Responding to Rising Inequality: Policy Brief

Conclusion

Conclusion 

After reaching a high point in 1928, income inequality declined from the 1930s until the 1970s while the economy grew. Through this period of economic growth there was support for government investment in programs like the New Deal and the G.I. Bill that were designed to create a safety net and to invest in educational and residential opportunities.56

Income inequality has now reached levels not seen since the 1920s.57 Recent research suggests that policies such as investments in education and efforts to address the racially and economically segregated structure of U.S. metropolitan areas could decrease inequality and increase economic mobility. Higher minimum wages and enhanced EITC, although addressing poverty most directly, also have the potential to affect inequality and mobility. Saez and Piketty have suggested that inheritance taxes and more progressive taxation of the highest earners could simultaneously reduce economic inequality and provide resources to support greater social mobility, for instance by investing in education or in income supports such as the EITC.

Policymakers must be attentive to the impacts that universal approaches, such as these, can have on differently situated groups because these policies could unintentionally exacerbate existing disparities. Policies such as minimum age increases or enhancing the EITC do little to help the long-term unemployed or families without able-bodied workers. 

Nevertheless, each of these policies, if carefully implemented, has the potential to lift working households out of poverty, support greater economic mobility, or reduce the growth of income inequality. The interrelatedness of these issues means that a strategy of focusing on both poverty and inequality is important, recognizing that, although related, poverty and inequality are not the same. To understand the impacts of such policies going forward requires disaggregating information on different populations and geographic areas, especially because the existing research has identified wide variations among each.

While this policy brief is primarily focused on income inequality, it is also important to address the related issue of wealth inequality, which contributes to income inequality through the inter-generational transmission of economic and human capital.58

To highlight the growth of wealth inequality occurring directly through the intergenerational transmission of larger and larger sums of financial capital (as opposed to the wealth advantages that accrue from unequal social connections and educational opportunities), Piketty has proposed the institution of a global tax on wealth to overcome the danger of capital flight. The proposal has been critiqued as impractical and Piketty has acknowledged it is “utopian,” while defending the effort to focus attention on the growing concentration of capital.

All of these policies could be enacted at local, state, and federal levels—if there is the political will. On the one hand, increasing concentration of income and wealth buys greater influence and access, making inequality more difficult to challenge as that income can be used to influence the perception of its fairness, through the media, and efforts to address it, through lobbying.59 On the other hand, the widening gulf between the top one percent and the remaining 99 creates momentum for creative policies that can bring together broad constituencies to address the structures that continue to pull us apart.

Between 2009 and 2012, 95% of all national income gains went to the very top one percent of earners. Extreme concentrations of income and wealth pose fundamental challenges to America’s ideals of democracy and equal opportunity, but are not inevitable. 

  • 56. At least for whites, see e.g. Ira Katznelson. 2006. When Affirmative Action Was White: An Untold History of Racial Inequality in Twentieth-Century America. New York: W.W. Norton & Co.
  • 57. Piketty, Thomas. 2014. Capital in the Twenty-First Century. Cambridge, MA: Harvard University Press.
  • 58. Piketty, Thomas. 2014. Capital in the Twenty-First Century. Cambridge, MA: Harvard University Press
  • 59. Alvaredo, Facundo, Anthony Atkinson, Thomas Piketty, and Emmanuel Saez. 2013. “The Top 1 Percent in International and Historical Perspective.” Journal of Economic Perspectives, 27(3): 3-20.