TWO KINDS OF "RICH"

THOMAS SOWELL

July 29, 1997

Every year "Forbes" magazine has an issue dealing with the rich -- the millionaires and billionaires who have the most money that year. Meanwhile, back in Washington, liberals in Congress are also talking about "the rich" whenever anyone wants to lower taxes. Big taxers and big spenders always like to say that there are "tax cuts for the rich."

The problem is that these two kinds of "rich" people are almost entirely different. Most of the people that the politicians and the media call "the rich" don't have even a tenth of what it takes to make the "Forbes" list of the rich.

Millions of Americans who would never dream of considering themselves rich are included in the inflated statistics used by the liberals when they claim that tax cuts are for the rich. Notice that liberals seldom tell you how much money it takes to be "rich" by their definition. And when they do tell you, the numbers they use are completely misleading.

According to a Heritage Foundation study, there are more than 4 million mechanics, repair men and construction workers who meet the Clinton administration's definition of rich. So do more than 8 million government employees at federal, state or local levels.

How do people who are making modest middle-class incomes suddenly become "the rich"? Let me count the ways.

First of all, the statistics used include money that these people never receive. These estimates assume that income is being under-reported and add 20 percent to whatever income you report. If you are a homeowner, they also add the amount of rent you would have to pay if you paid rent. Then they add more for the value of your life insurance and the money in your pension funds.

You may not have realized how easy it is to be "rich" in Washington, even if it is very hard to be rich in "Forbes" magazine. Anybody can be rich if you add enough fictitious money to his actual income. As a result, anybody can be a demagogue who gets up in Congress and says that most of the tax cuts are "for the rich."

Let's go back to square one. The only people whose taxes can be cut are people who are paying taxes. Mostly that is the middle class. When these middle-class people are renamed "the rich," then of course there will be "tax cuts for the rich."

The misrepresentation does not stop there. The Clinton administration's insistence that the tax cuts should also apply to "the working poor" was a classic piece of disinformation.

Most very low income families are not paying federal income taxes in the first place. Extending a "tax cut" to them would mean nothing if the words were being used honestly. Used politically, however, what these words mean is that more federal money must be given to them anyway -- a handout renamed a "tax cut."

None of this even gets into the larger question as to whether people making middle-class incomes today have always made middle-class incomes. Many of those who are called "the rich" not only are not rich, they have not even had middle-class incomes all their lives. They just happen to be in the peak earning years of their lives -- as many younger people currently in the lower income brackets will be in later years.

The wife of a prosperous doctor hit the nail on the head when she said she resented people who complained about all the money that doctors make. She asked: "Where were they when we had three children and 85 dollars in the bank?"

Most Americans do not start off in a high income bracket. They work up to it over the years and reach a peak somewhere in their 50s or 60s. That is where most of the high income and most of the wealth in the country is. Census statistics for 1990 show families headed by someone in the 45 to 64 year old bracket earning nearly double the income of families headed by someone in the 25 to 34 year old bracket.

When it comes to wealth, the disparity is even greater. Census data show the net worth of households headed by someone in the 55 to 64 year old bracket to be several times that of households headed by someone under 35.

Most of the people who are called "the rich" could more accurately be called middle-aged or elderly. They are not a class. They are an age bracket. When they were younger, they were usually in a lower income bracket.

The facts are fairly simple. It is the demagoguery that gets complicated.

COPYRIGHT 1997 CREATORS SYNDICATE, INC.