The Rising Inequality of Opportunity in America

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Thu Feb 20, 2014 16:14:21PM | Categories: Business & Economy, Unemployment Benefits & Middle Class
The term "inequality" has been in the front of the news lately, not only because President Obama has made it a central part of his second term agenda, but also because many economists and political scientists recognize that for our democracy to survive, the current trends of increasing inequality must be abated. But just what do we mean when we speak of inequality? The term conjures up different visions depending on whether you are a liberal, conservative or something in-between.

To be clear, President Obama has never spoken of a redistribution of the wealth or equal incomes for all as some Republicans have twisted and misrepresented his words. Rather Obama has stressed the need for equal opportunity, a more level playing field, where hard work and ingenuity is rewarded with a livable income and new wealth generation, as opposed to redistribution of existing wealth:

"Now, the premise that we’re all created equal is the opening line in the American story. And while we don’t promise equal outcomes, we have strived to deliver equal opportunity — the idea that success doesn’t depend on being born into wealth or privilege, it depends on effort and merit." -- President Barack Obama speech to the Center for American Progress, December 4, 2013.

More recently, President Obama has spoken of the "ladders of opportunity into the middle class" and the "lack of upward mobility" of people born into poverty and never being able to climb that ladder, not for lack of effort or ambition, but for the way our political system has worked against them. From worker incomes that do not keep up with the rate of inflation, to cuts in funding for public education, to unaffordable costs of higher education and health care, to the loss of good manufacturing jobs by a tax code that encourages companies to move their businesses overseas, those striving to get into the middle class have found those opportunities lacking .

In 1968, the minimum wage was $1.60 per hour (Bureau of Labor Statistics). Adjusting for inflation, that would equate to a minimum wage of $10.71 in 2013 dollars. The periodic minimum wage increases since then have not kept up with the rate of inflation, and the last increase to $7.25 five years ago in 2009, equates to only $7.87 in 2013 dollars, 36 percent less than the 1968 rate. Even President Obama's $10.10 per hour for federal workers is 6 percent less than what we earned with minimum wage jobs in 1968.

It's not only the minimum wage that has contributed to inequality. For middle class workers having a better paying job, the worker productivity gains that helped many employers reap enormous profits have largely not been shared with their workers. According to an April 2012 Economic Policy Institute study, worker productivity grew 80.4 percent from 1973 to 2011, but at the same time the medium hourly wage increased just 10.7 percent.

In the meantime, the cost of a college education has far outpaced incomes making that climb up the ladder of opportunity even more difficult. According to a Bloomberg News 2012 study, the cost of a college education has increased 12 fold or 1,120 percent in the last 35 years (since 1978). And the cost of medical care has also increased substantially by 600 percent.

Not only have worker wages stagnated while costs of education and health care have risen at a rate far above the average rate of inflation, the share of the tax burden has also shifted disproportionally to middle class workers. In 1968 when I entered the work force, the top income tax bracket was 70 percent for incomes over 200,000 (joint return) and the economy and businesses were doing quite well at the time. That compares with 39.6 percent for incomes over $450,000 in 2013. While middle class and poor workers have also enjoyed lower taxes, the largest beneficiaries of tax cuts have been the rich, not only in terms of income tax rates but also in lower capital gains and dividends.

A 2011 study by the Economic Policy Institute showed that the top 1 percent (those making over $620,400) received 38 percent of the benefits of the Bush tax cuts while the bottom 60 percent (salaries less than $67,700) received less than 20 percent of the benefits. Much of the 1 percent's benefit was realized by cutting the capital gains rate to 15 percent in 2003, which was only passed in the Senate with Dick Cheney casting the tie breaking party line vote of 50 for and 50 against. No filibusters...no 60 vote threshold...just VP Dick Cheney casting a deciding vote that significantly changed the way the super rich have accumulated income and wealth in the last decade.

