In response to:

Taxing the Poor from the May 10, 2018 issue

To the Editors:

The article “Taxing the Poor” in the May 10, 2018, edition has a statistic that seems very wrong to me, and which is sourced in neither the print nor the electronic version: “The median net worth of American households was just $56,335 [in 2013].”

According to the US Federal Reserve, as quoted in New Strategist Press, median US net worth for households was $83,700 in 2013 and $97,300 in 2016. These figures are nearly 50 percent higher than those given in the article. It can’t simply be a “constant dollars” mistake. What gives?

James Russell
Ottawa, Ontario

To the Editors:

In “Taxing the Poor” [NYR, May 10], David Cole reviews a pair of books that present, in somewhat different ways, the narrative about America commonly proclaimed by left-wing politicians and pundits. Cole himself clearly agrees with this narrative. According to it, “since the late 1970s, income and wealth disparities have once again grown dramatically.” Cole, like the author of one of the two books, further believes that the income and wealth disparities have a deleterious effect on the functioning of the American Republic.

I will not comment on the idea that the American republic does not function well. It does not. But not because of income and wealth disparities. Anyone interested in the causes of the frailties of American government should read recent research by political scientists and economists on the issue. Democracy for Realists by Achen and Bartels and The Myth of the Rational Voter by Caplan are must-reads.

The information about income and wealth disparities Cole cites is largely inaccurate or misleading. Cole says that by 2013 the CEOs of America’s most successful businesses earned, on average, almost three hundred times as much as their workers. I do not know how Cole defines “most successful businesses.” But for 2012 the Bureau of Labor Statistics estimated that there were 255,940 non-self-employed CEOs in America. For the same year the BLS estimated that the mean annual salary of these CEOs was $176,840, whilst the average annual pay of production and nonsupervisory employees on private nonfarm payrolls was $34,645. So the correct ratio of average CEO pay to average worker pay is a little over 5 to 1, not 300 to 1 as Cole claims.

Much more importantly, Cole, like one of the authors he reviews, thinks that the middle class in America is collapsing. But this is just false. Stephen Rose, an economist at the Urban Institute, recently did a study that indicates that the upper middle class has expanded to a record 29.4 percent of the American population as of 2014, compared to 12.9 percent in 1979. Rose defined the upper middle class as any household earning $100,000 to $350,000 annually for a family of three. (These figures are adjusted for inflation.) And Rose’s study indicates that as of 2014, the middle middle class and lower middle class together comprise a little more than 49 percent of the American population. There is no collapse of these two groups to more than offset the large increase of the upper middle class since the late 1970s. By the way, Rose’s study also shows that the percentage of the American population that is poor or near poor has declined since the late 1970s from about 25 percent to 19.7 percent. The information in Rose’s study flatly contradicts the myth of a collapsing middle class in America since the late 1970s.

Steven Rappaport
Los Gatos, California

David Cole replies:

The figures I used came from the books I reviewed, and they are all backed up by reputable sources. For example, the data about CEOs at the nation’s most successful companies (defined as the top 350 businesses by sales) show that in 1965, CEO salaries were twenty times those of their typical production/nonsupervisory workers, while in 2013, they were 295.9 times those of such workers. (See “The Top Ten Charts of 2014,” Economic Policy Institute, December 2014.)

Mr. Rappaport’s further implications that the gap between the rich and the poor has not widened, and that the middle class remains as vital as ever, defy reality. From 1979 to 2008, 100 percent of all the benefits from growth in income, on average, went to the top 10 percent of Americans. The bottom 90 percent saw their income decline over the same period. In 2014, the top 10 percent received 47 percent of the nation’s income, not counting capital gains—a larger proportion than that percentile received during the Gilded Age. The individuals who make up the Forbes 400 have as much wealth as the entire African-American population and a third of the Latino population combined. The twenty wealthiest individuals are wealthier than the entire bottom half of the American population.

The figure for median net worth is based on a Russell Sage Foundation study: Fabian T. Pfeffer, Sheldon Danziger, and Robert F. Schoeni, “Wealth Levels, Wealth Inequality, and the Great Recession” (June 2014). The Federal Reserve and Russell Sage Foundation estimates of median household net worth in 2013 differ, as Mr. Russell points out, but whether the proper figure is $84,000 or $56,000, the important point is unchanged: there is a world of difference between those medians and the median net worth of members of Congress in the same year: $1 million.

We can, if we choose, blind ourselves to the reality that we are living in a second Gilded Age. Or we can accept the facts and consider their consequences. If we do not do something about the increasing inequality in our republic, it will continue to intensify the corrosive divisions that have already undermined our democracy.