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**10-14-2006**

Cover Story - What If It\'s The Economy?

+-----------------------------------------------------------------------+
| John Maggs ([Email this author](mailto:jmaggs@nationaljournal.com))\  |
| © National Journal Group, Inc.\                                       |
| \                                                                     |
| As he revs up his campaigning for the fall election, President Bush   |
| has been thinking about the economy, and about family history.\       |
| \                                                                     |
| In late September, when the major electoral challenge for the         |
| Republicans was Iraq, Bush flew to Ohio for one of a series of        |
| appearances on the economy that will continue until Election Day. The |
| destination was Meyer Tool, a midsize maker of testing products for   |
| the aerospace industry. Unlike most manufacturers \-- a sector that   |
| has lost 3 million jobs since 2000 and hasn\'t gained any ground in   |
| the turnaround in employment that began in 2003 \-- Meyer Tool has    |
| hired 125 workers in the past 12 months. Flanked by Meyer President   |
| Artyn Easton and Vice President Beau Easton, Bush noted, \"We\'ve got |
| a father and a son who are running this company,\" and he             |
| complimented them for \"doing what you are doing\" to make the        |
| company a success.\                                                   |
| \                                                                     |
| Ten days before, in a Rose Garden press conference, the subject had   |
| again been the economy, and the president\'s mind drifted to another  |
| father-son team. Bush trotted out what has become his standard line   |
| on the economy: The economy is strong; it is strong because of tax    |
| cuts; and given the chance, Democrats will raise taxes to the         |
| detriment of working Americans. Despite polls indicating that Iraq    |
| and the war on terror will dominate the election, Bush suggested      |
| another possibility: \"I\'ve always felt the economy is a determinate |
| issue, if not the determinate issue, in campaigns. We\'ve had a       |
| little history of that in our family.\"\                              |
| \                                                                     |
| A little. Bush remembers the disastrous 1992 re-election campaign of  |
| his father, who didn\'t appear to recognize that Americans cared much |
| more about stagnant wages and a sluggish economy than about his       |
| victory in liberating Kuwait from Saddam Hussein. President George    |
| H.W. Bush, in trying to project confidence (so he said later), came   |
| off as unconcerned about the effects of a mild recession (one that    |
| economists later concluded had ended just as his re-election campaign |
| began) and about the drop in employment and wages that continued in   |
| 1992 during the slow recovery. His seeming detachment reinforced the  |
| idea that the elder, more patrician Bush was out of touch with        |
| average Americans.\                                                   |
| \                                                                     |
| Whether George W. Bush\'s decision to invade Iraq had Oedipal roots   |
| has been the topic of much speculation; less attention, however, has  |
| been paid to the more crucial lesson taken from the father\'s         |
| presidency \-- the primacy of the economy in elections. The younger   |
| Bush has always explicitly acknowledged that his unwavering support   |
| of tax cuts in the face of surging budget deficits was inspired by    |
| the conservative revolt in 1992 after his father broke his pledge not |
| to raise taxes. Likewise, faced with a tough midterm election for     |
| Republicans, Bush is hoping that many voters will look at all of the  |
| ways that 2006 is different from 1992 \-- the 4.6 percent             |
| unemployment rate versus the 7.6 percent rate in September 1992, the  |
| 6.6 million jobs created since mid-2003, and the 3.7 percent annual   |
| economic growth since then. (He\'s also hoping that voters won\'t     |
| focus on the less spectacular: only 4 million new jobs and an average |
| 2.6 percent yearly growth counting from 2001, when Republicans took   |
| over government.)\                                                    |
| \                                                                     |
| Democrats say they would welcome an election that turns on the        |
| economy, and they make their own case that most Americans have seen   |
| their living standards erode during Republican rule, largely because  |
| of tax cuts that the Democrats claim were skewed toward the rich. On  |
| the day of the Ohio visit, Democratic National Committee Chairman     |
| Howard Dean put out a statement titled \"Americans Not Buying Bush\'s |
| PR Campaign on the Economy,\" and used Census Bureau data to argue    |
| that household income dropped for most workers last year.\            |
| \                                                                     |
