Figures mask Bush's work

What to do about those numbers? That is the big discussion in the Republican party in the days before their convention in New York. Republicans have long known they will have to make the case for their economic record. What is upsetting them are two new sets of data that may provide ammunition for their enemies.

The first numbers, due out this week, come from the Census Bureau. They show that the top fifth of US households earned just about half the income in the nation in 2002. The second, from the Congressional Budget Office, tell us that the Bush tax cuts benefited the wealthy more than the average man.

All this has John Kerry crowing that the benefits for the rich are "the straw that will break the back" of the middle class. What is more, Republicans fear, matters will not be helped by the convention taking place in the Capital of Cash, a place peopled by cartoon figures such as Donald Trump. Stepping over the homeless on their way past Trump Tower, some may find that New York itself provides confirmation of America's troubles.

There are, of course, standard Republican replies in such situations. The data are being presented wrongly, they argue. In the case of the Census Bureau, the Republicans have a point. Population data are usually organised into quintiles, a standard method of dividing the population into fifths. The Census Bureau has chosen to make up its quintiles with households, not individuals. As a result, its "top fifth" includes 25 per cent of the population. Its "bottom fifth" counts only 14 per cent of Americans (poor households are fewer). What is more, the data are pre-tax. They do not reflect America's still highly progressive rate structure, or its significant social insurance taxes.

Recalibrate the numbers to take all this into account and America's income distribution by quintile is the same as it was in 1997 - in some instances to the decimal point.

As Robert Rector and Rea Hederman of the free market Heritage Foundation point out in a forthcoming paper, in 1997 the top quintile (by population) took in 39.65 per cent of all the income; in 2002 it took in 39.64. If the rich are benefiting unfairly now, this was also the case in one of the very best years of the Clinton economy.

As for the CBO's figures, it is more a case of outsiders' interpretation. The Republican leaders in Congress hired Doug Holtz-Eakin, the CBO director, in the first place, so now they are destroying him in the press for the sin of publishing this report now (without leaking it to them).

But while Mr Holtz-Eakin may have control of timing, he does not have control over the report's essential content. It is a fact that when you flatten a progressive tax schedule, the rich benefit more than the lower earners since they pay more taxes in the first place.

Instead of proudly standing by an essential principle of their party - that a flatter tax-rate structure brings growth - the Republicans are eating their young: Mr Holtz-Eakin. In the process, they are obscuring convention news: that the party delivered on its philosophy by cutting taxes for everyone in 2002, and for many in later legislation.

All of which brings us to the larger question: is unequal income distribution always bad? The answer is no. Historically, uneven income distributions tend to correlate with strong growth. In societies with the rule of law, that wealth tends to turn into opportunity. Societies in which incomes are fairly even grow more slowly. They are also frequently broke (like parts of continental Europe).

In the US, the focus on income is obscuring other gains. The Census Bureau, as well as providing the income numbers, also reported that the home ownership rate hit 69 per cent - up from 67 per cent in 2000 and 64 per cent when Mr Clinton took office.

Under Mr Bush, black home ownership may cross the 50 per cent line for the first time, having risen to 49.7 per cent this summer from 48 per cent in 2002. Surely this is a more decisive measure of social achievement than snapshots of income figures? The issue is not bad numbers, it is Republican timidity. The US has serious economic problems: the oil price, unwarranted litigation, the unfunded liabilities of the national pension programme.

Some of these economic problems are Mr Bush's fault - the untenably expensive new drugs programme for older people, for example. But overall the Bush economic record deserves credit. By cutting taxes, Mr Bush helped ensure the US remained relatively competitive in a stressful period.

Anyway, there is evidence that robust economic competition makes a fine theme for a New York-based television show. After the convention, Manhattan will host an event that could command a television audience of 40m - double the number the Grand Old Party expects. That event will ignore the tragedy of income equality. It will unswervingly glorify the harshest aspects of competition and the nastiest corporate practices. It will ceremoniously eliminate economic losers one by one, to the crowd's pleasure. The event? The second season of Mr Trump's perform-or-die reality TV show, The Apprentice.

© Copyright 2004 Financial Times

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