The Rich and Powerful Really Are Rich and Powerful
A Response to Robert J. Samuelson
SOURCE: AP/ Pat Wallenbach
Does the existence of Social Security and Medicare prove that the rich and powerful don’t exercise an exaggerated influence on federal policymaking? If we spend more today than we did 50 years ago aiding impoverished families, does that mean the richest 1 percent are politically marginalized? That’s essentially the argument made by Robert J. Samuelson in the pages of The Washington Post earlier this week.
Samuelson sets up a straw man—the idea that the federal government spends little or no money on poor people or on the middle class—and effectively tears it down. In fact, says Samuelson, at least 60 percent of federal spending goes to help the poor and the middle class. And furthermore, the amount of money we spend on poor people has increased significantly since 1962. Samuelson suggests that these facts prove that federal policy isn’t in the pockets of the rich and powerful.
But Samuelson’s argument rests on a shaky foundation of misleading numbers, as well as a dedicated refusal to acknowledge an entire category of federal spending that mainly benefits the rich. And while it’s true that the federal government has, in the past, put policies in place that aid the poor and protect the middle class, it’s also true the impact of those policies has eroded over time. What’s more, those very same programs are now under attack from Samuelson’s political compatriots. Finally, and most egregiously, by focusing only on federal spending, Samuelson utterly misses the myriad of other ways the rich and powerful can and do make the federal government work for them.
Samuelson’s numbers don’t tell the whole story
Let’s start with Samuelson’s shaky numbers. He says that when you combine spending for the poor along with Medicare and Social Security, federal support for the middle class and the poor comes out to about 60 percent of all federal noninterest spending.
First of all, if only 60 percent of federal dollars are going to the bottom 99 percent of Americans (or bottom 90 percent or even 80 percent for that matter), it suggests precisely the opposite of what Samuelson says it does. Secondly, Samuelson deliberately chose to remove interest payments on the debt from his calculation. But according to the Department of the Treasury, a large portion of our current debt exists because of the Bush tax cuts, which primarily benefited the wealthy.
Samuelson also points to the fact that federal spending on poverty programs has increased from $516 per person in 1962 to $13,000 per person last year. That does sound like a big increase. But, in fact, nearly the entire increase is due to the introduction of Medicaid. There was no Medicaid in 1962, and by 2007—before the onset of the recession—it accounted for more than half of all federal spending on low-income Americans. And of course, the growth in Medicaid spending has been primarily driven by growth in health care costs overall, not generous increases in benefits.
Aside from Medicaid, federal spending on poverty programs grew from only 0.8 percent of gross domestic product in 1962 to just 1.2 percent of GDP by 2007, according to the Office of Management and Budget. That’s not exactly the massive increase suggested by Samuelson.
At this point it’s also important to note that at least one of Samuelson’s numbers is just flat out wrong. He says that the average food stamp benefit per person in 2010 was $287 each month. Wrong. That was the average benefit per household. In fact, the average benefit per person was less than $130 per month—just $4.30 a day.
But don’t let all these numbers obscure one very simple fact that Samuelson never bothers to mention. Even during the height of the Great Recession, even as federal antipoverty programs kept nearly 20 million people from falling below the poverty line, even then, total federal spending on the poor—including the federal share of Medicaid—amounted to less than 4 percent of our entire national income. To repeat: 4 percent.
Samuelson conveniently leaves out an entire category of federal spending that helps the wealthy
There’s also an entire category of federal spending—never mentioned by Samuelson—whose cost far exceeds 4 percent of gross domestic product. In 2011 there was more than $1 trillion in spending that operated through the federal income tax code. These so-called “tax expenditures” are economically equivalent to traditional spending. They create government obligations and public benefits just as real as those of the food stamp program. But because they are created by carving out loopholes in the tax code or by designating special categories of income that get a lower tax rate, Washington has chosen to think of them as “tax cuts,” rather than spending.
But spending is what they really are, and the well-to-do is whom they primarily benefit. Fully two-thirds of the benefits of these tax expenditures go to the richest 20 percent of Americans, according to the Tax Policy Center. In fact, the richest 1 percent get as much benefit from tax spending as the bottom 60 percent combined. In 2011 the average millionaire received nearly $450,000 a year in tax spending, which is the equivalent of about $1,225 a day (and certainly puts into perspective the average daily food stamp benefit of $4.30).
But of course, Samuelson doesn’t include tax expenditures in his account of federal spending. If he did, he’d have to acknowledge that the rich are, indeed, the beneficiaries of significant government largesse.