| If past midterm elections are a guide, voters may hold Republican     |
| lawmakers responsible for Bush\'s conduct of the war in Iraq, but     |
| Congress was a much more equal partner in passing tax cuts and        |
| managing the economy. To the extent that voters are influenced by the |
| economy, they are probably more likely to view their vote for a       |
| senator or representative as a referendum on recent economic policy,  |
| based heavily on tax cuts that almost all Republicans in Congress     |
| voted for repeatedly and almost all Democrats opposed. Bush believes  |
| that most voters will be alarmed at his image of Democrats intent on  |
| raising taxes \-- he mentions it every time he mentions the economy.  |
| Democrats are betting that most voters are unhappy that tax cuts and  |
| income gains have gone mostly to upper-income people and want a       |
| Democratic Congress to change course.                                 |
|                                                                       |
| **Seeing Is Believing**                                               |
|                                                                       |
| One big question about this election is what voters see when they     |
| look at the economy. Will it be the full effect of five and half      |
| years of nearly complete Republican control of government? Or will    |
| they focus on a snapshot of recent conditions? Polling and other      |
| research indicate that most voters who are influenced by economic     |
| conditions (rather than national security or other issues) are swayed |
| by events in the six months or so before an election. In 1992, George |
| H.W. Bush found that a turnaround in economic growth in the second    |
| half of 1992 came too late to help his campaign. In 2006, job growth  |
| has been solid, if not spectacular, since February, averaging about   |
| 126,000 jobs a month, a level that has almost exactly matched the     |
| growth of the working-age population. Economic growth ran at about a  |
| 4 percent annual rate for the first six months of the year, but it is |
| expected to slow down in the second half.\                            |
| \                                                                     |
| Edward Lazear, the chairman of Bush\'s Council of Economic Advisers,  |
| notes that while average wages had been rising at an accelerating     |
| rate since 2004, inflation had more than wiped out those gains,       |
| resulting in a drop in average wages after inflation through August   |
| of this year. (See chart, p. 26.) Lazear said that almost all of this |
| decline was due to the surge in energy costs beginning in 2005.       |
| Factor out energy, and real wages would be rising now, he said.\      |
| \                                                                     |
| This observation bodes well for the fall, because of the sharp drop   |
| in energy prices that recently brought gasoline prices down by as     |
| much as 25 percent, below \$2 a gallon in some areas. \"This          |
| represents \-- no, this is \-- a big boost in the spending power of   |
| consumers,\" Lazear said.\                                            |
| \                                                                     |
| Likewise, a moderation in long-term interest rates in the past three  |
| months is likely to boost the confidence of consumers. The slowdown   |
| in the housing sector, even in those areas where home prices are      |
| dropping, may not have a huge effect on the confidence of the average |
| homeowner. While almost everyone will notice the drop in energy       |
| prices in their weekly purchases, only a small proportion of the      |
| population will perceive a loss in wealth from selling a house for    |
| less than they expected, Lazear said.\                                |
| \                                                                     |
| Democratic leaders, candidates, and their surrogates are likely to    |
| maintain their argument that the Bush tax cuts in 2001 and 2003       |
| resulted in a windfall for the wealthy and contributed to the         |
| relative stagnation in income for middle- and low-income families.    |
| They cite data showing that most American families saw their          |
| take-home pay lag behind inflation in the past five and half years,   |
| and they say that Republican tax cuts have made the distribution of   |
| wealth and income more unequal today than at any other time since the |
| early 20th century.\                                                  |
| \                                                                     |
| From a crassly political point of view, one question that has hung    |
| over the Bush tax cuts is why Republicans wouldn\'t have structured   |
| them to give a proportionally larger refund to the lower 80 percent   |
| of the income-distribution curve, which comprises vastly more voters  |
| than the top 20 percent, which got the lion\'s share of the benefits. |
| Was it smart politics to give most of the tax cuts to a small number  |
| of rich folks, even if they do pay most income taxes? Wasn\'t it dumb |
