, shifting the burden slightly more to those with higher incomes. Still, an Internal Revenue Service study found that the only taxpayers whose share of taxes declined in 2001 and 2002 were those in the top 0.1 percent.

But a Treasury spokesman, Taylor Griffin, said the income tax system is more progressive if the measurement is the share borne by the top 40 percent of Americans rather than the top 0.1 percent.

The Times analysis also shows that over the next decade, the tax cuts Mr. Bush wants to extend indefinitely would shift the burden further from the richest Americans. With incomes of more than $1 million or so, they would get the biggest share of the breaks, in total amounts and in the drop in their share of federal taxes paid.

One reason the merely rich will fare much less well than the very richest is the alternative minimum tax. This tax, the successor to one enacted in 1969 to make sure the wealthiest Americans could not use legal loopholes to live tax-free, has never been adjusted for inflation. As a result, it stings Americans whose incomes have crept above $75,000.

The Times analysis shows that by 2010 the tax will affect more than four-fifths of the people making $100,000 to $500,000 and will take away from them nearly one-half to more than two-thirds of the recent tax cuts. For example, the group making $200,000 to $500,000 a year will lose 70 percent of their tax cut to the alternative minimum tax in 2010, an average of $9,177 for those affected.

But because of the way it is devised, the tax affects far fewer of the very richest: about a third of the taxpayers reporting more than $1 million in income. One big reason is that dividends and investment gains, which go mostly to the richest, are not subject to the tax.

Another reason that the wealthiest will fare much better is that the tax cuts over the past decade have sharply lowered rates on income from investments.

While most economists recognize that the richest are pulling away, they disagree on what this means. Those who contend that the extraordinary accumulation of wealth is a good thing say that while the rich are indeed getting richer, so are most people who work hard and save. They say that the tax cuts encourage the investment and the innovation that will make everyone better off.

"In this income data I see a snapshot of a very innovative society," said Tim Kane, an economist at the Heritage Foundation. "Lower taxes and lower marginal tax rates are leading to more growth. There's an explosion of wealth. We are so wealthy in a world that is profoundly poor."

But some of the wealthiest Americans, including Warren E. Buffett, George Soros and Ted Turner, have warned that such a concentration of wealth can turn a meritocracy into an aristocracy and ultimately stifle economic growth by putting too much of the nation's capital in the hands of inheritors rather than strivers and innovators. Speaking of the increasing concentration of incomes, Alan Greenspan, the Federal Reserve chairman, warned in Congressional testimony a year ago: "For the democratic society, that is not a very desirable thing to allow it to happen."

Others say most Americans have no problem with this trend. The central question is mobility, said Bruce R. Bartlett, an advocate of lower taxes who served in the Reagan and George H. W. Bush administrations. "As long as people think they have a chance of getting to the top, they just don't care how rich the rich are."

But in fact, economic mobility - moving from one income group to another over a lifetime - has actually stopped rising in the United States, researchers say. Some recent studies suggest it has even declined over the last generation.
"Human nature will only find itself when it finally realizes that to be human it has to cease to be beastly or brutal." (Mohandas Gandhi, In Search of the Supreme)
"I learned that familiar paths traced in the dusk of summer evenings may lead as well to prisons as to innocent, untroubled sleep." (Albert Camus, The Stranger)
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Old 06-06-2005, 05:45 AM
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Default NYTimes Op-Ed:The Mobility Myth

June 6, 2005
The Mobility Myth

The war that nobody talks about - the overwhelmingly one-sided class war - is being waged all across America. Guess who's winning.

A recent front-page article in The Los Angeles Times showed that teenagers are faring poorly in a tight job market because of the fierce competition they're getting from older workers and immigrants for entry-level positions.

On the same day, in the business section, the paper reported that the chief executives at California's largest 100 companies took home a collective $1.1 billion in 2004, an increase of nearly 20 percent over the previous year. The paper contrasted that with the 2.9 percent raise that the average California worker saw last year.

The gap between the rich and everybody else in this country is fast becoming an unbridgeable chasm. David Cay Johnston, in the latest installment of the New York Times series "Class Matters," wrote, "It's no secret that the gap between the rich and the poor has been growing, but the extent to which the richest are leaving everybody else behind is not widely known."

Consider, for example, two separate eras in the lifetime of the baby-boom generation. For every additional dollar earned by the bottom 90 percent of the population between 1950 and 1970, those in the top 0.01 percent earned an additional $162. That gap has since skyrocketed. For every additional dollar earned by the bottom 90 percent between 1990 and 2002, Mr. Johnston wrote, each taxpayer in that top bracket brought in an extra $18,000.

It's like chasing a speedboat with a rowboat.

Put the myth of the American Dream aside. The bottom line is that it's becoming increasingly difficult for working Americans to move up in class. The rich are freezing nearly everybody else in place, and sprinting off with the nation's bounty.

