Money Flow

A study of wealth and poverty

The rich get richer and the poor get poorer. That unpleasant maxim seems to sum up the message of The Reagan Record, a 400-page study released last week by the Urban Institute, a respected nonpartisan think tank in Washington.

According to the report, the President's policies have resulted in a $25 billion income transfer to the wealthiest one-fifth of the nation from those less well off.

Since 1980 the disposable income of the poorest one-fifth of all American families declined by 7.6% after inflation, to $6,391. The income of the wealthiest one-fifth rose by 8.7%, to $40,880. Middle-class families are slightly better off than four years ago with their income rising by 0.9%, to $19,034. A large factor was Reagan's personal income tax cuts, which raised after-tax income for the wealthy by 6% but did not help the poor at all.

The institute's report, which came after three years of study, supplements similar findings by the Congressional Budget Office and other groups. Its careful analysis won praise from not only liberal Democrats but also such Republican leaders as Senators Howard Baker and Robert Dole.

Yet it is sure to provide fodder for Democrats planning to use the fairness issue against Republicans in the fall. "You can be sure that if it checks out, we will put a copy of it in the mail to each of our candidates," says an aide to Congressman Tony Coelho of California, chairman of the Democratic Congressional Campaign Committee.

Written by Economists Isabel Sawhill and John Palmer,* the report is not entirely critical of the Reagan policies. It says that the social safety net for the non-working poor is still largely intact. From its success in reaching goals such as cutting taxes and lowering interest rates, the report adds, "the Reagan Administration may be judged as one of the most effective presidencies in recent history." But the report critically notes that the Administration has attempted "to turn back the social policy clock, in some extreme cases ... to a pre-New Deal time."

For the Administration, the most troubling aspect of the report could be its economic forecast: "The prospects for achieving the goal of higher long-term economic growth are clouded by deficits." Tax increases and spending cuts will be needed to fight the deficits. "Standards of living for most people will rise less in the 1980s than they did in the 1970s and far less than they did in the 1960s," says the report.

"Only the most affluent families are likely to realize major income gains."

* Among those on the advisory board for the study: Peter Peterson, former chairman of Lehman Brothers Kuhn Loeb; Herbert Stein, former chairman of the Council of Economic Advisers under President Nixon; Economist Robert Solow of M.I.T.; Eleanor Holmes Norton, former chairman of the Equal Employment Opportunity Commission during the Carter Administration.