During the recession, from 2007 to 2009, the share of income earned by the top 1 percent of American workers stayed flat. As the stock market crashed, both high-wage and low-wage earners saw their incomes drop.
But the recovery has been much tougher for those on the lower end.
In 2010, the top 1 percent of Americans on average saw their incomes rise 11.6 percent, according to a recent study by Emmanuel Saez, an economist at the University of California at Berkeley. By contrast, the rest of the country inched up 0.2 percent. In other words, writes Saez, “the top 1% captured 93% of the income gains in the first year of recovery.”
A primary driver of inequality has also been exploding executive pay. Although the White House vowed to rein in compensation at companies that benefited the most from taxpayer-paid bailouts, some large salaries were still approved. The administration’s “pay czar,” for instance, approved a $10.5 million pay package for the chief executive of American International Group.
Courting the middle class
Both Obama and Romney have been targeting middle-class Americans for support. In fact, Romney has been so eager to prove his bona fides with these voters that in February he said he was, by contrast, “not concerned about the very poor.”
“The best thing we can do for the economic well-being of the people of America is not to grow government; it is to restore freedom and opportunity,” Romney said. “To build a strong economy that provides good jobs and rising wages and that reduces poverty, we need to build successful businesses of every kind imaginable.”
Obama’s view is that income inequality itself creates a broader economic problem that is bad for everyone.
“What drags down our entire economy is when there’s an ever-widening chasm between the ultra-rich and everybody else,” Obama said last week.
Given the myriad causes of income inequality, there are questions about whether tweaking the tax code, as Obama has suggested, is a sufficient solution.
“Using the tax code to address that issue is almost like treating a symptom and not treating the disease,” said Howard Gleckman, a resident fellow at the Urban Institute and editor of the Tax Policy Center’s blog, TaxVox. But, he adds, giving further tax benefits to the rich could exacerbate things.
“It’s not even a problem of, ‘Do you want to use the tax code to smooth out some of the inequality?’” Gleckman said. “The question is: Do you actually want to reform the code in ways that make that inequality worse?”