Economic mobility in the United States - the extent to which individuals and families move from one social class to another - is no higher than in Britain or France, and lower than in some Scandinavian countries. Maybe we should be studying the Scandinavian dream.

As far as the Bush administration is concerned, the gap between the rich and the rest of us is not growing fast enough. An analysis by The Times showed the following:

"Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000. Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000."

The social dislocations resulting from this war that nobody mentions have been under way for some time. But the Bush economic policies have accelerated the consequences and intensified the pain.

A big problem, of course, is that American workers have been hurting badly for years. Revolutionary improvements in technology, increasingly globalized trade, the competition of low-wage workers overseas and increased immigration here at home, the decline of manufacturing, the weakening of the labor movement, outsourcing and numerous other factors have left American workers with very little leverage to use against employers.

Many in the middle class are mortgaged to the hilt, maxed out on credit cards and fearful to the point of trembling that all they've worked for might vanish in a downsized minute.

The privileged classes, with the Bush administration's iron cloak of protection, avoid their fair share of taxes, are reluctant to pay an honest dollar for an honest day's work (the federal minimum wage is still a scandalous $5.15 an hour), refuse to fight in their nation's wars, and laugh all the way to their yachts.

The American dream was about expanding opportunities and widely shared prosperity. Now we have older people and college grads replacing people near the bottom in jobs that offer low pay, no pensions, no health insurance and no vacations.

A fellow named Mark McClellan, who was bounced out of a management position when Kaiser Aluminum closed down in Spokane, Wash., told The Times in the "Class Matters" series: "I may look middle class. But I'm not. My boat is sinking fast."

E-mail: bobherb@nytimes.com
"Human nature will only find itself when it finally realizes that to be human it has to cease to be beastly or brutal." (Mohandas Gandhi, In Search of the Supreme)
"I learned that familiar paths traced in the dusk of summer evenings may lead as well to prisons as to innocent, untroubled sleep." (Albert Camus, The Stranger)
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Old 06-06-2005, 05:52 AM
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Default NYTimes:Financial Aid Rules for College Change, and Families Pay More

June 6, 2005
Financial Aid Rules for College Change, and Families Pay More

No matter how she parses it, Roberta Proctor cannot make sense of her son's college bill. Her income and her assets have not changed. If anything, she says, her family's finances have deteriorated somewhat.

So, she wonders, how could she possibly owe an extra $6,000 for the coming school year, when tuition has not increased anywhere near that amount?

But she does. Like the Proctors, Californians whose son just finished his freshman year at the University of Nevada, Las Vegas, thousands of American families might find it harder to qualify for financial aid this year and might be asked to contribute more money toward the cost of college because of changes to a complicated federal formula they barely know about, much less understand.

Taken together, these changes, some based on overly optimistic predictions of inflation, have required families to count a greater share of their incomes and assets toward college expenses before becoming eligible for financial aid. As a consequence, tens of thousands of low-income students will no longer be eligible for federal grants; middle-class families are digging deeper into their savings; and some colleges are putting up their own money to make up the difference.

"This is not what we intended," said Joe Paul Case, the financial aid director at Amherst College, in Massachusetts, who helped develop the formula that the government now uses for the bulk of the nation's students. "There is certainly more duress than we had in mind."

The New York Times did an analysis of the formula on middle-class incomes in more than a dozen states to see whether families would have to spend a greater part of their income and assets before qualifying for financial aid than they did five years ago. Though the effects of the formula changes vary from state to state, The Times found that families with the same earnings and assets as in 2000 would typically have to pay an extra $1,749 before clearing the eligibility bar for financial aid in 2005, after adjusting for inflation.

Though the formula will change in the future, sometimes to a family's advantage, the impact on campuses now is obvious, many university officials say, and often cuts across class lines. The University of California, Berkeley, for example, says that 1,000 of its middle- to upper-middle-class students will probably lose eligibility for federal subsidies on their student loans in the coming year, a change that typically means higher debts because of accrued interest. On the other side of the economic spectrum, Northeastern University, in Boston, says that 300 of its low-income students will not receive the federal grants they would have been eligible for last year.

"For some of those students, it's the difference between enrolling and not enrolling," said Seamus Harreys, dean of student financial services at Northeastern. "We're trying to figure how to get them through to graduation."

For millions of students, financial aid arrives in a mixture of grants and low-interest loans from the federal government, the states and the colleges themselves. The amount students receive is mostly based on an intricate formula, administered by the Department of Education, that looks at many aspects of a family's circumstances, including its income, its tax bill, its investments, its size and even the parents' ages.

The Department of Education says that any changes to the formula are driven by a legal obligation to keep it current, reflecting what families can truly afford to pay. For example, the administration determined that more of a parent's assets must be counted toward college expenses this year because it predicted better economic circumstances, including substantially lower inflation. Under that scenario, the administration argues, families need to save less money for retirement.

"This is all statutory," said Sally Stroup, assistant secretary for postsecondary education for the department.