Meanwhile, corporations are allowed to take a tax deduction for the cost of physically moving plants and equipment overseas while abandoning their former US workers as Bain Capital did by moving Sensata Technologies operations to China as reported by AlterNet in 2012. In addition, by setting up overseas subsidiaries, corporations can indefinitely defer much of their overseas profits from US taxes. By some economists' estimates, deferred or yet untaxed profits on the books of US foreign subsidiaries now total over $2 trillion. The corporate incentives for foreign investment are driven by lower wages and benefits of "sweat shops", the lack of environmental and safety regulations, and also trade agreements with tariffs that place US made products at a disadvantage over foreign made goods. Attempts to rectify this situation are met with Republican cries of big government imposing socialism onto the so called "free market".

The stagnation of middle class income and opportunity also correlates with the decline in union membership. The Center for American Progress notes that nationwide, union membership declined from 28.3 percent in 1967 to a low of 11.3 percent in 2012. At the same time the middle 60 percent of household income declined from 53.2 percent in 1968 to only 45.7 percent of the nation's income in 2012, its lowest point since the Census Bureau started recording that data (see graph). The graph is indicative of how well the Republicans' incessant campaign of misinformation and fear mongering against unions has worked. In Tennessee this week workers at the Volkwagon plant narrowly defeated a plan to unionize the plant, in part because of misinformation put out by Republican Senator Bob Corker.

The Supreme Court has likewise been an unequal advocate for the rich and powerful by their 5-4 ruling of Citizen's United that opened the door to unlimited corporate financial support to Super PAC's; by the court's rollback of sections of the Civil Rights Act thus opening the door to voter suppression laws; and by the court's disallowance of the mandate for Medicaid expansion for the poor in the Affordable Care Act. The Supreme Court by their rulings have contributed to the rise in inequality.

All of these actions by our Congress, courts and State legislatures over decades have collectively stymied so many poor and middle class workers from reaching that American dream. Working against them are those with power, wealth and privilege that selfishly work to solidify or enhance their own economic status at the expense of the middle class and poor.

Inequality in terms of wealth and income will certainly always be a part of our society. It is a product of our capitalist system that some people will rise above others through the sheer effort of hard work, intelligence, physical capabilities, ingenuity and maybe a bit of good fortune. For those people that have lifted themselves out of poverty into a more prosperous life style because those ladders of opportunity were there, they are not the target of President Obama's initiatives to reduce inequality. Rather his efforts focus on resurrecting new ladders of opportunity consistent with Roosevelt era New Deal thinking.

Obama's specific focus, therefore, is to reduce inequality by expanding early childhood education, promoting health and nutrition programs for children, supporting unemployment benefits for those who have lost their jobs, providing food stamps for those needing a helping hand, pushing for equal pay for equal work, making college more affordable, raising the minimum wage, and revising the tax code to be more fair and progressive for the working middle class instead of favoring the rich and powerful. These are all good things that as Americans, everyone should embrace, but somehow are contrary to the conservative ideology of individualism.

Historians looking at the decline and fall of the Roman Empire note that inequality was a major contributing factor for its demise some 1,500 years ago. As Business Insider reports, "Rome's top 1% controlled 16 percent of the wealth, compared to modern America where the top 1% controls 40 percent of the wealth." Quoting Tim De Chant:

"In other words, what we see as the glory of Rome is really just the rubble of the rich, built on the backs of poor farmers and laborers, traces of whom have all but vanished. It’s as though Rome’s 99 percent never existed. Which makes me wonder, what will future civilizations think of us?"

Americans must educate ourselves on issues that affect us and others, we need to overcome the fear, anger and hate being promoted by extremists in our society, and we need to engage each other in a respectful debate based on facts instead of hyperbole and ideologies. And for those that prefer to sit on the sidelines, it is your apathy that is also partially responsible for the rising inequality in America. Unless we all start doing some real critical thinking, future generations may not enjoy the America as we have known it, but rather a society in decline, not unlike that of ancient Rome.

Those who are too smart to engage in politics are punished by being governed by those who are dumber. - - Plato.
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