Mercury News (San Jose, Calif.)  [Printer-friendly version]
January 29, 2006

CORPORATE WEALTH SHARE RISES FOR TOP-INCOME AMERICANS

[Rachel's introduction: Getting rich by owning stock in publicly
traded corporations has gotten easier over the last twenty years. As
taxes on income from stock sales have declined -- so-called 'capital
gains' tax rates are now only 15% -- the few who have wealth to
invest in stocks have gained tremendously.]

By David Cay Johnston

New government data indicate that the concentration of corporate
wealth among the highest-income Americans grew significantly in 2003,
as a trend that began in 1991 accelerated in the first year that
President Bush and Congress cut taxes on capital.

In 2003 the top 1 percent of households owned 57.5 percent of
corporate wealth, up from 53.4 percent the year before, according to a
Congressional Budget Office analysis of the latest income tax data.
The top group's share of corporate wealth has grown by half since
1991, when it was 38.7 percent.

In 2003, incomes in the top 1 percent of households ranged from
$237,000 to several billion dollars.

For every group below the top 1 percent, shares of corporate wealth
have declined since 1991. These declines ranged from 12.7 percent for
those on the 96th to 99th rungs on the income ladder to 57 percent for
the poorest fifth of Americans, who made less than $16,300 and
together owned 0.6 percent of corporate wealth in 2003, down from 1.4
percent in 1991.

The analysis did not measure wealth directly. It looked at taxes on
capital gains, dividends, interest and rents. Income from securities
owned by retirement plans and endowments was excluded, as were gains
from noncorporate assets such as personal residences.

This technique for measuring wealth has long been used in standard
economic studies, though critics have challenged that tradition.

Among them is Stephen J. Entin, president of the Institute for
Research on the Economics of Taxation in Washington, which favors
eliminating most taxes on capital and teaches that an unintended
consequence of the corporate income tax is depressed wage rates. Mr.
Entin said the report's approach was so flawed that the data were
useless.

He said reduced tax rates on long-term capital gains may have prompted
wealthy investors to sell profitable investments. That would show up
in tax data as increased wealth that year, even though the increase
may have built up over decades.

Long-term capital gains were taxed at 28 percent until 1997, and at 20
percent until 2003, when rates were cut to 15 percent. The top rate on
dividends was cut to 15 percent from 35 percent that year.

The White House said it did not believe that the 2003 tax cuts had
much influence on wealth shares. It also said that since wealth is
transitory for many people, a more important issue is how incomes and
wealth are influenced by the quality of education.

"We want to lift all incomes and wealth," said Trent Duffy, a White
House spokesman. "We are starting to see that the income gap is
largely an education gap."

"The president thinks we need to close the income gap, and he has
talked about ways in which we can do that," especially through
education, Mr. Duffy said.

The data showing increased concentration of corporate wealth were
posted last month on the Congressional Budget Office Web site. Isaac
Shapiro, associate director of the Center on Budget and Policy
Priorities in Washington, spotted the information last week and wrote
a report analyzing it.

Mr. Shapiro said the figures added to the center's "concerns over the
increasingly regressive effects" of the reduced tax rates on capital.
Continuing those rates will "exacerbate the long-term trend toward
growing income inequality," he wrote.

The center, which studies how government affects the poor and supports
policies that it believes help alleviate poverty, opposes Mr. Bush's
tax policies.

The center plans to release its own report on Monday that questions
the wisdom of continuing the reduced tax rates on dividends and
capital gains, saying the Congressional Budget Office analysis
indicates that the benefits flow directly to a relatively few
Americans.