| to stiff the vastly larger bloc of voters who aren\'t rich?\          |
| \                                                                     |
| Not as dumb as one might think, based on who actually votes. During   |
| the 2004 election, about 34 million voting-age people lived in        |
| households that earned \$30,000 a year or less, according to the      |
| Census Bureau. Fifteen million, or about 44 percent of them, turned   |
| out to vote. On the other hand, 19 million people from households     |
| earning \$100,000 or more turned out to vote that year. The number of |
| high-income people in the population was much smaller \-- only 24     |
| million compared with 34 million lower-income people. But they turned |
| out to vote at nearly twice the rate \-- 78 percent.\                 |
| \                                                                     |
| According to exit polling by CNN, 58.7 percent of voters from         |
| households with more than \$100,000 a year in income voted for Bush   |
| in 2004, and 41.2 percent of them voted for Kerry.\                   |
| \                                                                     |
| Exit polling doesn\'t reveal why high-income people, in particular,   |
| voted the way they did, but we do know a related fact \-- in 2004,    |
| taxpayers earning more than \$100,000 a year received 59 percent of   |
| the 2001 and 2003 tax cuts. By comparison, people from families       |
| earning \$30,000 or less got 8 percent of the tax-cut pie.            |
| Upper-income voters also turned out in greater numbers in 2004 than   |
| they had before. In 2000, the turnout rate for people from households |
| earning \$75,000 or more was 71.5 percent, but it rose to 76.5        |
| percent in 2004.                                                      |
|                                                                       |
| **Who\'s Right?**                                                     |
|                                                                       |
| In the back-and-forth between Republicans and Democrats over the      |
| economy, the facts get a thorough massaging from both sides, but it   |
| is possible to pick out a few details that will probably be important |
| to voters.\                                                           |
| \                                                                     |
| First, the Bush administration is right to emphasize that             |
| unemployment is at a relatively low level \-- the 4.6 percent rate in |
| September is lower than the average unemployment rate in each of the  |
| past four decades. Democrats respond with data showing that a larger  |
| proportion of people have left the workforce than ever before because |
| they can\'t find work, and that the duration of unemployment for      |
| those who are looking is longer. For most workers who might vote,     |
| however, it is a relatively good time to find a job.\                 |
| \                                                                     |
| Democrats have one compelling response to this, and it fits in with a |
| theme that they will be polishing for the 2008 election \-- the risk  |
| of declining living standards. While the number of jobless Americans  |
| may be lower than normal, according to Yale University economist      |
| Jacob Hacker, the risk of their experiencing a sharp drop in income   |
| has increased significantly since the 1970s. Back then, the chance    |
| that a family would suffer a 50 percent drop in income over a         |
| two-year period was 7 percent; today it is 16 percent and has been    |
| rising at an accelerated rate since 2000, Hacker said recently at the |
| Brookings Institution. Another study showed that on average, workers  |
| who lost their jobs when the technology bubble burst in 2000 earned   |
| 13 percent less in their next job. While a relatively small number of |
| potential voters have lost a job or know someone who has, the fear of |
| losing a job (plus health insurance and a worker\'s place in society) |
| is worse today, he said.\                                             |
| \                                                                     |
| This is probably one answer to what Treasury Secretary Henry Paulson  |
| Jr. recently called \"the \$64,000 question\" \-- why the public      |
| seems to feel more anxious about the economy than the unemployment    |
| rate and other indicators would seem to warrant. For example, in an   |
| ABC News/Washington Post poll in September, 4 percent of respondents  |
| rated the economy \"excellent\" and 33 percent rated it \"good,\"     |
| versus 63 percent who rated it \"not good\" or \"poor.\"\             |
| \                                                                     |
| When discussing how living standards have fared over the past few     |
| years, the Bush White House tends to emphasize two things \--         |
| measurements of averages (rather than medians) and compensation       |
| (rather than wages). There are reasons for its preferences.\          |
| \                                                                     |