Some economists consider the administration's economic assumptions deeply flawed. The department's estimates for inflation were, in fact, far enough off that it has now revised the formula it will use for the 2006-2007 school year, much to the benefit of families with assets. But the latest round of changes will not help parents in the coming school year.

Politics have also come into play. In 2003, Congress blocked the department from changing how the financial aid formula treats state taxes. That move would have rendered 92,000 students ineligible for Pell Grants, the nation's largest scholarship program at more than $12 billion a year, and reduced government spending for the program by $290 million, according to the Government Accountability Office. Last year, the administration found support among Congressional leaders seeking to constrain the growing cost of Pell Grants, and the changes have now taken effect.

Much as with federal income tax, the federal financial aid formula allows families to deduct some of what they pay in state taxes to determine how much they have left over for college. With the consent of Congress, that amount was cut significantly in almost all states this year, in some cases by half. On paper, at least, that leaves families with more money to pay tuition and other expenses.

In The Times's analysis of the current formula, the increase in what families must pay before clearing the eligibility bar for financial aid was larger for families in New York, Iowa and Colorado, where the consideration of a family's state tax burden has changed significantly under the formula in an effort to make it reflect typical tax payments. The increase was smaller in states like New Jersey and Connecticut, where the treatment of state taxes did not change or became more favorable for students.

Even so, the formula dictates that more of a family's assets can be tapped this year to cover college expenses than in 2000, in many cases almost twice as much. So, assuming the average savings, stocks and other financial investments of middle-class families with assets, as reported by the Federal Reserve Board, all families in the analysis ended up owing more money before qualifying for financial aid, regardless of where they lived.

The analysis looked at the changing requirements under the formula for families earning from $65,000 in 2000 to about $85,000 in 2005. That is the middle of the income range and slightly above it for parents from 45 to 54, peak ages for sending children to college.

Finally, the analysis also took into account whether there was one parent or two. Without exception, single parents experienced larger increases - typically $549 larger - in the amount they would have to pay before reaching the eligibility mark for financial aid. The reason is that the rules shield less of their savings from college expenses, on the theory that they will need less for retirement. Families have vastly different financial circumstances, so the analysis cannot be used as a predictor of what any individual will owe.

Nonetheless, many colleges say they have witnessed the effects of previous changes, some in the last year alone. At Washington & Jefferson College, in Pennsylvania, parents will typically have to contribute an additional $1,947 compared with last school year before qualifying for financial aid next year - an extra 17 percent - even though their incomes have risen only 4 percent. At DePaul University, in Chicago, the bar for financial aid will typically go up by $4,215, or 39 percent, though incomes have increased by only 12 percent.

Emory University, in Atlanta, says the incomes of its students' families have generally not increased, yet they would typically have to pay an extra $4,000 before becoming eligible for financial aid under the government's rules.

"If there had been a $1,000 difference, that would be one thing. But when we saw these $6,000 and $7,000 differences routinely, we got really concerned," said Julia Padgett, director of financial aid at Emory.

The difference was drastic enough that Emory, like a few of its well-endowed counterparts, abandoned the government's rules for many of its families, a decision that required it to surrender federal money for those students and substitute it with its own.

"We just felt as if we had no ethical choice," Mrs. Padgett said.

Most colleges, however, say they are not wealthy enough to forsake federal aid, which includes money to pay students in work-study jobs. In fact, passing up federal money might only worsen a student's financial outlook, they say.

"It's really hard to explain to the family that although the federal formula may not make sense, and I may not agree with it, I have to go along with it," said Michelle Vettorel, director of financial aid at Washington & Jefferson.

When the bar for financial aid goes up, students may also lose the state grants, sometimes worth thousands of dollars a year, that are often tied to the federal formula. "That's a huge concern," said Gerard Cebrzynski, director of financial aid at Lake Forest College, outside of Chicago. "We've seen several students who have lost their entire awards this year."

Still, some college officials say the hand-wringing is unwarranted. Whatever the changes to financial aid, they say, students as a whole have rarely stopped pursuing degrees and college attendance rates remain high nationally.

"I would not deny that this has impacted some people seriously," said Joe Russo, director of student financial services at the University of Notre Dame. "But nationally, has this caused enrollment to drop? It doesn't appear to have."

What the changes will probably do, many university officials and parents contend, is have a disproportionate impact on middle-class families, especially when it comes to tapping their assets.

"For the middle class, it means greater pressure put upon them to cobble together college funding at schools that are becoming increasingly expensive," said James Boyle, president of College Parents of America, an advocacy group. "It's another middle-class squeeze."
"Human nature will only find itself when it finally realizes that to be human it has to cease to be beastly or brutal." (Mohandas Gandhi, In Search of the Supreme)
"I learned that familiar paths traced in the dusk of summer evenings may lead as well to prisons as to innocent, untroubled sleep." (Albert Camus, The Stranger)
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