Income inequality is growing and it’s a problem. New analysis of household income data shows a disturbing nationwide trend of growing income inequality over the last three decades. In Maine, as in the nation as a whole, incomes for the richest families grew faster than incomes for low- and middle-income families between the late 1990’s and the mid 2000’s. Households at all income levels saw incomes fall during the economic recession of 2007-2009, but while incomes are growing again for the richest households, those at the bottom and in the middle continue to stagnate.
The report, Pulling Apart: A State-by-State Analysis of Income Trends, released in Maine in coordination with the Maine Center for Economic Policy, makes clear that income inequality is growing out of control.
Inequality is a serious problem. As shown by Benjamin Friedman in his 2005 book The Moral Consequences of Economic Growth, when the broad majority of the population feels like they are falling behind, intolerance grows and trust weakens. In addition, recent research by the International Monetary Fund and other groups show that countries around the world with higher levels of income inequality have less economic growth over time.
Unfortunately, many lawmakers in Washington DC appear determined to continue stacking the deck in favor of the wealthiest, most politically connected individuals and corporations in the country, refusing to rein in corporate tax breaks and extremely generous tax rates for the wealthiest families. They continue to argue that taxes are too high and that raising taxes on the rich will hurt economic growth.
They are wrong on both accounts. America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in over 80 years. Corporations are sitting on nearly $2 trillion in profits. Furthermore, as shown in a recent report from the Congressional Research Service that was subsequently suppressed by republicans in Congress, there is no evidence in the post-WWII era for the idea that taxes on the rich matter for economic growth. Although top tax rates have no discernible impact on the size of the economic pie, they do affect how the pie is sliced. The historically low top tax rates on income for both households and corporations have helped grow the ominous gap between the richest 1% and everybody else over the past thirty years.
On top of all of these inconvenient facts, income inequality and extremely low tax rates for the rich are helping drive unsustainable budget deficits into the future. Policies from the Bush administration (tax cuts and wars) and the recent economic downturn are the main drivers of our long-term deficits.
It’s time for the rich to pay their fair share. In the long run, it’s better for everyone, including them.