The Philadelphia Inquirer from Philadelphia, Pennsylvania • Page 18

THE PHILADELPHIA INQUIRER Sunday, September 8, 1996 AMERICA: Who Stole the Dream? The United States has the widest gap between rich and poor of any industrialized nation. A18 Why the series came to be ployees, who collectively had worked 1,500 years in the sewing department, amounted to less than one-quarter of the value of Rothbaum's home. By Donald L. iftrlett and James II. Steele INQUIRER STAFF WRITERS even years ago, in 1989, we first set out across the country to interview the working man and woman.

The results were published by The Philadelphia Inquirer in October 1991 in a nine- The two-class society ake a glimpse into the new America of Michael Rothbaum and Dar lene Speer. ill part series of articles entitled, "America: What Went Wrong?" The series was expanded into a book by the same title that was published in 1992. That work chronicled the lives of middle-class Americans under siege from corporate raiders and Wall Street, the people doing the raiding, and the people in government who made it all possible. The response to "America: What Went Wrong?" was extraordinary an outpouring of thousands of letters from people from all walks of life from every part of the nation. Many urged us to continue to write about the plight of the middle class not only what is happening to them, but why.

"America: Who Stole the Dream?" is the result. As with "America: What Went we began by listening to people. If one had to choose a single word to describe the hundreds of people we have interviewed over these years, it would be gracious. They patiently answered the endless questions of intruders, who often descended on their homes, or telephoned them, in times of great stress when they had lost their jobs, were about to lose their unemployment benefits, had lost their health insurance or pensions. Many were interviewed at length in person.

On occasion, we returned for the nation's population and wealth. And suppose that all the wealth in this town amounted to $55 million and consisted of the houses of its 300 families. Here's how it would divide up: Three families would live in mansions worth $5.6 million each, and 27 families would live in very nice $750,000 houses. The remaining 270 families would live in rowhouses averaging $67,000 each. In the real U.S.A., the top 1 percent of households controls almost one-third (30.4 percent) of the nation's net worth that's total wealth, not income.

The next 9 percent holds anothe? third (36.8 percent) of the nation's wealth, a Federal Reserve Board study shows. Put the two together and the top 10 percent of households owns two-thirds (67.2 percent) of the wealth. The remaining 90 percent accounts for 32.8 percent of the wealth. Disparity in income Over 20 years on the job, how would you like to see your salary go up by, say, 950 percent? If you had a job in the retail trade, as a sales clerk in a department store making $5,660 a year two decades ago, today you'd be earning $59,400. Or if you were in manufacturing, perhaps turning out switch gears and earning $9,921 then, you'd be making $104,200 now.

And if you were in a minimum-wage job 20 years ago, making $2.10 an hour, your hourly pay today would be $22. Where can you find such lucrative work? You can't. But that's what those jobs would pay if they'd gone up at the same rate as the salary and bonuses paid by General Electric Co. to its top executive between 1975 and 1995. When it comes to pay increases, executives of America's largest companies have left their workers far behind, An Inquirer survey of 20 Fortune 500 corporations in industries ranging from tractors to computers, from soft drinks to soap shows that the salaries and bonuses of the highest-paid executives ballooned an average of 951 percent between 1975 and 1995, or five times the inflation rate.

By comparison, the average earnings of more than 73 million blue-collar and white-collar workers across all private industry from shipping clerks to nurses, from truck drivers to musicians rose 142 percent, not even keeping up with the inflation rate of 183 percent. Their average salary in 1995 was $20,559. That's $3,529 less than their 1975 salary $24,088 when inflation-adjusted to 1995 dollars. And because of growing tax burdens, they were even worse off than that decline suggests. Contrast that with GE's top bosses.

In 1975, Reginald H. Jones earned $500,000 in salary and bonuses. By 1995, GE's chief executive officer, John F. Welch received $5.25 million. While the top GE executive's pay rose 950 percent, the number of GE employees plunged 41 percent, dropping from 375,000 to 222,000.

Actually, that jobs re-Continued on next page second and third interviews. Some we know only through prolonged and frequent telephone interviews. They are white, black, Hispanic, and Asian. They are blue-collar, white-collar and professional. Out of all these conversations, I.

we have been lett with a series ot vivid imnrpccinrK! Rut nprhnnc Don Barlett The top 1 percenters These are the families and individuals with annual incomes that begin at around $182,000 and go up into the tens of millions of dollars the top 1 percent of all tax-filers. There are 1.1 million of them. Most are doing quite well, some spectacularly well. They, and the 9 percent below them, are the have-mores of this society. The average income in the top 1-percent group, according to an Internal Revenue Service study of tax-return data, balloo'ned from $147,700 in 1980 to $464,800 in 1992 a jump of 215 percent.

