'Upward mobility' in real decline, studies charge

Many older Americans were raised on Horatio Alger novels, the stories of poor boys using their wits and pluck to rise from rags to riches.

Success stories still happen, of course. Nowadays girls also rise from poverty to prosperity.

But for most of the poor, the United States is no longer the land of opportunity. Economic research in the past decade has found that upward mobility has faded; most of the children of rich parents stay rich and the children of the poor remain poor. "Economists in the past have underestimated the barriers to the children of the poor getting ahead," says Samuel Bowles, an economist at the Santa Fe Institute.

Actually, it is about two or three times as difficult for children of poor families to rise above their economic circumstances as economists reckoned in the 1970s and 1980s, he adds. "There was a bit of wishful thinking about equality of opportunity."

Further, the children of rich parents very seldom slide into the bottom half of the income ladder. Most retain at least a major chunk of their inherited wealth.

In general, Americans still believe their economic/social system is fair. Surveys show that both rich and poor think that economic success in life depends on hard work and willingness to take risks.

Certainly such attitudes can't hurt an individual's life prospects. But "there is a very substantial amount of blocked opportunity for people at the bottom," says Mr. Bowles. Often the poor are too fatalistic, lacking confidence in their ability to rise out of poverty..

The playing field is especially uneven for blacks, who face racial prejudice at work as well as educational and social difficulties. on top of that, Bowles finds that well-to-do blacks are less likely to transmit their wealth-building skills to their offspring than rich whites.

Bhash Mazumder, a Federal Reserve Bank of Chicago economist, calculates that on average fully 60 percent of the income gap between any two people in one generation persists into the next generation.

In the 1980s, studies found that only 20 percent of the income gap persisted. But improvements in econometrics show a gloomier picture - that poverty may well endure over several generations.

"For people to say we are a very mobile society, people will have to confront this evidence," says Mr. Mazumder.

All this is relevant to President Bush's economic program. He's proposed $674 billion in tax cuts. About half of those benefits would arise from eliminating taxes on corporate dividends. And about two-thirds of the savings would go to households in the top 5 percent in terms of income.

Further, the president wants to accelerate and make permanent the 2001 tax cuts. These include abolition of the estate tax, or, as the administration prefers, the "death tax."

Also, the administration wants $10 billion in spending cuts in the omnibus appropriations bill for 2003.

"Should funds for job training for the unemployed, child care and education for disadvantaged children, assistance for the poor in paying winter heating bills, and repairs to public housing be cut back to free up resources for more tax cuts disproportionately geared to the nation's most affluent members?" asks a study by the Center on Budget and Policy Priorities in Washington.

William Gates, Sr., the father of billionaire Bill Gates of Microsoft, is especially bothered by the scheduled repeal of the estate tax. This tax hits only the well-off. He was in Boston last week to promote a small book, "Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes," which he wrote with Chuck Collins, an Oscar Meyer heir who has given away much of his money.

Seeking retention of the estate tax is not class warfare, as charged by Mr. Bush, says Mr. Gates. "It is a pitch for a progressive tax system" - one which taxes the affluent proportionately more than the poor."

A major goal for retaining the estate tax is at least to slow the development of what Meizhu Lui, executive director of United For a Fair Economy, calls a "hereditary aristocracy" in the US.

More than 1,000 wealthy Americans have joined a related group, Responsible Wealth, to fight to preserve the estate tax.

It will take 60 votes in the Senate to make estate-tax repeal permanent. The administration so far has only 57 votes, reckons Mr. Collins.

Repeal would lose Washington $850 billion in revenues over 10 years.

As for remedies to income immobility between generations, a huge effort at better education of the poor would help.

As a result, the better-educated children of the rich would face more career competition, Bowles notes. Some might not like it.