In fact, Samuelson hardly mentions the tax code at all. He does dredge up the specious claim about the “share of taxes paid” by the rich, but that particular talking point has been so repeatedly debunked that it hardly bears mention. Suffice it to say that the rich pay most of the taxes because they make most of the income.
Given the argument Samuelson tries to make, you can understand why he doesn’t dwell on the tax code. After all, taxes for the super rich have been cut dramatically and repeatedly over the past 30 years. According to the nonpartisan Congressional Budget Office, in 1979 the top income tax rate was 70 percent, and the richest 1 percent paid about 37 percent of their income in federal taxes. By 2007 that top rate had been cut in half, and the richest 1 percent paid less than 30 percent in federal taxes. These numbers don’t fit with Samuelson’s story of an overburdened and underrepresented wealthy class.
Federal programs for the 99 percent are less effective and under the knife
But it gets worse for Samuelson’s argument. Over that same period, the richest 1 percent of Americans enjoyed an enormous explosion in prosperity. Their average income more than tripled. Their share of total national income more than doubled. Their incomes grew more than 10 times faster than the incomes for households in the middle. As a result, American society is now more unequal than it has been at any point since before World War II.
And though Samuelson would have you believe otherwise, the federal government actually has done less and less to combat that rising inequality. In 1979 federal policies—including both transfer programs and the tax system—reduced income inequality by 23 percent, according to a recent report from the Congressional Budget Office. In 2007 that reduction was down to 17 percent.
And if conservatives in Congress have their way, they will gut the very programs that Samuelson points to as evidence of the political strength of poor and the middle class. The House Republican budget plan, authored by Rep. Paul Ryan (R-WI), cuts federal spending by more than $5 trillion over the next 10 years. Nearly two-thirds of those cuts come from low-income programs such as Medicaid and food stamps. The remaining third falls heavily on “non-defense discretionary” programs, a category of spending home to such middle-class investments as transportation funding, food and drug safety, and law enforcement.
Rep. Ryan’s budget cuts would come on top of the more than $1 trillion in reductions already enacted, a large portion of which also fall on nondefense discretionary. And as is well known, the House Republican budget also dramatically cuts Medicare starting 10 years from now.
Samuelson mentions precisely none of this. If it is true, as he argues, that the mere presence of programs for the middle class and the poor suggests that the rich aren’t gaming the system in their favor, then what must it mean when those same programs are at grave risk of being slashed to the bone?
The rich exercise plenty of influence over government
Putting aside all of these numbers, perhaps the most critical failing of Robert Samuelson’s bizarre claim that the rich and powerful aren’t actually all that powerful is that his method of accounting for their influence, looking only at federal spending, is woefully limited. There are myriad ways for big corporations, superwealthy individuals, and powerful interests to use the federal government for their benefit—many of which, perhaps even most, would never show up on a balance sheet. To cite just a few examples: government rules that preference existing companies over newcomers; deregulation that pads profits but exposes the public to greater risk; weakened labor laws that make it harder for workers to form unions; government contracts; and implicit government subsidies.
And even when the government does spend some money on something that ostensibly helps the middle class or the poor, very often a closer look reveals some powerful and wealthy interests as equal beneficiaries. Medicare Part D, which provides Medicare coverage for pharmaceuticals, is a perfect example. Yes, this program helps a lot of middle-income seniors, but its passage also expressly forbid Medicare from negotiating for lower prices, leading to a massive windfall for drug companies.
Just a straw man in the end
In the matter of Straw Man vs. Robert J. Samuelson, the victor is clearly Mr. Samuelson. That poor straw man never had a chance. But Samuelson does not fare nearly so well when pitted against reality. Of course the government spends a large portion of its budget on the poor and the middle class. They do make up the vast majority of the population, after all. But Samuelson ignores the tax code, both the spending embedded in it, and the fact that taxes for the rich have dropped precipitously at the same time that their incomes have skyrocketed.
He also fails to mention that the very programs to which he points as evidence of the political strength of the middle class are under serious assault. And he simply does not grapple at all with the nonspending ways in which the government can be and has been bent to the will of the rich and powerful.
It would be nice if Samuelson’s argument were true—if the influence of the vast middle class and the poor did indeed outstrip that of the rich—but, sadly, it’s not.
Michael Linden is the Director for Tax and Budget Policy at the Center for American Progress.
- The Federal Tax Code and Income Inequality by Michael Linden
- The Richest 1 Percent Get More, Pay Less by Michael Linden
- Rich Americans Are Not Overtaxed by Sarah Ayres and Michael Linden
- Why We Need a Buffett Rule by Seth Hanlon
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