Dinner time aboard the Titanic

The winners are still winning. Mainly because they are still making the rules. David Cay Johnston's latest NYT article, Richest Are Leaving Even the Rich Far Behind, tells how the US is seeing a virtually unprecedented concentration of wealth in the hands of the very richest. If you read only one thing on the US tax system, this should be it. The hyper-rich in his definition constitute only the top 0.1% of taxpayers. The minimum for membership in the club is an annual income of $1.6 million or more. A slightly larger group, say 0.2% has assets of $10 million or more.

This group has seen its inflation adjusted income increase by 250% since 1980, and its share of the national income has doubled. The rest of the top 10% got a much smaller share gain, while the other 90% lost ground.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

When people like Bush or George Will talk about the "rich" they usually manage to be talking about people in the top 20-40% - a ludicrous conflation of the middle class with the rich. They like to do this because these people pay most of the taxes. The really rich get off rather more lightly.

¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

The next joker in the deck is that the very rich have lots of ways to avoid even having their income counted, much less taxed.

The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes. So the gap between the very richest and everyone else is almost certainly much larger.

The situation is even more egregious when we look even higher on the pyramid, comparing the to 0.01% (one in ten-thousand) with the bottom 90%.

One way to understand the growing gap is to compare earnings increases over time by the vast majority of taxpayers - say, everyone in the lower 90 percent - with those at the top, say, in the uppermost 0.01 percent (now about 14,000 households, each with $5.5 million or more in income last year).

From 1950 to 1970, for example, for every additional dollar earned by the bottom 90 percent, those in the top 0.01 percent earned an additional $162, according to the Times analysis. From 1990 to 2002, for every extra dollar earned by those in the bottom 90 percent, each taxpayer at the top brought in an extra $18,000.

It probably won't surprise many of us that the Heritage Society and others think this trend is just dandy - all that money can buy plenty of sycophants. But there are wiser heads, even among the very richest.

But some of the wealthiest Americans, including Warren E. Buffett, George Soros and Ted Turner, have warned that such a concentration of wealth can turn a meritocracy into an aristocracy and ultimately stifle economic growth by putting too much of the nation's capital in the hands of inheritors rather than strivers and innovators.

This is a must read for anybody who cares about the future of the Republic.