Ammo from Barlett and Steele

Conventional wisdom has it that time-starved readers want bits and brites, and will not sit still for 75,000 words about tax policy, health care, pension rules, corporate debt, and the bankruptcy code. The Philadelphia Inquirer ran just such a story, however -- a nine-part series called "America: What Went Wrong?" -- and soon had to call out security guards to deal with a crowd down in the lobby demanding reprints. Eventually, after distributing 375,000 reprints, the paper called a halt; and expanded version of the October series will be published in book form this month by Andrews and McMeel.

So far, some fifty other newspapers have run at least part of the series, which sparked one of the largest surges in circulation in the Inquirer's history. It has generated an astounding 20,000 letters -- a clear indication of a pent-up demand for serious economic analysis. Editors and presidential candidates, take note.

The series was written by Donald Barlett and James Steele, who won Pulitzer Prizes in 1975 and again in 1989 for articles having to do with U.S. tax policy. This time they set themselves the ambitious task of trying to find a pattern in the economic chaos of the 1980s. They spent two years gathering documents and interviewing. Their conclusion: "Those people in Washington who write the complex tangle of rules by which the economy operates have, over the last twenty years, rigged the game -- by design and default -- to favor the privileged, the powerful, and the influential. At the expense of everyone else."

The following, adapted by Barlett and Steele from their series, is meant as ammunition for reporters and editors who are trying to find out what the presidential candidates have in mind for the nation's economic future -- an aid to formulating some smart questions.

THE SALARY GAP Between 1980 and 1989, the combined salaries of people in the $ 20,000-to-$ 50,000 income group -- the heart of the middle class -- increased 44 percent. During that period the combined salaries of people earning $ 1 million or more a year increased 2,184 percent.

Viewed more broadly, the total wages of all people who earned less than $ 50,000 a year -- 85 percent of all Americans -- increased an average of just 2 percent a year over those ten years. Those figures are not adjusted for inflation, which cuts across all income groups but hits the lower and middle classes hardest.

AMERICA'S BOTTOM HALF Almost half of all Americans who had jobs and filed income tax returns in 1989 earned less than $ 20,000. Between 1980 and 1989, the average wage earned by those in the under-$ 20,000 income category rose $ 123 -- from $ 8,528 to $ 8,651. That was an increase of 1.4 percent.

Over the decade, the average salary of people with incomes of more than $ 1 million rose $ 255,088 -- from $ 515,499 to $ 770,587 -- an increase of 49.5 percent. That, it should be emphasized, was their increase in wages and salaries alone. (In 1989, salaries, on average, amounted to just 29 percent of the total income received by persons earning more than $ 1 million.)

THE UPPER CRUST Meanwhile, the number of people reporting incomes of more than half-million dollars rocketed from 16,881 to 183,240 -- an increase of 985 percent. This represents the largest percentage increase in this century.

Compare that with the 1950s, the decade that saw the largest expansion of the middle class. It was a time when ever more Americans climbed the economic ladder and substantially improved their living standard. It was also a time when the number of people reporting more than a half-million dollars in income barely rose, from 842 in 1950 to 1,002 in 1959, a gain of 19 percent.

VANISHING FACTORIES In the 1980s, higher-paying jobs in manufacturing disappeared at a rate unmatched since the Great Depression.

In the 1950s, businesses added 1.6 million manufacturing jobs. They added 1.5 million such jobs in the 1960s, and 1.5 million in the 1970s. But in the 1980s corporations eliminated 300,000 manufacturing jobs. If the trend continues, 500,000 or more will be erased in the 1990s.

Job growth was centered in the retail trade and service sectors, which pay the lowest wages. While the number of manufacturing jobs fell 1.3 percent from the 1970s to the 1980s, dropping from an average of 19.6 million to 19.3 million, the number of retail trade jobs climbed 32.5 percent, rising from 12.8 million to 17 million. The retail trade workers, whose numbers are growing, earn on average $ 204 a week. The manufacturing workers, whose numbers are dwindling, earn $ 458 a week.

