Akron Beacon Journal...
Confirmation of income inequality
By Michael Douglas 
October  31, 2011 

Writing in the spring issue of the journal Democracy, Ezra Klein of the Washington Post noted a recent survey that found most Americans aren’t aware of the deepening income inequality in the country. They believe wealth is distributed far more equally than it actually is. 

Are they becoming more aware? 

Look at the expanded Occupy Wall Street movement, even the opposition in Ohio to Issue 2, the referendum on narrowing collective bargaining for public employees, and the answer appears to be “yes.” 

In that way, the timing of the Congressional Budget Office couldn’t have been better, highlighting what should be one of our most pressing concerns. 

In a report released last week, the nonpartisan CBO confirmed what many private researchers have discovered: The flow of household income the past 30 years has skewed heavily toward the wealthiest Americans, the current inequality unmatched since the 1920s. 

Consider that average household income (adjusted for inflation) grew by 62 percent from 1979 to 2007. For the wealthiest 1 percent of Americans, after-tax income increased 275 percent. The other households? The top 20 percent experienced a 65 percent increase. The middle three-fifths? Incomes expanded by just under 40 percent And the poorest one-fifth? About 18 percent higher. 

No wonder the overall share of household income for the top 1 percent more than doubled, climbing from 8 percent to 17 percent. 

By 2007, the after-tax income of the most affluent one-fifth exceeded the income of the other four-fifths of households. Those in the middle three-fifths saw their share of after-tax income decline by 2 percentage points to 3 percentage points. 

Worth weighing, too, is what would have happened if the income of each one-fifth grew at the average rate. The bottom four-fifths would be wealthier (the middle one-fifth by roughly $12,000). The top 10 percent would be slightly poorer. 

The top 1 percent? An average income exceeding $1 million would be reduced by more than half. 

What explains the trend in income inequality, especially the rapid growth at the top? 

The CBO joins many others in concluding that “the precise reasons … are not well understood.” It points to likely suspects. The evolving world of mass media has turned into big rewards for “superstars,” athletes, musicians and actors. The structure of executive compensation has changed dramatically, the ratio of chief executive pay to employee pay ballooning from 40 to 1 to 300 to 1. The financial sector has expanded in scale, translating into huge returns for its players. 

The budget office cites the role of public policy, explaining that government has been doing less to ease the concentration of income. Federal taxes today have a smaller “equalizing effect,” and the same goes for benefit programs, Social Security, for instance, going to older Americans regardless of their income level. 

In their 2010 book, Winner-Take-All Politics, Jacob S. Hacker and Paul Pierson amplify on this altered landscape. They argue that Washington has lost sight of the middle class. 

They start with an unintended consequence. The achievements of the New Deal, the Great Society, the environmental and consumer movements served as a wake-up call to business about the need to get organized, to mobilize a lobbying contingent. Add the growing expense of campaigns, pols inclined to follow the money, and soon enough, Republicans and Democrats championed the likes of deregulation. 

The crack-up on Wall Street serves as Exhibit A, pols with hands out, regulators stepping back. 

Admittedly, that is a simple retelling. Hacker and Pierson don’t uncover exactly the reasons for the widening income inequality. They do offer a strong case for public policy-makers stepping up to ease the fallout. 

There’s little likelihood of recreating the glory of the 1950s and 1960s, incomes climbing at fortysomething percent per decade (when the top marginal income tax rate stood as high as 90 percent). Obviously, talent and innovation must be rewarded. 

What the country, and the state, must keep in mind is that opportunity suffers when college tuition proves so burdensome or public schools are squeezed excessively or an illness can mean financial ruin. Klein of the Post points to one set of researchers concluding that the slowing of educational attainment explains half of the rise in income inequality. 

Investing in people or public works, or managing well public finances, requires sufficient resources. Is it too much to ask those who have had such good fortune to pay taxes at marginally higher rates, or to forego part of their public benefits, all in the pursuit of a collective good? 

The past three decades, virtually all income growth went to the wealthiest 10 percent. An accurate reflection of their contribution? 

Read this and other articles at the Akron Beacon Journal