| Lazear has a stump speech he\'s given in different forms over the     |
| past few months, in which he argues that average compensation for     |
| workers has grown during the Bush presidency and grown strongly in    |
| the past year, even when accounting for inflation. Jared Bernstein of |
| the Economic Policy Institute says that Lazear\'s argument is         |
| misleading because much of that increase comes from nonwage boosts    |
| for the rising cost of health care insurance that rarely extends or   |
| improves coverage. Average wages for nonsupervisory workers \--       |
| representing the bulk of the workforce \-- have actually fallen, when |
| accounting for inflation, by about 2 percent from November 2003 to    |
| August 2006. Bernstein says that take-home pay, rather than           |
| compensation, is how average workers judge their earnings. \"For most |
| of them, wages have been flat or stagnant for 26 of the last 28       |
| months,\" he says.\                                                   |
| \                                                                     |
| But the larger flaw, Bernstein says, is that the White House prefers  |
| to look at average figures, rather than medians. The median is the    |
| theoretical middle \-- 50 percent of wage earners made more, and 50   |
| percent made less. Even when average wages rise, the median can drop  |
| if the number of people who earned less has increased \-- in other    |
| words, if income has grown unequally.\                                |
| \                                                                     |
| Higher average wages reflect the sharp increases that have occurred   |
| for highly educated, highly skilled workers, such as computer         |
| programmers and emergency-room nurses. When thinking about the        |
| average voter, this is a distinction that seems worth making \-- even |
| with the greater turnout among higher-income people, most voters      |
| aren\'t computer programmers or ER nurses. For example, in the two    |
| years from 2004 through 2005, the lowest-earning one-fifth of         |
| American households saw their average income increase by only 0.6     |
| percent after inflation. The middle fifth saw a 0.9 percent increase. |
| But the upper 5 percent of workers saw a 3.1 percent increase.        |
| Bernstein notes that in 2005, households in the upper fifth of the    |
| income scale earned 50.4 percent of all income, the highest           |
| proportion since records started in 1967. Especially now, Bernstein   |
| says, using \"average numbers hides the fact that a very small number |
| are doing very, very well, and most are not.\"\                       |
| \                                                                     |
| In fact, median household income, after adjusting for inflation, has  |
| dropped 2.7 percent since 2000. This information was included in a    |
| census survey in August that at first blush seemed like a big boost   |
| for the administration. That report found that for the first year     |
| since 1999 median household income after inflation had risen in 2005, |
| by 1.1 percent.\                                                      |
| \                                                                     |
| But Bernstein says the numbers were not so good for working-age       |
| Americans. It turns out that all of the gains went to households      |
| headed by someone age 65 or older. Income for this group surged by    |
| 2.8 percent. Bernstein speculates that most of these gains came from  |
| nonlabor income, such as Social Security, which is indexed to         |
| inflation, as well as from stocks and home sales. Meanwhile, the      |
| median income for households headed by someone under 65 fell 0.5      |
| percent. Since 2000, he says, working-age households saw their median |
| income drop 5.4 percent after inflation, twice as much as the 2.7     |
| percent decline for all households. (As Bush political adviser Karl   |
| Rove may have noticed when pushing for a new prescription drug        |
| benefit, rewarding those over age 65 pays a political dividend \--    |
| they turn out to vote at a rate of 69 percent, versus 56 percent for  |
| others.)                                                              |
|                                                                       |
| **The Productivity Miracle**                                          |
|                                                                       |
| In an interview, Lazear conceded that median wage growth had lagged   |
| behind inflation since the 2001 recession but argued that a recovery  |
| in income growth is imminent, based on another statistic that he      |
| often cites approvingly \-- the increase in productivity since Bush   |
| took office. When workers are more productive, they boost profits and |
| allow pay increases above the rate of inflation. And the pickup in    |
| productivity that workers made in the latter 1990s is one of the few  |
| economic trends that has continued in the Bush years. While the       |
| average long-term growth rate in productivity is about 2 percent a    |
