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Income inequality is surging, and there are few countries where it is rising faster than the United States. The distance between rich and poor is greater in America than nearly all other developed countries, making the US a leader in a trend that economists warn has dire consequences. GlobalPost sets out on a reporting journey to get at the ‘ground truth’ of inequality through the lenses of education, race, immigration, health care, government, labor and natural resources. The hope is to hold a mirror up to the US to see how it compares to countries around the world.

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The abandoned General Electric factory in East Bridgeport, CT. (Ed Kashi/VII/GlobalPost)

Prescriptions for improving American income inequality

As the rich get richer and everyone else is left behind, how can the US return to the American Dream?

NEW YORK — Contrary to promises that lower tax rates for the rich would “raise all boats,” the tide went out for most Americans over the past three decades as most of the wealth created by the US economy was absorbed by those at the top.

Households in the middle three bands or “quintiles” of US earners — roughly equating to lower middle, middle and upper middle class — all lost ground to the top fifth (20 percent). And the distance between the top and bottom 20 percent is pulling further and further apart. This even as Americans worked longer hours with greater productivity and as their wives joined the workforce en masse. Compounding the problem, American workers found themselves facing global rather than just local competitive pressures. 

Indeed, the richer you are, the better the story of the past three decades has been.

The non-partisan Congressional Budget Office reports that the share of US national income going to the richest 1 percent of Americans has doubled since 1980, from 10 percent to 20 percent, about where it was in 1910.

For the super-rich, about 16,000 families with an average annual income of $24 million representing to 0.01 percent, has quadrupled, from just over 1 percent to almost 5 percent.

A Congressional Research Service report affirmed that view last year, stating that “US income distribution appears to be among the most unequal of all major industrialized countries and the United States appears to be among the nations experiencing the greatest increases in measures of income dispersion.”

Ranked against peer economies — the world’s BRICS and other giants — only in the developing markets of South Africa, Brazil and China was the economic playing field as unbalanced.

How did this happen?

And what can or should be done about it?

There is broad agreement on the first question of how three decades of robust US GDP growth and wealth creations wound up in the pockets of society’s wealthiest people.

But there is far less agreement among leading economists and government officials about what can be done in the US and what can be done globally to address a steady rise in income inequality across all 34 of the most industrialized countries that are grouped together by the Paris-based economic agency known as the Organization for Economic Cooperation and Development, or OECD.

As President Obama prepares to take the oath for his second term Monday, he and his economic advisers intend to set out a path that will seek to convince congress to revise the tax code and call upon the richest households in America to step up and do more in an effort to restore a “more level playing field,” as Obama consistently puts it, for the country as a whole.

HOW TO ADDRESS THE PROBLEM

The Obama administration has promised to make tax reform and other measures to level the playing field a priority. But Obama’s team has been engaged in almost non-stop brinksmanship with the Republican-controlled House, prompting incremental horse-trading. To date, a comprehensive “grand bargain” that includes changes to the tax code has not emerged, though the president has said he favors restoring tax rates that were in effect back in the late 1990s, when President Bill Clinton’s government ran a budget surplus.

During various stages of the so-called fiscal cliff debate, Obama has asserted the need to close corporate loopholes, reform capital gains taxes to ensure a minimum increase in the percentage is paid by the wealthy. Obama has also said he wants to reinstate taxes on inherited wealth and provide more money for middle class college loans. In exchange, he would “reform” entitlement programs and cut defense spending, but, again, a comprehensive proposal that could substantively impact existing levels of income inequality remains to be seen.

Outside political circles, many economists have weighed in. Paraphrasing complex economic prescriptions is dangerous of course, but here is a look at what several prominent thinkers recommend.

Nouriel Roubini, who gained notoriety after predicting with considerable accuracy the financial crisis three years before it occurred, has consistently said the US needs to invest in infrastructure and education “to avoid an acute human capital crisis” — in effect, a future with a population unable to compete in the global economy.

To pay for all this, Roubini would propose raising

http://www.globalpost.com/dispatch/news/regions/americas/united-states/130115/improving-american-income-inequality