That was three times the growth recorded by the bottom 90 per" cent of tax-filers, the 101.4 million families and individuals whose incomes range fronj minimum wage up to about $65,000. Their average income rose just 67 percent from $13,200 in 1980 to $22,100 in 1992. Thus, the increase in incomes of the majority of Americans lagged behind the 70 percent rise in the cost of living. Meanwhile, the income of the top 1 percenters went up three times as fast as the inflation rate. The bottom 90 percenters In 1980, this group accounted for 68 percent of all income reported on tax returns.

By 1992, its share had fallen to 61 percent. In dollars, that meant they lost one-tenth of their income. Meanwhile, the top 1 percent saw their share of all income rise from 8 percent in 1980 to 14 percent in 1992. Looked at another way, the 90 percent of the people at the bottom transferred 9 percent of their income to the people at the very top. They transferred an additional 1 percent to those in the top 90 to 99 percent of taxpayers the 10.1 million families and individuals with incomes between about $65,000 and $182,000.

Their share of all income edged up from 24 percent in 1980 to 25 percent in 1992. Concentration of wealth The United States today has the widest gap between rich and poor of any industrialized nation. The inequality is reversing the gains that carried millions to middle-class prosperity following World War II. How bad is it? Picture a town called Inequityville that is a perfect miniature version of the United States, a true microcosm of The Inquirer will examine these policies and their impact on American lives. Michael Rothbaum and Darlene Speer are at opposite ends of this new two-class society.

Rothbaum, a corporate executive, lives in an exclusive gated community called St. Andrews Country Club in Boca Raton, Fla. Set amid 718 acres of lakes and landscaped grounds, St. Andrews is typical of the luxury communities that many wealthy Americans now inhabit self-contained enclaves sealed off from everyone else. St.

Andrews has its own 24-hour security patrol, shopping complex, sports pavilion, restaurants and two championship 18-hole golf courses where residents can play after paying a $75,000 membership fee. Rothbaum lives in a home, with pool and spa. According to the Palm Beach County Assessor's office, the property is valued at $636,000. Darlene Speer, on the other hand, works two jobs. She's a full-time office worker for a furniture manufacturer and a part-time clerk at a video store in Marion, Va.

She lives in a one-bedroom apartment in Marion, a community of 8,500 in southwestern Virginia. Until 1992, Speer worked in the sewing department of Harwood Industries, a clothing manufacturer that was one of Marion's largest private employers. But in August of that year, Harwood of which Michael Rothbaum was the principal owner announced it would close the department. After that, all apparel production was in Honduras and' Costa Rica, where labor is cheaper. The company said it was under pressure from retailers to cut costs.

Not that Darlene Speer and her coworkers drove Harwood Industries to Central America with their bloated salaries. After 13 years, Speer was earning less than $9 an hour. But women in Honduras work for a lot less about 48 cents an hour. Before leaving town, the company agreed to pay severance of about $1,200 to each employee. The total for 120 em- JOBS from A1 mists, think-tank strategists, and the wheelers and dealers of Wall Street.

These are some of the emerging winners in this changing America. The losers? Working Americans who have been forced to live in fear fear of losing their jobs, fear of being unable to pay for their children's education, fear of what will happen to their -aging parents, fear of losing everything they've struggled to achieve. The winners say if you're not a part of this new America, you have no one to blame but yourself. They say the country is undergoing a massive structural change comparable to the Industrial Revolution of the 1800s, when Americans moved off the farms and into factories. They say you have failed to retrain yourselves for the emerging new economy.

That you don't have enough education. That you're not working smarter. That you failed to grasp the fact that companies aren't in the business of providing lifetime employment. And, they say, it's all inevitable anyway. It is inevitable that factories and offices will close, that jobs will move overseas or be taken by newly arriving immigrants, that people's living standards will fall, that workers may have to take on two or three part-time jobs instead of one full-time job.

These things are inevitable, the winners say, because they are the product of a market economy, and thus beyond the control of ordinary human beings, and, most especially, beyond the control of government. Don't believe it. These things are, in fact, the product of the interaction between market forces and federal policies laws and regulations enacted or not enacted, of people finding ways to turn government to their advantage. The policies that are driving these changes range across the breadth of government from international trade to immigration, from antitrust enforcement to deregulation, from lobbying laws to tax laws. Today, and over the next two weeks, I foremost is a remarkable strain of common sense that seems to be so prevalent in working Americans and so lacking among the people in Washington.