| year, productivity rose 2.5 percent in 2001; 4.1 percent in 2002; 3.7 |
| percent in 2003; 3 percent in 2004; and 2.3 percent in 2005. So far   |
| this year, productivity growth is running at an annual rate of 6      |
| percent, Lazear said. He displayed a chart showing a close            |
| relationship between productivity and average income after inflation. |
| Since 1950, the two have tracked each other closely. Another chart    |
| showed that wages have indeed lagged behind productivity growth since |
| 2000, but he pointed out that similar lags, lasting four or five      |
| years, occurred after other recessions. \"What\'s happening, we       |
| think, is that following a recession, there is slack that is being    |
| taken up in the labor market, and once that happens, the gains in     |
| productivity get passed on to workers. I would suspect that most      |
| Americans have not seen the benefit of the productivity growth in     |
| large part because of the point that we are at in the business        |
| cycle,\" Lazear said. \"Bear with us.\"\                              |
| \                                                                     |
| But some new research casts doubt on his projection. First, an        |
| observation about Lazear\'s chart purporting that wages lag behind    |
| productivity after recessions: Actually, it shows that real wages     |
| (those adjusted for inflation) began to lag in 1998, during one of    |
| the strongest labor markets of the post-World War II period. For most |
| of that time, wages and productivity were moving in opposite          |
| directions. Likewise, real hourly wages were dropping during the best |
| years of the 1980s boom, when the gap between real wages and          |
| productivity growth was historically high.\                           |
| \                                                                     |
| Robert Gordon, an economist at Northwestern University, questions     |
| whether productivity growth is really the source of income growth for |
| most workers. While average income growth seems to have paralleled    |
| productivity over the past 40 years, Gordon finds that from 1966 to   |
| 2001, only earners in the top 10 percent of the income-distribution   |
| scale enjoyed income gains (after inflation) that were equal to or    |
| above the productivity growth rate. For the remaining 90 percent of   |
| workers, wage growth was less than productivity growth. For the       |
| highest-income workers with the most skills, higher wages did indeed  |
| seem to be connected to productivity growth. But for most workers,    |
| what showed up in their paychecks seemed to have nothing to do with   |
| productivity. If Lazear is right, then the extended period of wage    |
| lag that began in the latter 1990s and is continuing today is about   |
| to end, and workers will finally see wages increase faster than       |
| inflation. If Gordon is right, then most workers will continue to     |
| suffer from wages that lag behind inflation and the growth rate in    |
| productivity.\                                                        |
| \                                                                     |
| Kevin Hassett of the American Enterprise Institute says that          |
| inflation-adjusted income is actually a misleading way to judge       |
| popular attitudes about the economy, since consumers can quickly      |
| adjust to higher prices for some things that might briefly lower      |
| their living standards \-- trading in their Hummer for a Prius, for   |
| example. Instead, he argues that consumption is the best guide to     |
| public sentiment about the economy, since it reflects how consumers   |
| feel about their present situation going forward. And the numbers     |
| show that since 2000, a time when income has only inched upward,      |
| consumption has risen 17.5 percent. For the middle 20 percent of      |
| income earners, the group that saw real income drop, consumption      |
| increased 7.5 percent after inflation. With falling income, much of   |
| this consumption has been financed with debt, a development that      |
| alarms some other economists but not Hassett. He sees this borrowing  |
| as another sign that consumers are confident about the future, and    |
| expects that this will be evident at the ballot box in November.\     |
| \                                                                     |
| Jacob Hacker, among other economists allied with Democrats, doesn\'t  |
| think this borrowing is so benign. Americans have taken on record     |
| levels of debt, and the proportion of income that Americans use to    |
| service their debt hit a new record in the first quarter of 2006.     |
| Hacker said that crushing debt is one of the financial risks that are |
| making many Americans pessimistic about the economy.\                 |
| \                                                                     |
| Democrats hope that this fall Americans will look beyond the low      |
| unemployment rate and the solid growth numbers to vote based on the   |
| disappointing lack of growth in their paychecks, as the prices for    |
