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Obama puts spotlight on growing income inequality

Martin Desmarais
Obama puts spotlight on growing income inequality
President Obama delivers his State of the Union address last week. The president called for policies to narrow the income gap between the wealthy and the poor.

President Obama called on the country’s leaders to make 2014 “a year of action” to address the growing wage gap in the United States during his State of the Union address last week.

“Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better,” he said. “But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by — let alone get ahead. And too many still aren’t working at all.”

His call to action mirrors moves in Massachusetts and cities and states across the country to apply public policy to the deepening wage divide. Policy makers see local and national initiatives to increase the minimum wage and provide tax credits for low income workers as steps to bridge that divide.

Obama’s remarks on the income gap are the latest of several instances where he has called on policy makers to address the issue.

“Our job is to reverse these trends,” he said. “It won’t happen right away, and we won’t agree on everything. But what I offer tonight is a set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class.”

Massachusetts state Sen. Sonia Chang-Diaz has been involved with several pieces of state legislation that are addressing issues critical to income inequality, including raising the minimum wage and making Massachusetts taxes more progressive.

Her Act to Invest in Our Communities calls for an increase in the income tax from the current 5.2 percent to 5.95 percent and sets the tax rate on investment income to 8.95 percent; at the same time improving significant tax exemptions to protect low- and middle-income taxpayers and seniors. The point of this legislation, according to Chang-Diaz, is to correct the flat-rate tax and ensure that people at a higher income level pay more taxes proportionately — and use the increased tax revenue to the state to fund the types of infrastructure that can help low- and middle-income workers improve their economic status.

“It would allow us to put more resources behind some of the things all of our communities need, but in particular help those who are faced with income immobility,” Chang-Diaz said.

Prof. Barry Bluestone, director of the Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern University, says the concept of income immobility that Chang-Diaz mentions is a compounding factor in income inequality.

Income inequality measures the distribution of wealth across households and is generally referred to as the comparison of the growing financial gap in this country between the highest-income brackets and the middle- and low-income brackets.

As explained by Bluestone, income immobility is what keeps people and families in the income brackets they are in with little or no chance of improving. He emphasized this is the big shadow hanging over the income inequality problem and keeps the income gap so big.

“We not only have growing inequality but the cost of being in the bottom has grown dramatically because the gap between the low end and the high end is so far apart,” Bluestone comments. “Being stuck in the bottom is worse than ever.”

Bluestone points out that recent studies have shown that only 8 percent of people at the lowest income bracket ever make it to the top — which means 92 percent will not.

The most important way to combat income inequality and income immobility is improving on the earned income tax credit at both the state and federal level, according to Bluestone. He singled out EITC, as it is referred to, as the “best program for combating poverty” because it can be an income subsidy for many people. EITC functions when workers file taxes, and if their income is low enough, they will get money back.

“For low income families this will raise your income,” Bluestone says. While both Massachusetts and federal taxes both currently have some level of EITC, Bluestone wants to see it made better.

Bluestone says another important way government can help break the deepening income inequality in the long run is to invest substantial resources in children and in early childhood education, in particular. He calls for a new emphasis on providing all children — no matter what their socioeconomic status — with better development at a young age, and most importantly from birth until age 5, when the most critical development of a child’s brain takes place. The thinking is that this early development will lead to stronger success in education, career and economic success.

“We need to invest a huge amount of money in our kids,” he comments. “To break the income immobility cycle we need those investments in our children.”

Increased investment in early education could directly lead to less spending on infrastructure such as prisons and programs that support social well-being, such as homelessness and drug addiction, Bluestone says.

“I would argue that investment in this kind of human capital will pay off such great dividends in the future that we should not be saying we can’t afford it out of current tax dollars,” Bluestone comments. “I can almost guarantee you that we will make a return on this investment.”

Brian Miller, executive director of the Boston-based United for a Fair Economy, which is a national organization that advocates for improving the uneven wealth distribution in the United States, puts a very strong emphasis on raising the minimum wage in the income inequality fight.

“A minimum wage increase will make a significant impact. That said, we should make sure it is a substantial minimum wage,” Miller says. “We need to be pushing for big bold increases.”

While Massachusetts has legislation in the works that would improve the minimum wage and federal discussion is around numbers between $10 and $11, Miller would like to see a higher minimum wage and says his organization supports the fight for a $15 minimum wage.

“If the minimum wage had grown at the same rate as at the top of the ladder, we would have $20,” he says. “We need to be talking about a $15 minimum wage, period.”

“What we need to avoid is a 50 cent increase in the minimum or a $1 increase in the minimum wage. We need to bolder than that,” he adds.

Like Bluestone, Miller also ties income inequality to the concept of people improving their economic status, which he calls social mobility. He also puts a lot of onus on governmental legislation to have an impact.

“We need to recognize that governmental action is critical to create the kind of broadly shared prosperity we all want,” Miller says.

Aside from minimum wage, Miller also highlights education and health care as areas that legislation can be used to improve and have an impact on income inequality.

“The reality is we know it doesn’t have to be this way because other countries around the world have demonstrated that you can create policy mixes that increase social mobility,” he says. “It is a choice here in the United States.

“The thought is that the U.S. is a land of opportunity, but it is not. It is a land of social stagnation. If you are born poor you are likely to stay poor. If you are born wealthy, you are most likely to stay wealthy,” he adds.