Jane Wells reported last December on CNBC that the Congressional Budget Office had issued a report analyzing the amount of taxes paid by the “five tiers of wage earners” for 2010.The report doesn’t seem to indicate that the rich are getting away without paying their fair share, although those who advocate there is income inequality will find ammunition for their argument if they read deeper into the report. The report presents the statistics on payment of taxes by the different income groups in a variety of graphs and written discussions. (The report is overly long and not written to keep your attention, but it contains thought-provoking information.) Table 3 on page 13 shows the lowest wage-earning quintile pays 0.4% of all federal taxes, the second quintile pays 3.8%, the third 9.1%, the fourth 17.6% and the top quintile pays 68.8%.

The report includes the interesting kicker that the top three quintiles pay all the taxes!  Page 11 of the report says, “Much of the progressivity of the federal tax system derives from the individual income tax. In 2010, the lowest quintile’s average rate for the individual income tax was -9.2 percent and the second income quintile’s rate was -2.3%…(A group can have a negative income tax rate if its refundable tax credits exceed the income tax otherwise owed.)…For example, although the lowest quintile’s average rate for individual income tax was about -9 percent, more than one-quarter of the households in that quintile had an average rate below -15 percent, more than one-quarter had a rate of zero or higher, and nearly half had an average rate between -15 percent and zero.”

None of that information should be encouraging to those who want themselves to pay less in taxes and “the rich” to pay more. However, they can become fired up again if they patiently read the entire report. Page 19 reports on changes in the distribution of income. “The Census Bureau estimates that real mean household money income rose by 0.2 percent in both 2011 and 2012. The…data indicate that there was a decline in household income for all groups other than the households in the top quintile. Consequently, income…became more unequal.”

I continue to believe that the nearly constant political rhetoric of achieving income equality has not been matched by policy. The Federal Reserve policy of easy money and low interest rates has punished fixed income investors and the middle class while rewarding Wall Street. Money usually invested for safety has been driven into the stock market where somewhat decent dividends can be earned. Supply and demand has therefore driven the stock market to frequent all time highs.

I’m guessing the market will continue to set new records until the Federal Reserve announces higher interest rates. That will, I think, bring a frightening drop in the market that the stock market commentators will describe in less ominous terms “a correction.” History has shown that “retail investors” (read middle class investors) usually decide they must get into the market when it is setting new highs. My fear is that people will try to chase the remarkable gains in the stock market just before the correction hits.

I suppose I should reveal what I’ve been doing, although I hope no one thinks I know what I’m doing. I’ve been selling what I consider to be what I think are my weakest investments and building up cash. My objective is (what has become my favorite term) “capital preservation.” I heard an analyst say that I am getting out “in the sixth inning of a long-term bull market.” I’m o.k. with that. I don’t want to be there when the market reaches the bottom of the ninth.