| energy, health care, and most other things take a bigger bite than    |
| before. Lazear says he suspects that most voters will be heavily      |
| influenced by the recent drop in energy prices, which is effectively  |
| putting more money into their pockets every week. He also hailed the  |
| solid numbers on consumer spending. \"So far, people are acting like  |
| they feel good about the economy.\"                                   |
+-----------------------------------------------------------------------+

**10-14-2006**

Cover Story - Winners and Losers

+-----------------------------------------------------------------------+
| John Maggs ([Email this author](mailto:jmaggs@nationaljournal.com))\  |
| © National Journal Group, Inc.\                                       |
| \                                                                     |
| One way to determine how good the economy has been under George W.    |
| Bush is to compare it with the economy during a similar period of     |
| time for the two most recent two-term presidents \-- Bill Clinton and |
| Ronald Reagan.\                                                       |
| \                                                                     |
| Reagan endured the worst recession since the Great Depression, yet    |
| that was balanced with one of the biggest growth spurts of the        |
| postwar period. Clinton reigned during the longest economic boom of   |
| the 20th century, but its best years came after mid-1998, the         |
| equivalent of mid-2006 in this presidency. Unlike Bush, Clinton       |
| didn\'t have a recession, but the slow economic growth during his     |
| first two years was similar to the mild recession and early recovery  |
| that Bush saw in 2001 and 2002.\                                      |
| \                                                                     |
| Under Reagan, unemployment averaged 8.2 percent from 1981 to          |
| mid-1986, compared with 5.7 percent under Clinton in the first five   |
| and a half years of his presidency, and 5.3 percent under Bush.       |
| Inflation was also much higher for Reagan, and when it is removed     |
| from the equation, gross domestic product grew 17.4 percent under     |
| Reagan, 20.6 percent under Clinton, and 15.3 percent under Bush. Even |
| with a long and terrible recession in 1981 and 1982, the first five   |
| and a half years of Reagan\'s presidency delivered more growth than   |
| Bush\'s has to date. The comparable period under Clinton generated a  |
| third more growth.\                                                   |
| \                                                                     |
| Income has also lagged under Bush, and this is crucial because        |
| polling experts say that sluggish growth in income is a key cause of  |
| an anti-incumbent mood in elections. By delving into income, one can  |
| see who the winners and losers have been in the Bush presidency. The  |
| details tend to support Bush critics who say that most working people |
| have gotten a smaller piece of the pie. In general under Bush, being  |
| a shareholder or a business owner has been better than being a        |
| worker. Being a retiree has also been better than being a worker and, |
| surprisingly for a conservative president, being a government worker  |
| has been better than being a private-sector employee.\                |
| \                                                                     |
| After adjusting for inflation and including the big tax cuts that     |
| have essentially kept taxes at their 2000 level, disposable personal  |
| income rose 14.1 percent under Bush, 20.4 percent under Clinton, and  |
| 22.7 under Reagan. On a per capita basis, the disparity is even       |
| greater: Growth has been 8.5 percent under Bush versus 13.2 percent   |
| under Clinton and 17 percent under Reagan.\                           |
| \                                                                     |
| The news on income isn\'t good for Republicans. Bush\'s results are   |
| worse than those for any other two-term president since World War II  |
| except Dwight Eisenhower. Worse than under Richard Nixon, a period    |
| that was not a very good time for the economy. During four horrendous |
| years for the economy, income grew faster under Jimmy Carter than it  |
| has since 2001. The only recent president who had a worse record on   |
| income growth was \-- George H.W. Bush.\                              |
| \                                                                     |
| More interesting, though, is how that growth has been distributed.    |
| Corporate profits have doubled under Bush \-- they grew 104.4         |
| percent, to be precise \-- compared with 57.2 percent during          |
| Clinton\'s first five and a half years (before the really spectacular |
| profits of the late 1990s) and 43.3 percent under Reagan. Some        |
| corporate profits are retained and invested, but the bulk are         |
| distributed disproportionately to the wealthy through dividends and   |
| boosted stock values. More than one-quarter of the increase in GDP    |