During the 1950s, 33 percent of all workers were employed in manufacturing. Now the count stands at 17 percent -- and falling.

THE BORROWING BINGE A major reason for the declining fortunes of workers: American companies went on a borrowing binge through the 1980s, issuing corporate IOUs at the rate of $ 1 million every four minutes, twenty-four hours a day, year after year.

By the decade's end, companies had piled up $ 1.3 trillion in new debt -- much of it to buy and merge companies, leading to the closing of factories and elimination of jobs.

That debt required companies to divert massive sums of cash into interest payments, which in turn meant less money was available for new plants and equipment, less money for research and development. During the 1950s, when manufacturing jobs were created at a record pace, companies invested $ 3 billion in new manufacturing plants and equipment for every $ 1 billion paid out in interest. By the 1980s, that pattern had been reversed: corporations paid out $ 1.6 billion in interest for every $ 1 billion invested in manufacturing plants and equipment.

Similarly, for every $ 1 billion that corporations paid out in interest on borrowed money during the 1950s, they allocated $ 710 million for research and development. In the 1980s, however, corporations spent only $ 220 million on research and development for every $ 1 billion in interest payments.

Throughout the 1980s, corporations paid out $ 2.2 trillion in interest, more than double their interest payments throughout the 1940s, 1950s, 1960s and 1970s -- combined.

EXECUTIVE COMPENSATION The news media have written at length on high corporate salaries, but most publications have suggested that high-paid executives are the exception. They are not.

An analysis of tax return data shows that in 1953 executive compensation -- which includes the earnings of all the officers in a given company -- was the equivalent of 22 percent of gross corporate profits. By 1987, the latest year for which detailed figures are available, executive compensation was the equivalent of 61 percent of gross corporate profits.

WHO PAYS THE TAXES? During the 1950s, when more Americans than ever attained middle-class status, the federal government collected $ 478 billion in combined individual and corporate income taxes. Of that, corporations paid 39 percent, individuals 61 percent. During the 1980s individual and corporate income tax collections soared to $ 4 trillion. Of that $ 4 trillion, the corporate share dwindled to 17 percent, the individual share swelled to 83 percent.

Corporations have succeeded in reducing their share of the tax burden in part through a provision in the government rule book that permits a virtually unlimited deduction for interest on corporate debt.

In effect, if your income was less than $ 30,000 a year during the 1980s, every penny that you -- and the other 70 million people in that income bracket -- paid in federal income tax during the decade went to offset the taxes lost from the deduction for interest on corporate debt.

TAX "REFORM" In 1985, the year before the Tax Reform Act was passed, those with incomes between $ 30,000 and $ 40,000 paid combined federal income and Social Security taxes of $ 6,663. That was 19 percent of their income. In 1989, three years after "tax reform," they paid $ 6,177, or 17.6 percent. That amounted to a 7 percent cut in tax rates.

By comparison, during that same period, those with incomes between $ 500,000 and $ 1 million saw their combined taxes fall from $ 243,000 to $ 168,714. That amounted to a 31 percent cut in tax rates.

PENSIONS: FUTURE SHOCK The number of Americans covered by a guaranteed pension plan is declining. From 1975 to 1980, the number of workers participating in a pension plan insured by the federal government rose from 26.8 million to 29.7 million.

It has been downhill ever since. From 1980 to 1988, the latest year for which figures were available, the number fell to 27.8 million, although employment rose substantially in that period -- from 78.3 million to 93 million. Thus, while the workforce grew 19 percent, the number of workers with insured pensions fell 6 percent.

Meanwhile, since passage of the Employee Retirement Income Security Act in 1974, the share of the workforce enrolled in a pension plan guaranteed by the federal government has fallen steadily -- from 39.4 percent in 1975 to 29.90 percent in 1988.

As those statistics suggest, the number of workers without guaranteed pensions -- or with no pension coverage at all -- has climbed sharply since Congress set out to protect the private pension system.

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