INCOME DISTRIBUTION:
We're All Fat Cats Now

By Thomas Sowell

You may not have made the Forbes 400, but there's still a good chance the government thinks you're rich. By Hoover fellow Thomas Sowell.

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.

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 are completely misleading.

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

How do people who are making modest middle-class incomes suddenly become "the rich"?

First, the statistics used include money that these people never receive. These estimates assume that income is being underreported and add 20 percent to whatever income you report. If you are a homeowner, they also add the 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.

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.

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.

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 fifties or sixties. That is where most of the high income and most of the wealth in the country is. 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 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.

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

Is Reality Optional? And Other Essays, by Thomas Sowell, is available from the Hoover Press. To order, call 800-935-2882.

Thomas Sowell is the Rose and Milton Friedman Senior Fellow on Public Policy at the Hoover Institution.