| under Bush came from corporate profits, compared with 13.7 percent of |
| GDP growth under Clinton, and 7.1 percent under Reagan. Meanwhile,    |
| tax revenue from corporate profits is about the same as it was during |
| the Reagan years.\                                                    |
| \                                                                     |
| Another way to look at this is to compare corporate profits and pay   |
| for private workers \-- most of the labor force. While corporate      |
| profits were doubling, wages and salaries to workers grew 21.9        |
| percent under Bush. This compares with wage and salary growth of 44.7 |
| percent under Clinton and 42.2 percent under Reagan.\                 |
| \                                                                     |
| Corporate profits grew by \$813 billion under Bush, not much less     |
| than the total of all raises earned by private workers (\$912         |
| billion). By contrast, workers got a much larger slice of the pie     |
| under Reagan and Clinton. Under Clinton, pay raises were about four   |
| times as much as profits, while under Reagan, workers got five times  |
| as much.                                                              |
|                                                                       |
| **Less for Wages, More for Health Insurance**                         |
|                                                                       |
| When confronted with the facts about how little worker pay has        |
| increased, Bush officials often note how other compensation, in the   |
| form of pension benefits and health insurance, has risen faster than  |
| average, and this is true. Employer contributions for pensions and    |
| health insurance for workers (this includes public-sector workers,    |
| who were excluded from the earlier measure) rose 56.6 percent under   |
| Bush, 49 percent under Reagan, and only 14 percent under Clinton.     |
| Health care costs rose much more slowly under Clinton. A lot of the   |
| increase during Reagan\'s presidency was caused by inflation, but     |
| inflation gets factored out when the increase is computed as a        |
| percentage of the total growth in personal income \-- pension and     |
| health care compensation was 8 percent of added income under Reagan   |
| and only 3.3 percent under Clinton, but 16.1 percent under Bush.\     |
| \                                                                     |
| Workers could argue that this growth doesn\'t really count as money   |
| in the bank \-- almost all of it went for higher health care          |
| premiums, at a time when coverage is not improving for many workers   |
| and half of all workers aren\'t covered at all. In addition, as       |
| compensation in the form of health insurance from companies has       |
| increased, so too has the amount deducted from paychecks for health   |
| care.\                                                                |
| \                                                                     |
| Assume that every dollar of these contributions was the equivalent of |
| wages, and private-sector workers in the Bush years come out about    |
| the same as those under Clinton, but ahead of those under Reagan.     |
| Based on their rough share of the labor force, private-sector         |
| workers\' pay and other compensation was about 54.6 percent of income |
| gained under Bush, 48.4 percent of income growth under Reagan, and    |
| 57.3 percent of added income under Clinton. Even with this extra      |
| compensation, the ratio of corporate profits to pay remains just as   |
| lopsided as outlined earlier. Under George W. Bush, being a           |
| shareholder was much better than being a worker.\                     |
| \                                                                     |
| Speaking of profits, at first blush it appears that another type of   |
| business owner hasn\'t done as well as corporate shareholders in the  |
| \"Ownership Society\" that Bush hopes to create. The profits of       |
| noncorporate businesses \-- those small- and medium-sized operations  |
| that Bush calls the most productive beneficiaries of his tax cuts \-- |
| rose 31.5 percent under Bush, compared with 39.3 percent under        |
| Clinton and 43.9 percent under Reagan.\                               |
| \                                                                     |
| Bush justified cutting the top income-tax rate more than other        |
| brackets by saying that most successful business owners pay the top   |
| rate, and that the tax savings would be used more directly to invest  |
| in growth and to create jobs. But although these owners haven\'t      |
| gained as much in profits as that group did under Clinton or Reagan,  |
| they did make a stride toward the Ownership Society. Noncorporate     |
| business profits accounted for 6.9 percent of income gained under     |
| Reagan, 8.9 percent of income gained under Clinton, and 11 percent of |
| added income under Bush. Put another way, noncorporate business       |
| profits were 16.4 percent of private wage and salary gains under both |
