Government gets blamed for widening wealth gap

San Francisco Chronicle, December 8, 2011

By Marisa Lagos

The state and federal governments are largely responsible for the widening gap between the rich and poor in the United States and should institute policy changes - including reforms to the tax code and more investment in education – to help reverse this 30–year trend, economists and researchers told state lawmakers Wednesday.

While many of the changes would need to take place at the federal level, professors from UC Berkeley and UC Davis said state leaders can play a role by instituting a more progressive tax system that asks wealthy individuals and successful corporations to pay more, and by investing in education and social services that help lower–income people succeed. Many of those public programs have been cut as California has faced budget deficits.

Speaking to the Assembly Committee on Accountability and Administrative Review, the academics laid out the staggering rise in income inequality that has occurred over the past three decades and said policymakers need to take more responsibility for the change.

Patterns transformed

"Over the past generation, the patterns of income growth have been radically transformed," said Paul Pierson, professor of political science at UC Berkeley, adding that the argument "that rising inequality is simply an economic reality ... too easily lets policymakers off the hook."

Pierson said that while the average person's tax rates haven't changed much in three decades, those for the "super rich" – those who take home more than $7 million a year after taxes – have, and in their favor.

"As much as one–third of the total gains of after–tax income for people making more than $7 million a year is the result of benefits they have received in the form of lower taxes," he said.

Rich get richer

Sylvia Allegretto, deputy chairwoman of UC Berkeley's Center on Wage and Employment Dynamics said that in 2008, the average annual pay for the top 1 percent of U.S. earners was well above $1 million after taxes – while the average pay for the 99 percent was just over $30,000 a year.

Meanwhile, wages have grown by nearly 40 percent for the top 10 percent of earners over the past three decades, while wages for the bottom 50 percent of earners have remained stagnant or fallen, she said.

Allegretto called this "you're on your own economics" and said it is "why we have workers who have paychecks along with food cards; it's why we have a term called the working poor." She noted that the 400 richest people in the United States, as calculated by Forbes magazine, hold about the same amount of wealth as the bottom 50 percent.

And Ann Stevens, director of UC Davis' Center for Poverty Research, sought to debunk the notion that economic inequality in the United States makes it more productive. She said that outside this country, there is no relationship between gross national product and inequality levels.

"At the current levels, it's simply not possible for a large fraction of U.S. earners to support themselves and their families, even if everything goes right," and they can work full time, she said.

All of the speakers endorsed more investment in all levels of education and programs that help lower–income people, as well as changes to the tax code. Specifically, Allegretto called for a state tax system that would create more brackets for those at higher income levels and lower taxes for those earning less.

"The burden cannot all be on the wealthy, but that's where we must start, given how well they have done," she said. "If we can level the playing field for workers, we may see a reversal of this trend."

The hearing came as the nonpartisan Institute on Taxation and Economic Policy released a study showing that 68 of the 265 most profitable Fortune 500 companies paid no state income taxes in at least one of the last three years; 20 of those companies paid no state taxes at all from 2008 to 2010, the report said.

 

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