Go straight to The Bottom Line
“Both my husband and I work full-time but we can’t seem to make enough money to support our family of four. We don’t live beyond our means. We would like to buy a home someday but right now we are renting a two-bedroom apartment. By the time we pay for our rent, groceries, utilities, childcare, healthcare and other daily living expenses, there’s nothing left over for savings and we just keep falling further and further behind. I’m losing hope that we’ll ever be able to own a home and I don’t know how we’re going to afford college for our children. I see other people making it but it feels like we don’t have a chance.”
The income and wealth gap in the U.S. has been increasing steadily over the past five decades and is greater in the U.S. than in any other democracy in the developed world.
That’s worth reading again. We have had five decades of steadily increasing distance between the earnings and wealth of the nation’s richest people, and the vast majority. We are the worst in the developed world, in this respect.
The fact that there is a significant income and wealth gap is not disputed. However, the ongoing debate about what to do to remedy this disparity has not led to action and major change. There is a disproportionate burden on economically disadvantaged Americans that prevents them from realizing their goals and aspirations. Additionally, the Covid-19 pandemic has exposed not only the economic inequality in our country, but it has highlighted the profound impact on the health and longevity of lower-income Americans as they have suffered higher infection and mortality rates.
How bad is it? What are the stakes?
- The top fifth of the population in 2018 earned more than half of all U.S. income while the bottom fifth earned about 3% of all U.S. income.
- The Tax Cut and Jobs Act of 2017 helped an already-solid economy expand further in 2018-19. But because of its trillion-and-a-half cost in current and future taxes and the way it is structured, it effectively “takes resources from future generations and from today’s lower- and middle-income households to enrich today’s well-to-do,” according to the Brookings Institute. “It will take resources away from other badly needed social and economic priorities.”
- 30% of Americans make less than $10.10 per hour, which places them below the federal poverty level.
- Home-ownership is more out of reach for everyday Americans than ever before.
Which political party and presidential candidate will enact laws and regulations to reverse these trends and enable all Americans to live with dignity and work for a living wage?
A word search for “inequality” comes up empty in the 2016 Republican Platform (Republicans resolved to not adopt a new platform for 2020). The whole concept is not viewed as an urgent problem needing a solution by the GOP. Trump’s own personal history of tax avoidance and exaggerations of his wealth despite years of heavy business losses, documented in the recent release of his tax returns by The New York Times, symbolize the priority that the GOP has placed for many decades on the most affluent 5 to 10% of the American people.
On the other hand, the word “inequality” appears six times in the 2020 Democratic Party Platform, which states, “Democrats stand ready to take immediate, decisive action to pull the economy out of President Trump’s recession by investing in infrastructure, care work, clean energy, and small businesses to put Americans to work in good-paying jobs; shoring up state and local budgets to save jobs and protect public health in the ongoing COVID-19 pandemic; and enacting fundamental reforms to address structural and systemic racism and entrenched income and wealth inequality in our economy and our banking system.”
The Brooking Institute called Trump’s tax cut “a fixable mistake” and described it this way: “Tax Cuts and Jobs Act of 2017 (TCJA, P.L. 115-97) was the largest tax overhaul since 1986. Rushed through Congress without adequate hearings and passed by a near-party-line vote, the law is a major legislative blunder badly in need of correction.”
The tax proposals advocated by Biden would reverse these tax cuts by shifting the tax burden to high-income individuals and corporations. According to the party’s platform: “Democrats will take action to reverse the Trump Administration’s tax cuts benefiting the wealthiest Americans and rewarding corporations for shipping American jobs overseas. We will crack down on overseas tax havens and close loopholes that are exploited by the wealthiest Americans and biggest corporations. We will make sure the wealthy pay their fair share in taxes. We will make sure investors pay the same tax rates as workers and bring an end to expensive and unproductive tax loopholes, including the carried interest loophole. Corporate tax rates, which were cut sharply by the 2017 Republican tax cut, must be raised, and ‘trickle-down’ tax cuts must be rejected. Estate taxes should also be raised back to the historical norm.”
The Democrats in the House of Representatives have tried to put these issues on the table. In July 2019, the House passed the Raise the Wage Act with a 231-199 vote to gradually raise the federal minimum wage to $15 per hour by 2024. Senate Majority Leader Mitch McConnell has said that the Senate would not be taking up the bill and the White House warned that Trump would veto the bill. Gradually raising the minimum wage to $15 by 2024 would directly lift the wages of 22.5 million workers. On average, these low-wage workers would receive a $3.10 increase in their hourly wage, in today’s dollars. For a directly affected worker who works all year, that translates into a $5,100 increase in annual wage income, a raise of 31.3 percent. Concerns that this increase would lead to widespread job losses have not been borne out in states that have raised their minimum wages.
The Bottom Line
There is no real doubt that Republican tax and related policies have primarily benefited the richest 10% of Americans at the expense of the other 90%. Economic inequality has been spurred by Republican policies ever since Ronald Reagan’s terms in office and were exacerbated by the two Bush presidencies. Current Republican opinion, as reflected in the tax overhaul of 2017 championed by President Trump, shows little distance from these strategies and in fact a doubling-down on them, with continuing negative impact on the income and wealth gap.
For the vast majority of Americans, the only route to closing the vast gap between the American rich and everyone else is to dampen – at least temporarily – Republican control of Congress and the White House and commit to a thorough rethinking of our core economic policies in the manner of Roosevelt in the 1930s.