The Reaganites and the Renegade

Conservative Republican strategists are hopping mad at Kevin Phillips. For years, they have embraced (with much success) the notion outlined by Phillips in his 1969 book, The Emerging Republican Majority, that middle-class voters could be wooed by running against the poor. But now, Phillips seems to have deserted his erstwhile allies. In his latest book, The Politics of Rich and Poor, Phillips advances an opposing populist theme that can be embraced only by Democrats: the idea of running against the rich.

Phillips's earlier book was based primarily on extensive polling results showing a deep-seated white voter reaction against Democrats after enactment of the 1966 Civil Rights Act (a reaction that Lyndon Johnson himself predicted when he signed the bill). In contrast, his new argument rests mainly on economic data. He relies especially on recent reports from the Congressional Budget Office (CBO) showing that over the past twelve years the rich have gotten much richer, while their taxes have been slashed, and conversely, that middle-income families have faced stagnant incomes combined with rising taxes.

So compelling does Phillips find this information that he believes even the Democrats -- who, he says, "have the political sensitivity of a fried clam," -- will eventually be able to exploit it for political gain. After all, he says, "Fairness is supposed to be what the Democratic Party gets elected on. That's what it's supposed to stand for."

One reason, of course, why the right is so angry at Phillips (and why liberals find him so attractive) is that he looks like a turncoat; "not a real conservative" is a frequent charge. Writing in the August 6 issue of Forbes, the conservative pundit Michael Novak fulminates that Phillips is "as conservative as Jesse Jackson" and that his populism is nothing but "hate of the rich."

But you don't have to hate the rich to see that the economic developments that Phillips cites have been bad for most families, and that they ought to be corrected. It is also somewhat amusing to hear conservatives condemning Phillips's appeal to populism. They certainly didn't complain about Phillips-style populism in its earlier incarnation, when it was directed against minorities and the poor.

To be sure, if populism means only doing the popular thing, it is not much of a lodestar for making public policy. But for most of the 1970s and much of the 1980s, the Democrats acted like anti-populists. It often seemed that they were only for things if they were not popular. As David Brockway, former chief of staff at the congressional Joint Committee on Taxation puts it, "Congressional Democrats ... appeared to think that it would be indulging in rabble-rousing and demagoguery to actually do what the broad general public would like." If Phillips's book gets the Democrats to bring the public's concerns back into their policy calculations, it's a useful tonic just for that.

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Beyond their feelings of betrayal, conservative supporters of upward income redistribution clearly are very worried about the CBO data that Phillips relies on in his book. According to CBO's most recent update of its analysis (published after Phillips's book was at the printer), from the time President Ford left office to today, pretax incomes for the bottom three-fifths of family income groups have actually declined in constant dollars, and incomes have risen by only 2 percent for the next 20 percent. Thus, essentially all the gains in income since 1977 have accrued to the top fifth of all families, with most of the increase concentrated on the top 1 percent. For these 1 million highest earners, pretax income has risen by 86 percent in constant dollars, from an average of $296,000 in 1977 to $549,000 this year.

Taxes worked just the opposite. Compared to 1977's level of progressivity (adjusted for inflation), taxes have risen as a share of income for nine out of ten families. Only the best-off tenth got tax cuts and, again, the cuts are concentrated on the richest 1 percent. For this elite group, taxes have been reduced by 36 percent compared to the 1977 system -- a tax cut of $82,000 each in 1990 alone.

Put these two developments together, and you find that after-tax incomes have stagnated or declined for the bottom four-fifths of all families, while the after-tax income of the wealthiest 1 percent (in constant dollars) has risen by a staggering 110 percent.

Obviously, tax policy has mattered a great deal in the Reagan-era redistribution of income. Indeed, about two-thirds of the huge shift in total after-tax income in favor of the richest 1 percent over the past twelve years can be explained by the tax cuts (including their effects on pre-tax investment earnings).

All this looks like a pretty good explanation for public unhappiness -- and for the budget deficit. In fact, were the richest 1 percent today to pay taxes at their 1977 inflation-adjusted effective tax rate, then-federal tax bill would be some $84 billion higher this year, while the government would pay at least $73 billion less in interest, for a total reduction in the budget deficit of almost $160 billion in 1990 alone.

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Thus, for Republicans who oppose raising the minimum wage while calling for even more tax cuts for the wealthy, the information Phillips cites is a powderkeg. In trying to discredit that data substantively, conservatives essentially argue that (1) the supply-side tax cuts of 1978 and 1981 did not shift income toward and taxes away from the wealthy and (2) even if that did happen, it was a good thing. But these arguments don't hold water.

Much of the right's complaints about Phillips's (and CBO's) findings are based on arguments put forward by Lawrence Lindsey, a Harvard economist who published a book, The Growth Experiment, this year, slightly before Phillips's book came out, defending supply-side policies and calling for more of the same. (For a discussion of Lindsey's book see Alicia Munnell,

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