chapter 1

The Challenge

    This book grew out of research for another book that, after more than two years, I am still writing. Economics is certainly not an area which normally holds much fascination for me. My original goal was merely to confirm a few facts about the growing income disparity that were relevant to a point I had included in the other book. To my surprise, the data was not readily available in this age of instant information. As I delved deeper, it seemed as if the information was published in a form that made it nearly impossible for most of us to determine trends that were occurring right before our eyes. It is a trick which seems to be used frequently in this age of information overload, namely hiding relevant facts in a torrent of unrelated details. What was going to be a quick trip to the library, expanded into several months of research to track down the information which has been included.
    The book is designed as a primer to help the non-economist quickly get up to speed on a subject which affects the financial well-being of most of us. Since this book is aimed at the majority of Americans who don't find poring over charts and tables an exciting pastime, I want to apologize for their inclusion. My only defense is that they are the result of winnowing down hundreds of pages of charted information. I felt that this was the minimum necessary to illustrate the relevant points and provide a clear trail for each of you, who so desire, to verify the included information. It is imperative that the topics broached within these pages become part of a serious debate now as we begin this new millennium.
    Granted, many of these topics occasionally get an airing, but when presented they are painted as having the same tragic inevitability of a hurricane - something we can't stop yet hope won't come our way. The reality is virtually all of us - including those among us who think they have dodged the bullet - have already been financially ravaged by the policies of the past two decades. The evidence is compelling. Perhaps that is why there are those who strive to keep it out of the national debate. They are petrified that if the majority of Americans realized how they were being treated by those charged with protecting their interest, the wave of outrage would sweep them out of office.
    The recent candidacy of Senator John McCain is a perfect example of how far they will go to eliminate the very possibility of serious debate on topics which, they feel, threaten their interest. I personally don't know enough about Senator McCain to determine whether his rhetoric is sincere. He has certainly struck a cord with many people who, even without the relevant data, know something is seriously out of whack. In an important election year like this, where the Democrats seem afraid to broach many of the issues mentioned in this book and the Republicans seem ready to stop at nothing to keep them hidden from the American people, Senator McCain's bid was a needed counterpoint. Someone who brags about being a Reagan Republican though, cannot be fully aware of the devastating effect the policies of the past two decades have had on the vast American middle class. The net result has been the cumulative redirection of tens of thousands of dollars out of the pockets of most members of the American middle class.
    Needless to say the lowest income Americans have been devastated as well. They just didn't have as much money to lose. While there are many good books which address the plight of the poor, there has been little written about the effect policies of the past two decades have had on the middle class.
    If those who might feel threatened by the widespread dissemination of the information within this book follow their normal course, they will try to discredit both me and the data. To reduce the chance of that strategy succeeding, I deliberately used easily accessible data and reports derived from the government's own data thus allowing easy independent verification.
    Inevitably an attempt will be made to claim that the information is inaccurate. This is a common trick in our "spin the facts to win at any cost" society. While it can be truthfully argued that 3.14159 is not an accurate value for the ratio of pi, we know that for most calculations, that value provides sufficient accuracy. Most of us are not as familiar with the information contained within these pages. What I am documenting here are glaring trends, not subtle factors which might disappear if the calculations change slightly. I caution the reader to be wary of those who attempt to discredit the information in this book without providing the basis of their challenge and making the underlying data readily available for verification. As Senator McCain can attest, we are living in the era of the deceptive sound bite, used to sway opinion where careful analysis of the facts can't.
   The trends cited within the pages of this book, and what you do to counter them, will have a more profound effect on your financial future than any money management book you can find. Although the topic is serious, I do my best to keep the tone as light and irreverent as possible.
    The major purpose of this book is to stimulate discussion regarding the magnitude and cause of America's growing financial disparity. After a brief look at the evolution of our social contract with those who govern, we will begin by analyzing standard methods of reporting used by the government to plot income trends, namely shares of income by quintile. Next we'll correlate inflation adjusted income thresholds during the period from 1979 to 1996 to the decrease in high marginal tax rates and the increase in the federal deficit. Then we'll look at a more in-depth analysis of the income share distribution for the period from 1979 to 1996, as well as factors which were masked by earlier government reports. We'll take a brief look at the implications of the 1999 Republican tax cut package which was vetoed by President Clinton.
    To give you a better feel for the significance of the data presented, we'll compare the IRS summaries of the 1976 and 1997 income tax returns. Next we will compare the 1997 income tax return statistics of those with an adjusted gross income over $1,000,000 with those of the entire population. From these we will get a better idea of the extent of the problem, as well as the mechanisms which have allowed this travesty to occur.
    We'll then look at the ultimate by-product of the current income tax policies, namely wealth distribution. By analyzing the surprisingly scarce government data we are able to get a sense of the disturbing trend in wealth distribution. Causes for these trends and a more detailed analysis of the state of wealth in America are also reported. The implications of the 1999 change in the estate tax laws are considered as well. We'll take a quick look at the face of charitable giving in this country and examine how the mega-rich compare with the average family in terms of charitable time and money. The part plain old-fashioned greed plays in the current state of affairs is then discussed. A modified paradigm of the purpose and meaning of wealth is presented. What examination of revenue generating options would be complete without an analysis of the Flat tax proposals? Finally, a plan is suggested to restore balance to the current system without attempting to micro-manage our entire economic apparatus.
    I believe that most Americans do not realize the extent of the problem. The majority obviously don't believe that the problem affects them personally. Even those who do suspect there is a problem don't feel anything can be done about the situation. I disagree. I feel the remedies included in these pages are the most direct and reasonable approach to the obvious problem of an overwhelmingly unbalanced income and wealth distribution system. I have included two proposals to right this economic travesty which has occurred during the past two decades.
    Much of what is documented within these pages does not cast many of our Congressional representatives in a favorable light. There are certainly some in Congress who have tried to prevent the recent pillage. Many times they have been outnumbered and outvoted by those who shamelessly ignore the best interest of the majority. They know who they are.
    The advantage of living in a modern democracy is the opportunity to have a frank discussion of an issue, and then to determine a solution reasonable to the majority. It is the lack of widespread awareness of the extent of this problem which has worked in the favor of a tiny group who have benefited incredibly from the past two decades of inattention by the majority of Americans. I'm confident that an analysis of the included data information will confirm the trends discussed within these pages.