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America’s disturbing wealth disparity

| Friday, April 25, 2014

Over the past few years, the increasing wealth disparity in the United States has gained the attention of academics, journalists and politicians. Just yesterday, The New York Times published an extensive story declaring, “The American Middle Class is No Longer the World’s Richest,” accompanied by a swath of alarming new data that shows substantial lags behind Western Europe and Canada.

Most would agree that these concerning patterns starkly emerged as a result of the tax policies put in place by the Reagan Administration, and were exacerbated by the decline of labor unions and subsequent policies of the Bush Tax Cuts in the early 2000s. Of course, some level of inequality is inevitable in a nation that values freedom as well as equality, but today’s dramatic disparity far surpasses what anyone can consider healthy.

Currently, levels of income inequality equal those of the 1920s and continue to grow. As Politico Magazine and Pew Research report, the top one percent of American incomes have increased nearly 280 percent over the past 20 years, as the bottom 20 percent of wage earners have seen growth of only 18 percent. Furthermore, the top 20 percent of the nation owned 88.9 percent of the total wealth in 2010, while the bottom 40 percent owned less than one percent. These figures are staggering and have severe consequences. Scientists have produced compelling studies that connect high levels of income inequality to many societal maladies, including lower quality of health, lower life expectancy rates, unequal political engagement, increased corruption and frail economies.

Most recognize these patterns as a problem that must be addressed — though many prominent conservatives continue to disregard the issue with the flippant label of “class warfare” — for 69 percent of Americans believe that the government should do something about the rising levels of inequality, according to a recent survey from Pew Research. However, proposed solutions are highly varied.

Some understand the key to lie in increased economic freedom for all Americans. This liberty must come in the form of lower tax rates across the board ⎯ for individuals and corporations alike ⎯ as well as cuts to programs that supposedly “perpetuate the cycle of poverty,” like welfare, Medicaid, food stamps and various other channels of discretionary spending. By allowing Americans to retain greater percentages of their annual income, rather than contributing to inefficient federal programs, the argument goes, families will have more discretion that will lead to opportunity. Much-needed reform to today’s social programs will also aid in greater upward mobility since poor Americans will no longer be trapped by incentives to remain on Uncle Sam’s dollar, but will be encouraged to seek employment and independence.

However, these ideas are sorely misguided. They fail to address the problem at hand and, in reality, would aggravate the existing trends even further. The guise of “personal liberty” masks the true outcomes of such a course of action, which would include significant tax breaks for top earners and crippling cuts to vital programs that have been proven successful by independent research.

According to The Washington Post, if Paul Ryan’s “Path to Prosperity” Budget Proposal, which encompasses many of the aforementioned ideas and was passed by the House on April 10, were to be enacted, it would cost the government $5.7 trillion dollars over the next nine years, in spite of cutting only $5.2 trillion to social programs — resulting in a loss of $500 billion. Therefore, in addition to increasing inequality and posing disastrous threats to millions of Americans who depend on governmental services, such solutions would bring about severely problematic fiscal consequences.

Instead, the proper solution for addressing rising levels of income inequality is based on legislative action in the form of progressive tax reform and education. Through tax policy that targets capital gains, corporate loopholes and the very top earners to which the “Buffett Rule” should apply, we can begin to slow the rising levels of inequality while simultaneously increasing federal revenue that is so desperately needed.

Beyond this direct approach, the more holistic solution depends on the restoration of our country’s shrinking middle class. Educational efforts like universal pre-K and increased funding to community colleges directly lead to adulthood success and pave the clearest path to a strengthened middle class. These ideas address the problems at hand through both broad and specific lenses and will begin to close the overwhelming gap between rich and poor.

Social scientists across the board agree that education is the clearest link to higher incomes, levels of employment, life expectancy, civic engagement and health. By choosing to invest in a proven stepping-stone to positive outcomes and reforming federal tax codes to promote equity, we will be taking the first steps in addressing a complex issue that invariably affects us all.

The views expressed in this column are those of the author and not necessarily those of The Observer.

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  • All

    Gut the military. Definitely would alleviate so much unnecessary spending.

    • Not at all

      Military spending accounts for 19% of the budget.
      Social Security accounts for 24% and Medicare, Medicaid and CHIP account for 22%. Various safety net programs (earned income and child income credit are examples) account for 12%. Another 8% goes to federal employees and veterans as retiree benefits.
      By my math that means 66% of the budget is being spent on transfer payments to citizens. Interest on the national debt is 6% of the budget.
      Yeah…gut the military. That will solve the problem.

      • Anonymous

        Keep funding the generations of people who depend on the government…haha I totes agree with you, Not At All. People who think welfare systems work are insane. What would the lazy-class do without federal aid?

  • McLovin

    I didn’t realize that “scientists” studied income inequality

    • Iheanyi E.

      You know, there is an area called the Social Sciences.

      • McLovin

        Yes, but when we talk about a psychologist or an economist, we call them a psychologist or an economist. Perhaps we call one a “social scientist,” in some instances. However, “scientist” by itself already carries a certain connotation, just like how PhDs are “doctors.”

  • Johnny Whichard

    One aspect I wish you could have defended better was the “cycle of dependency”. You brushed away that counterpoint when it is damning to your whole argument.

  • Food for Thought

    It seems you forgot one statistic in your article: the top 20% pays 94% of the income taxes paid in the United States. Even with the huge share of the national wealth that they hold, they still pay an even larger share of the income taxes paid. It seems very inaccurate to suggest that the wealthy don’t pay their fair share.

    Furthermore, your statistic about the top 20% of the country holding 88% of the wealth is slightly misleading. This makes it seem as if there is a reasonably large number of people (one fifth of the nation) who hold tons of wealth. In fact, it is only a very small handful of people in this country who hold most of the wealth. The 400 wealthiest people in the US hold the same amount of wealth as the bottom half of the country.

    That last paragraph may have sounded like an indictment on the super wealthy, but in fact it was not. I think it’s good that those people hold so much wealth because they changed the world for the better in order to get it. The top earners in this country started companies like Microsoft and Wal-Mart. And why did they start these companies that greatly benefitted the American people? Because they stood to gain a lot from it. Before the Reagan tax cuts, the top tax bracket was 50%. That’s astronomical. The thought that half of the money that someone worked so hard to earn could be taken away and spent by others is scary. The more of someone’s earnings you take away, the less incentive they have to work hard. If these wildly successful companies go, so will the great contributions they make to society. Furthermore, the government (both parties) has shown lately that it cannot control its spending. They just spend, spend, spend and say that they need more tax money as they continue to waste billions. It is not more tax money they need; it is better control of the spending. No matter how much money you make, you can always find a way to spend it. Our government (again, both parties) has shown this to be true.

    • sheesh

      Accidental oversight on her part, I’m sure.