NEWSLINK: Vol. 1, No. 1 Fall 1996 -- Building a REAL bridge to the 21st century

A consistent theme in the 1996 presidential campaign was building a bridge to the twenty-first century. This metaphor works only insofar as the bridge is big enough to accommodate all Americans. What is needed is not just a bridge but one strong enough to support everyone who expects to cross it. The question, then, is what kind of bridge should we build. Should "economic justice" be its girders? In the 1992 campaign, President Clinton decried the Reagan years as a "decade of greed," during which the rich got richer and the poor poorer.

Speaking recently at Columbia University, John Sweeney, president of the AFL-CIO, opined "the growing gap in work, wages and wealth" as the cause of "the quiet anguish of Americans losing their sense of a common destiny." The solution lies, presumably, in a tax policy aimed at income redistribution. President Kennedy, however, believed that "a rising tide lifts all boats." This suggests that economic growth is better for Americans, especially the poor. In order to assess these conflicting claims about what is better for Americans, and in particular the poor, it is useful to compare the record of the Reagan years with that of the Bush/Clinton years that have followed. Each offers a laboratory for seeing which kind of bridge building works better.

President Reagan slashed taxes and greatly reduced union power by firing the striking air traffic controllers. Presidents Bush and Clinton raised taxes, making them more progressive in the process, and President Clinton has presided over a resurgent AFL-CIO. So what does the record show? Surprisingly, perhaps, it was the Reagan years over which both rich and poor alike became better off, and it has been the Bush/Clinton years over which only the rich have become better off. During the Reagan years, lower taxes encouraged the rich to work harder and to look for fewer ways to shelter their income from taxation. As a result, household income for every quintile improved. Both the rich and the not-so-rich were better off in 1989 than they were in 1982. Ironically, the redistributionist policies of the 1990s have had the opposite effect. During the Bush/Clinton era only income for wealthy households has grown while income for poor households has declined. By 1995, every quintile except the highest was worse off than it had been at the end of the Reagan era.

Let's compare the highest quintile (the rich) with the lowest quintile (the poor) for both Reagan and Bush/Clinton. Under Reagan, real average annual household income for the lowest quintile grew from $7,975 in 1982 to $8,629 in 1989. Under Bush/Clinton, that same quintile saw its income drop from $8,629 in 1989 to $8,350 in 1995. Under Reagan, average annual household income for the richest quintile grew from $86,345 in 1982 to $105,118 in 1989. Under Bush/Clinton, that same quintile saw its income grow from $105,118 in 1989 to $109,411 in 1995. Table 1 - Real Mean Household Income by Quintile

Year	Lowest Fifth	Second Fifth	Third Fifth	Fourth Fifth	Highest Fifth
1980	8,301	20,034	32,974	48,551	85,279
1981	8,180	19,602	32,376	48,227	84,475
1982	7,975	19,509	32,194	47,866	86,345
1983	8,016	19,579	32,293	48,454	87,680
1984	8,223	19,998	33,072	49,789	90,425
1985	8,211	20,296	33,617	50,555	93,254
1986	8,265	20,803	34,734	52,314	97,809
1987	8,273	20,907	34,954	52,834	100,478
1988	8,379	21,020	35,158	53,145	101,461
1989	8,629	21,386	35,550	53,774	105,118
1990	8,390	21,024	34,726	52,356	101,604
1991	8,127	20,308	33,733	51,423	98,612
1992	7,917	19,749	33,273	51,076	98,968
1993	7,817	19,676	32,982	51,256	106,789
1994	7,982	19,769	33,303	51,823	108,947
1995	8,350	20,397	34,106	52,429	109,411

Source: Census Bureau's web page, Income Inequality -- Table 3 Mean Income Received by Each Fifth and Top 5 Percent of Households, 1967-1995 (Households as of March of the following year. Income in 1995 CPI-U-X1 adjusted dollars.)

Under Reagan, all quintiles experienced positive economic growth. Under Bush/Clinton, only the highest quintile has experienced positive economic growth.Why did average real household income increase during the Reagan years and decline during the Bush/Clinton years? The answer is economic growth. A strong and vibrant economy is essential for real household income growth. Real GDP grew at an average annual rate of 3.9 percent during the Reagan years but has grown at an average annual rate of only 1.9 percent during the Bush/Clinton years.

The Bush and Clinton tax increases are high on the list of suspects for the growth slowdown of the 1990s. Bush increased taxes by $225 billion in 1990, raising the top marginal tax rate from 28 to 31 percent and Clinton increased them by $260 billion in 1993, raising the top marginal rate to above 39.6 percent. These tax increases have discouraged work and savings, resulting in slower economic growth and declining household income. If the redistributionist policies of the 1990s are to be left in place, the bridge to the future will turn out to have only one lane and to be open only to the richest Americans. This, we can assume, is very different from what President Clinton appeared to promise during his run for re-election and what Mr. Sweeney has in mind for his members.


Under Reagan, all quintiles experienced positive economic growth.

Building a REAL bridge to the 21st Century