Income Inequality Is off the Charts. Can Local Policies Make a Difference?

Theo Anderson December 26, 2016

The increasing consolidation of wealth is not inevitable. (Tish Wells/MCT via Getty Images)

The income gap between the class­es is grow­ing at a star­tling pace in the Unit­ed States. In 1980, the top 1 per­cent earned on aver­age 27 times more than work­ers in the bot­tom 50 per­cent. Today, they earn 81 times more.

The widen­ing gap is due to a boom in cap­i­tal income,” accord­ing to research by French econ­o­mist Thomas Piket­ty. That means the rich are liv­ing off of their wealth rather than invest­ing it in busi­ness­es that cre­ate jobs, as Repub­li­can, sup­ply-side eco­nom­ics pre­dicts they would do.

Piket­ty played a piv­otal role in push­ing income inequal­i­ty to the cen­ter of pub­lic dis­cus­sions in 2013 with his book, Cap­i­tal in the Twen­ty-First Cen­tu­ry. In a new work­ing paper, he and his co-authors report that the aver­age nation­al income per adult grew by 61 per­cent in the Unit­ed States between 1980 and 2014. But only the high­est earn­ers ben­e­fit­ed from that growth.

For those in the top 1 per­cent, income rose 205 per­cent. Mean­while, the aver­age pre-tax income of the bot­tom 50 per­cent of work­ers was basi­cal­ly unchanged, stag­nat­ing at about $16,000 per adult after adjust­ing for infla­tion,” the paper reads.

It notes that this trend has impor­tant polit­i­cal con­se­quences: An econ­o­my that fails to deliv­er growth for half of its peo­ple for an entire gen­er­a­tion is bound to gen­er­ate dis­con­tent with the sta­tus quo and a rejec­tion of estab­lish­ment politics.”

But the authors also note that the trend is not inevitable or irre­versible. In France, for exam­ple, the bot­tom 50 per­cent of pre-tax income grew by about the same rate — 32 per­cent — as the over­all nation­al income per adult from 1980 to 2014.

The dif­fer­ence? In the Unit­ed States, the stag­na­tion of bot­tom 50 per­cent of incomes and the upsurge in the top 1 per­cent coin­cid­ed with dras­ti­cal­ly reduced pro­gres­sive tax­a­tion, wide­spread dereg­u­la­tion of indus­tries and ser­vices, par­tic­u­lar­ly the finan­cial ser­vices indus­try, weak­ened unions, and an erod­ing min­i­mum wage,” the paper reads.

Piket­ty and Portland

Pres­i­dent-elect Don­ald Trump’s admin­is­tra­tion promis­es at least four years of poli­cies that will expand the gap in earn­ings. But a few glim­mers of hope are emerg­ing at the local level.

The city coun­cil of Port­land, Ore­gon, for exam­ple, recent­ly approved a tax on pub­lic com­pa­nies that pay exec­u­tives more than 100 times the medi­an pay of work­ers. The sur­tax will increase cor­po­rate income tax by 10 per­cent if exec­u­tive pay is less than 250 times the medi­an pay for work­ers, and by 25 per­cent if it’s 250 and over. The tax could poten­tial­ly affect more than 500 com­pa­nies and raise between $2.5 mil­lion and $3.5 mil­lion per year.

The coun­cil cit­ed Piketty’s Cap­i­tal in the Twen­ty-First Cen­tu­ry in the ordi­nance cre­at­ing the tax. Steve Novick, the city com­mis­sion­er behind it, recent­ly wrote that the dra­mat­ic growth of inequal­i­ty has been fueled by very high com­pen­sa­tion of a few man­agers at big cor­po­ra­tions, as illus­trat­ed by the fact that 60 to 70 per­cent of peo­ple in the top 0.1 per­cent of income in the Unit­ed States are high­ly paid exec­u­tives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s the clos­est thing I’d seen to a tax on inequal­i­ty itself.” He also said that extreme eco­nom­ic inequal­i­ty is — next to glob­al warm­ing — the biggest prob­lem we have in our society.”

Invest­ing in children

There is also hope­ful news in the edu­ca­tion­al realm. James Heck­man, a Nobel Lau­re­ate in eco­nom­ics at the Uni­ver­si­ty of Chica­go who has spent much of his career study­ing inequal­i­ty and ear­ly child­hood edu­ca­tion, recent­ly pub­lished a paper that lays out the results of a long-term study.

In The Life-cycle Ben­e­fits of an Influ­en­tial Ear­ly Child­hood Pro­gram,” Heck­man and oth­ers report that high-qual­i­ty pro­grams for chil­dren from birth to age 5 have long-term pos­i­tive effects across a range of met­rics, includ­ing health, IQ, par­tic­i­pa­tion in crime, qual­i­ty of life and labor income.

Pre­dictably, per­haps, the effects of the pro­grams weren’t lim­it­ed to chil­dren. High-qual­i­ty ear­ly child­hood edu­ca­tion also allowed moth­ers to enter the work­force and increase earn­ings while their chil­dren gained the foun­da­tion­al skills to make them more pro­duc­tive in the future work­force,” a sum­ma­ry of the paper reads.

While the costs of com­pre­hen­sive ear­ly child­hood edu­ca­tion are high, the rate of return of [high-qual­i­ty pro­grams] imply that these costs are good invest­ments. Every dol­lar spent on high qual­i­ty, birth-to-five pro­grams for dis­ad­van­taged chil­dren deliv­ers a 13% per annum return on investment.”

The research is impor­tant because ear­ly child­hood edu­ca­tion has bipar­ti­san sup­port. Over the sum­mer, the Learn­ing Pol­i­cy Insti­tute released a report that high­light­ed best prac­tices from four states that have suc­cess­ful ear­ly child­hood edu­ca­tion pro­grams. Two of them — Michi­gan and North Car­oli­na — are swing states in nation­al pol­i­tics. The oth­ers are Wash­ing­ton and a solid­ly red state, West Virginia.

Although it isn’t a sub­sti­tute for oth­er pol­i­cy tools to address inequal­i­ty, like pro­gres­sive tax­es, ear­ly child­hood edu­ca­tion has strong bipar­ti­san sup­port because it pro­duces mea­sur­able pay­offs for both chil­dren and the econ­o­my. One study found, for exam­ple, that the eco­nom­ic ben­e­fit of clos­ing the edu­ca­tion­al achieve­ment gaps between chil­dren of dif­fer­ent class­es would be $70 bil­lion each year.

Ear­ly child­hood edu­ca­tion fos­ters an increas­ing­ly pro­duc­tive work­force that will boost eco­nom­ic growth, pro­vide bud­getary sav­ings at the state and fed­er­al lev­els, and lead to reduc­tions in future gen­er­a­tions’ involve­ment with the crim­i­nal jus­tice sys­tem,” the Eco­nom­ic Pol­i­cy Insti­tute recent­ly not­ed. These ben­e­fits will, of course, mate­ri­al­ize only in com­ing decades when today’s chil­dren have grown up. But the research is clear that they will mate­ri­al­ize — and when they do, they are permanent.”

Theo Ander­son is an In These Times con­tribut­ing writer. He has a Ph.D. in mod­ern U.S. his­to­ry from Yale and writes on the intel­lec­tu­al and reli­gious his­to­ry of con­ser­vatism and pro­gres­sivism in the Unit­ed States. Fol­low him on Twit­ter @Theoanderson7.
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