To a person, they expressed as much or more concern for fellow citizens as for themselves. There were others, they said, in more desperate straits. And to a person, they expressed displeasure with the government's failure to deal forthrightly with so many critical issues from health care to taxes, from global trade to the growing concentration of corporate power. Two brief notes to keep in mind while reading this series. The subject of "global trade" will be found in many of these articles.

All that is written and all the supporting statistics deal with merchandise trade, the goods and commodities that are manufactured here and exported abroad, or are made elsewhere and imported here. No mention is made of trade in services, another statistic compiled by the government. This omission was deliberate. The United States did not win Jim Steele Don Barlett and Jim Steele have covered economic issues for 25 years and have worked together as an investigative reporting team at The Inquirer since 1971. They won a Pulitzer Prize in 1975 for "Auditing the IRS" and a second Pulitzer, in 1989, for "The Great Tax Giveaway." They have written four books.

30 of lof the wealth. the town has II of the town has Of of the wealth. The Well-off 27 Families Houses worth $750,000 each. 32 rir-SB The Very Rich: 3 Families Houses worth t. $5.6 million 5 '-iAtJh a- each.

SY 1 1 fa World War II because it excelled in attracting foreign tourists, or because it collected fees for the sale of Mickey Mouse products overseas, which are counted in the trade-in-services data. Rather, it won because it had a superior military machine backed up by an equally superior manufacturing base. That manufacturing base produced massive quantities of aircraft, ships, tanks, rifles, ammunition and other war materiel not just for the United States but for our allies as well. It would not be much of an exaggeration to say that if World War II broke out in the 1990s instead of the 1940s, the United States would lose because it no longer possesses a preeminent manufacturing capability. While what follows documents the ongoing decline of America's middle class, it must also be noted that not everyone has fallen on hard times.

Some middle-class people are doing quite nicely. For purposes of this series, we have defined the middle class as working individuals and families who filed tax returns reporting adjusted gross incomes between $20,000 and $75,000. That range takes into account differences in living costs around the country. Needless to say, a family of four with an income of $20,000 in New York City would live in poverty. But a single person in a small Southern town, say Enterprise, could maintain a middle-class lifestyle.

At the upper end, families with an income of $75,000 could afford to buy a home most anywhere. Forty-six million tax returns with incomes between $20,000 and $75,000 were filed in 1993, the latest complete statistics available. They represented 47 percent of the 98 million returns filed showing wage or salary income. Taxpayers with incomes over $75,000 accounted for 8 percent of the total. There were 8 million returns filed by taxpayers in this income group.

Those who reported incomes under $20,000, who may be termed the working poor, made up 45 percent of all returns showing wage or salary income. There were 44 million tax returns in this income group. Mark that $75,000 income figure as a kind of rough divide in Washington's new economic order the line between the have-mores and the have-lesses. Again, keep in mind these are fluid divisions. A family with no children and a $40,000 income may be better off financially than one making $125,000, paying tuition for two children at an Ivy League school.

With that understanding, the have-mores, the people above $75,000, fall into three groups: Those at the very top, who are accumulating more wealth than ever. Those just below, who are living comfortably. And those at the bottom end, many of whom are striving to maintain their existing lifestyle. The have-lesses, the people below $75,000, tend to fall into four groups: Those who are doing well enough to meet their obligations and have a little left over. Those whose incomes are declining as a result of layoffs and forced job changes.

Those who would have moved up in the past but are effectively barred under the existing economic rules. And an exnandine underclass for whom there is linlp mmn It IM 1 1 L4 1 1 1 1 1 A i II LHf ,3 1 "i 't Houses worth $67,000 each. L'J i '''fjM i I 1 The fiiliMb Ckss mi Working Pbor: Inequityville is the U.S. class structure in miniature. Reduced to 300 families and in proportion to the nation's distribution of wealth, this graphic shows what each house in the town would be worth.

Families 270 i Inequityville's total wealth amounts to $55 million. Here's how the real numbers translate: America's 96 million households are worth a total of $17.6 trillion, an average of $183,500 each. That amount multiplied by Inequityville's 300 houses comes to $55 million. i 1 1 Wax 33 of the town has of the wealth. movement or hope.

The PMadelnhifl Inqtjiw nil MASH.