| Clinton and Reagan, but 26.6 percent of worker pay under Bush. Being  |
| an owner has been better than being a worker under Bush \-- much      |
| better than it was under Clinton or Reagan.\                          |
| \                                                                     |
| One effect of the rise in corporate profits was a surge in dividend   |
| payments, helped along by a tax cut in 2003 that effectively reduced  |
| the rate by more than half for most dividends. More than half of all  |
| dividend payments go to people earning more than \$100,000 a year,    |
| the top 9 percent of all families.\                                   |
| \                                                                     |
| There is evidence elsewhere that the tax cuts have unleashed higher   |
| dividends for shareholders, but not here. Dividend income rose 66.6   |
| percent under Bush, 81.9 percent under Clinton and 54.8 percent under |
| Reagan. But dividend recipients were a larger component of income     |
| growth. Dividends were 11.4 percent of added income under Bush, 8.1   |
| percent under Clinton, and 3.1 percent under Reagan. Score another    |
| one for the Ownership Society.                                        |
|                                                                       |
| **More for Government Workers**                                       |
|                                                                       |
| It is also interesting to note the relationship of income growth      |
| between the private and the public sectors. Bush has sharply reduced  |
| tax rates but has done little to curb the overall growth of           |
| government. Because government workers are unionized and their pay    |
| usually increases with inflation, public-sector workers have done     |
| unusually well compared with the private sector. The gain in pay for  |
| public-sector workers (who make up about 17 percent of the workforce, |
| a proportion fairly constant over time) was 26.1 percent, compared    |
| with 21.9 percent for the private sector. Under Clinton,              |
| public-sector workers got 18.6 percent more pay, compared with 44.7   |
| percent more for private workers. (Part of the story here is the big  |
| reduction in defense-related government workers after the Cold War    |
| ended.) Similarly, under Reagan, public-sector workers gained 41.1    |
| percent more pay, compared with 42.2 percent for private-sector       |
| workers. Under Bush, it has been better to be a government worker     |
| than a worker in the private sector.\                                 |
| \                                                                     |
| Another way that government has grown under Bush is in the payout of  |
| benefits for Social Security and other entitlements. Most of the      |
| reasons here have to do with the aging of the population, but, like   |
| Reagan, Bush is a conservative who has done little to curb            |
| entitlements (in fact, he created a new one, for prescription drugs). |
| Government payments for social benefits have grown 40.7 percent under |
| Bush, compared with 24.9 percent under Clinton and 43.8 percent under |
| Reagan. The share of all income that came from Social Security and    |
| other entitlements grew to 20.3 percent under Bush, compared with 9.7 |
| percent under Clinton. It was 10.7 percent under Reagan. (Such        |
| payments loom large in bad economic times, when applications for      |
| welfare and unemployment benefits surge.)\                            |
| \                                                                     |
| These numbers hint at the way that entitlements will come to dominate |
| government, and will threaten to dominate the economy itself. Beyond  |
| this, despite Bush\'s claim to have unleashed the productive power of |
| the private sector, a higher share of income growth came from         |
| government (through public-sector workers\' salaries and payouts from |
| social programs) under him than under Clinton or Reagan.\             |
| \                                                                     |
| The winners under Bush have been corporate owners, and, to a lesser   |
| extent, noncorporate business owners, who are getting a larger piece  |
| of the pie than those groups did under Reagan or Clinton. The losers  |
| have been private-sector workers, even with their more expensive      |
| health care insurance, who have seen their income stagnate and their  |
| share of the pie dwindle since the Clinton years. Part of the story   |
| is the slow growth in jobs \-- 4 million since 2001, compared with    |
| Reagan\'s 9 million and Clinton\'s 16 million. For the first time in  |
| 25 years, government workers got a bigger slice than private-sector   |
| workers. Senior citizens and others getting income from the           |
| government also got a larger slice, the beginning of a historic shift |
| that, left unattended, will eventually mean very little pie for       |
| anyone else.                                                          |
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