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The Rich and Everyone Else

Class Matters

by correspondents of The New York Times, with an introduction by Bill Keller
Times Books, 268 pp., $14.00 (paper)

Forbes 400: The Richest People in America

2005 Edition
344 pp., $5.99

Individual Income Tax Returns

Internal Revenue Service
Publication 1304; available at www.irs.gov/taxstats

In their own ways, three of the books under review—Class Matters, Inequality Matters, and The Chosen—warn that social barriers in the US are higher and economic inequality is more pronounced than at any time in recent memory. All three books also frame this issue by asserting or implying that lines between classes are hardening. While the term is widely used, class has always resisted clear definition. We may talk of the rich and poor, of people in the middle, of blue- and white-collar workers, of haves and have-nots, yet attempts to place most people in an appropriate class have never been successful. There is no clear agreement on the number of classes, and how they should be defined. Indeed, attempts at precision inevitably create problems. For example, a 2004 study by the Annenberg Center at the University of Pennsylvania defined the middle class as everyone with incomes between $25,000 and $75,000.1 They make up half of all households, and include all families on both sides of the median family income of approximately $50,000. But has a family making, say, $28,000 really reached the middle class? One with $95,000 might be called upper middle class; but that would still seem to locate it in the middle. Any attempt to set a floor or ceiling is bound to raise questions like these.

In Inequality Matters, James Lardner speaks of America’s “growing class divide.” Yet he never identifies the classes that are being divided. If he means, as I think he does, those who are well-to-do and those who are not, then who and how many are in each group? The IRS reports, for example, that 356,140 taxpayers declared incomes of between $500,000 and $999,999 on their 2003 returns. Where should someone receiving, say, a $650,000 salary be assigned? Earning $12,500 a week before taxes should provide a lawyer a comfortable living, but does it place her with the rich? Then what about her nonworking cousin, who happens to have exactly the same income, but in his case it consists of the proceeds from a $12 million inheritance?

Problems like these are evident very early in Class Matters, which republishes a series of fourteen articles that appeared in The New York Times last year. They report on a broad range of men and women who were willing to talk candidly about themselves. We meet old and new millionaires on Nantucket, a laid-off manager and another who fears he may be fired, and a Chicago mother of five pulling herself out of poverty. No claims are made that they are a cross-section or random sample of Americans. Still, we are introduced to people most Times readers would probably never meet. Apart from the few at the top and the bottom, the reporters do not try to identify their subjects by class. Even so, the book shows how the lives they lead are shaped by where they stand in society.

The opening chapter skirts the issue by saying “class is rank, it is tribe, it is culture and taste.” Class is said to be expressed in varying “attitudes and assumptions,” and there are “dozens of microclasses, defined by occupations or lifestyles.” America’s class system, insofar as it has one, is a “ladder with lots and lots of rungs.” Here alone, I count nine words that supposedly define class, and we haven’t even got to income, wealth, or power. Elsewhere, we hear that class produces “different views of gift giving, vacations, food, child rearing.” Yet another chapter observes that we can no longer use dress to tell where people stand, since nearly everyone wears jeans.

While I find that assigning Americans to classes occasionally makes sense, other classifications often are more informative. For example, the gap between the rich and everyone else isn’t necessarily a class divide. And while we may talk about a middle class, or a working class, these strike me more as phrases people use casually in conversation then as rigorous categories. Thus we may hear debates over whether a truckdriver and a college librarian who both earn $65,000 should be put in the same class.

1.

In Inequality Matters, a collection of excellent papers from a conference held at New York University in 2004, a recurring thesis is that the welfare state has been turned on its head. Indeed, the meaning of the term “redistribution” has changed. It used to mean taxing the better-off to assist society’s less fortunate. Today the flow is in the reverse direction. David Williams and James Lardner, writing on health, show how Medicare beneficiaries get better treatment than those on Medicaid, for example. Tamara Draut reveals that more subsidized financial aid now goes to suburban students who can afford expensive SAT courses. And David Cay Johnston shows how tax rates have been lowered even for families with incomes of $200 million. For Bill Moyers, the central fact of our time is “a gap between rich and poor that is greater than it has been in half a century.”

There is no question that the rich have been getting richer, especially in recent years. Yet what wasn’t generally predicted is that the numbers of such people have been growing, with more of them better-off than in the recent past. Table A draws on several sources that highlight these changes. The most recent figures are from 2003 through 2005, and can be compared with similar data from the early 1980s.

