Why Income Inequality Went Missing in the 2012 Campaign

Bloomberg: Why Income Inequality Went Missing in the 2012 Campaign

Why did inequality never become the defining issue of the 2012 campaign? It appears that voters, intuitively, don’t see it as the problem some politicians would have us believe.

Even economists disagree over how bad inequality is, the correct way to measure it, why it’s increasing and what to do about it. And most Americans, no matter how humble their circumstances, don’t resent the wealthy so much as strive to get rich, too. One point on which economists do seem to agree is that income inequality by itself isn’t harmful -- except when it’s so great that the scales of opportunity tilt. On that score, the U.S. has reason to worry.

Median household income is lower than it was a decade ago. At the same time, the gap between rich and poor has widened. Economists recently reported that the top 1 percent receive about a fifth of the national income -- up from less than a 10th in 1970 -- and control about a third of the country’s wealth.

The data, however, overstate inequality by not counting government transfers such as food stamps, unemployment insurance and Social Security. When these things are included, every income group shows modest gains from 1997 to 2007. When health benefits are also calculated, income disparity really drops off, with the bottom 20 percent registering income growth of about 26 percent. The top 5 percent show a 63 percent increase. ...

... Where does this leave us? If income inequality by itself isn’t bad, and if it’s not a zero-sum game, it’s debatable whether the tax system should be used to close the rich-poor chasm. Redistributing income might choke off growth. But with the opportunity gap growing, the tax code certainly shouldn’t encourage more inequality, as it now does. In that spirit, here are three tax and education reforms that might help rebalance the opportunity scales:

The estate tax is a good starting point. ...

Restricting these breaks would help make the tax code more progressive without redistributing income by raising rates. ...

Another idea catching on with lawmakers in both parties is education savings accounts, which work like 401(k) retirement plans. ...

Comments

[Dan]

Well, you may be overlooking the wealth divide as well. All too often CEOs of major corporations are being paid a relatively modest sum, however what is not being accounted for is the ability to build wealth, money that is not expended on necessities upon reception of such funds. Once you start tallying ratio of income to growth in wealth, the picture becomes incredibly stark. Government transfers, by design, prevents the build up of savings in the poor while attempts to tax growth in wealth has been met with such hostility that the GOP has pretty much run an entire campaign on trying to zero out taxes on such gains.

Also, while total redistribution may be out of the question, the incredible amount of wealth stored away by 1% of the population may do as much to hinder growth as the other extreme options.

[Michael W. Kruse]

Thanks, Dan. It is complicated.

With regard to you last sentence, I's suggest that the wealthy do have their wealth "stored away," as though it is under a bed or in a vault. They have it invested, which makes it available for use in the economy. I'm not suggesting that doesn't meant that more of it could be taxed, but rather that there are trade-offs. Taking money from the wealthy is also the same as reducing the amount available for economic growth. There are many trade-offs that have to be weighed.