RULE BY THE RICH?
Washington Post

By Robert J. Samuelson
Monday, April 17, 2000; Page A21


One of the reigning myths of our national politics is that rich "special interests" rule Washington. Through lavish campaign contributions and skillful lobbyists, they buy "access" and manipulate laws to their advantage. Politics is corrupt. This is the idea that animates the crusade for campaign finance "reform" and fires the moral fervor of Sen. John McCain.

Fashionable, yes. True? No.

Just the other week, we got a superb example: the tough antitrust ruling against Microsoft. Despite hordes of lawyers, lobbyists and public relations consultants--and sizable campaign contributions by its executives--Microsoft couldn't shield itself from a damaging government lawsuit.

But at tax time, the best illustration involves taxes. If the rich are so powerful, their tax burden would be falling. It isn't--it's rising.

Since the mid-1980s, the rich have paid a growing share of federal taxes, reports the Congressional Budget Office. For 1999, the richest one percent of Americans (about 1.2 million families with average pretax incomes of $786,000) will pay about 21 percent of all federal taxes, up from 15 percent in 1985. The increase accounts for most--though not all--of the growing share of taxes paid by the richest 20 percent (including the top one percent). Between 1985 and 1999, their share of federal taxes rose from 57 to 65 percent. Meanwhile, the taxes for the poorest 60 percent of Americans (now about 69 million families) dropped over the same period from 22 to 17 percent of total taxes.

The money that government gets at the top is spent largely on programs for the middle class and--to a lesser extent--the poor. In 1998, Social Security (both the old age and disability programs) had 44 million beneficiaries, Medicare (health insurance for the elderly) had 39 million and Medicaid (health insurance for the poor) had 41 million. (Of course, the wealthy also get Social Security and Medicare benefits. But they don't need the benefits. Economically, they'd be better off without the programs and with lower taxes.)

So: the rich hardly dominate Washington.

Why is this? One reason is economics. The rich and upper middle class pay the most because they have the most. Indeed, their share of the nation's income has risen. In 1985, the richest one percent had 12 percent of family income; by 1999, that was an estimated 15 percent. This accounted for all the increase among the richest 20 percent, whose share went from 51 to 54 percent. Even with a "flat tax"--requiring everyone to pay the same share of income as taxes--the wealthiest fifth of Americans would pay about half federal taxes. (Family incomes for this richest fifth average about $144,000.)

But we don't have a flat tax. We have a progressive tax. Rates rise with income. More important, tax rates for the richest Americans have been rising over time. In 1985, the average rate for the richest one percent was 26.2 percent; by 1999, it was 34.4 percent. (These rates combine all federal taxes--income, payroll and excise--as well as corporate taxes, which are attributed to shareholders.) For the wealthiest fifth, tax rates rose from 24.5 to 29.1 percent. Down the income spectrum, rates dropped. For the poorest fifth, it went from 10.2 to 4.6 percent between 1985 and 1999.

The essential point is that the rich haven't been strong enough politically to protect themselves against higher taxes. (Tax changes since the late 1970s are smaller but generally similar.) We live in a democracy. People vote, not money. Politicians cater to the many, often at the expense of the few.

This is simple, obvious. Fortune magazine periodically ranks Washington's most powerful lobbies. The list confirms that people count more than money. Among the top 10 in 1998, only one (the Association of Trial Lawyers of America) represented a truly small group, whose power might derive from campaign contributions. The others had access to large blocs of potential voters, who might be influenced by their lobbies' anger or approval. These included the American Association of Retired Persons (1), the National Rifle Association (4), the AFL-CIO (5) and the Christian Coalition (7).

But this is not how Washington is perceived to work. In the standard portrait, wealthy "special interests" steal government from "the people." Now, lobbying abounds in Washington. Sometimes, lobbies for the rich and for business interests win. Sometimes their victories are good public policy; sometimes they aren't. But they usually operate in an indifferent or hostile climate, because they don't represent identifiably large constituencies.

Tax breaks? Yes, business and the rich get theirs. But fast-growing tax breaks go to the middle class and poor for college tuition, retirement savings and child care. Between 1990 and 2000, the earned income tax credit--a refundable credit for low-income workers--grew from $7 billion to an estimated $30 billion annually, reports Eric Toder of the Urban Institute. (This isn't, by the way, a criticism; the EITC is a rare defensible tax break.)

Almost everyone misrepresents Washington. Politicians do it, because it gives them populist credentials and panders to public prejudices. (In a 1999 poll, 75 percent of respondents felt government is run for a "few big interests.") The press does it, because "the people" vs. "the privileged" is an appealing morality tale. Even some of the rich join the chorus, because they feel guilty about their wealth.

This is more than harmless myth-making. It gives artificial support to campaign finance "reform" which--despite supporters' denials--threatens free speech. It reinforces cynicism toward government and politics, which is unhealthy when based on misinformation. (People are cynical in part because their leaders keep telling them that government is corrupt and they should be cynical.) And it assaults the truth, which is worth defending for its own sake.


2000 The Washington Post Company