More Billionaires. Each year, Forbes magazine lists the men and women it identifies as the 400 richest Americans. While no one can say for sure who has how much, Forbes has reliable informants and its estimates have a plausible ring. To get on its first list, which came out in 1982, one needed the equivalent of $200 million in current dollars. By 2005, it took $900 million to be listed, more than a fourfold increase. Thanks to this higher standard, only forty-five on the original list would have made its latest version. The late Daniel Ludwig, a shipping magnate, led in 1982 with $4 billion, again in today’s dollars. Last year, Bill Gates was first, with $51 billion. Following him, there are another forty-nine men and women who surpass the wealth once amassed by Mr. Ludwig. It is easier to become a billionaire in an era of hedge funds and leveraged buyouts, while the founders of electronics industries like Oracle, Google, and Dell have become as rich as a Carnegie or a Rockefeller in a fraction of the time.

More Millionaires. The Internal Revenue Service issues reports showing how much taxpayers declare as their annual income. These sums are undoubtedly on the modest side, since they show only what people choose to disclose, while much of high-bracket income may be sheltered. Even so, between 1981 and 2003, and adjusting for inflation, the annual returns exceeding $1 million rose more than sevenfold as a proportion of all 1040s. In 2003, the latest IRS figures, fully 181,282 households admitted to making more than $1 million a year, averaging $2,951,369. Their share of all taxpayers’ income has also increased seven times since 1981, which must mean the share going to the rest has declined. While most millionaires list some kind of business or professional income, these earnings amount to only a third of their total. Much of their money comes from inheritance and sales of property, including stocks and bonds. Almost all are safely rich, whether by their own efforts or inheritance, in that they have enough to continue to live well even without working.

Six-Figure Families. Each March, the Census releases a report on the distribution of personal income. In its 1982 survey, only 3 percent of all families had incomes over $150,000, computed in today’s dollars. By 2004, its latest report, 8 percent of households had reached that level, and most of those households have one earner making at least $100,000. This group now absorbs 27 percent of aggregate personal income, against 11 percent in 1982. So as matters stand, the other 92 percent of Americans receive 73 percent of the pie. This upward flow of money is only partly the result of tax cuts bestowed on the better-off. More important is the fact that executives and professionals are being given salaries, bonuses, and other forms of compensation that are much more lavish than in the past.

To return to the 400 richest Americans, perhaps the most salient feature of the Forbes list is its changing membership. At death, fortunes tend to be divided, and most descendants don’t inherit enough to stay on the list. While the current 400 includes members of the Pritzker, Hearst, and Walton families, they already have fifty-nine children, most of whom will end up rich but much less so than their parents. Back in 1982, the list had thirteen Rockefellers and no fewer than thirty-three du Ponts. By 2005, only two Rockefellers remained, and all the du Ponts were gone. Indeed, 1982 and 2005 come across as very different eras. The earlier year was strong on family scions; most of the places they once held are now occupied by self-made men and women, among them Oprah Winfrey, Margaret Whitman, and Martha Stewart.

To call the rich an “upper class” only tells us that they have the most money, not about the power they have, or their social influence. But when it comes to the particulars, there are not many signs that they share any traits other than their money. “Rich individuals have no feelings or purposes in common, no mutual traditions or hopes,” Alexis de Tocqueville observed of Jacksonian America. “Though there are rich men, the class of rich men does not exist.” At this point, we lack firm information on how much the very rich are giving back to society. In overall terms, the IRS reports that the 5,955 richest taxpayers, whose annual incomes average $26.2 million, gave away a deductible 6.7 percent of what they declared. Just how much more comes from the thousands of family foundations is hard to determine, since no one collates their annual reports. At the same time, such high-tech entrepreneurs as David Packard, William Hewlett, and Michael Dell have become important supporters of museums, orchestras, and a host of other causes. The fund created by Bill and Melinda Gates now gives away twice as much as Rockefeller, Carnegie, and Ford combined.

2.

Even as the relatively small group of rich people is getting richer, Class Matters asserts that social mobility in America has “flattened out,” “stagnated,” or even “declined” in recent years. A chapter called “Fifteen Years on the Bottom Rung,” describes an immigrant mired in a mundane job. Another, “No Degree, and No Way Back to the Middle,” tells of a laid-off manager whose rĂŠsumĂŠs are returned because he doesn’t have a college degree. Reports like these are by no means rare. Still, we should ask if they reflect a growing trend.

  1. 1

    See www.factcheck.org/article249.html.

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