Richest 1 Percent Get Biggest Share of Income Ever; Inequality At Record High: What Do We Do?

| Thu Jul. 31, 2008 2:32 PM EDT

In 2006, the richest one percent of Americans garnered the largest share of the national income since 1929, the Wall Street Journal reported last week. The Journal, which based its conclusions on the most recent available IRS data, also noted that in 2006 the richest one percent's average tax rate fell to its lowest level in 18 years. Who are these richest one percenters we hear so much about? Well, in 2008, the richest one percent of Americans make at least $462,000 a year, and the average income of the group is almost $1.5 million. Bush administration tax policies have been especially kind to this group, which has reaped the bulk of the country's economic gains since 2001. That has led to record income inequality, and, of course, to hearings on Capitol Hill. More on that after the jump.

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Today the House Workforce Protections Subcommittee, chaired by Lynn Woolsey (D-Calif.), called in economists and policy experts to testify at a hearing called "The Growing Income Gap in the American Middle Class." Robert Greenstein, the Executive Director of the Center on Budget and Policy Priorities, had some especially interesting things to say. Greenstein noted that high-income households had not only benefited disproportionally from the economic expansion after 2001, but also from the Bush tax cuts. The Right likes to claim that since the rich are paying a higher share of income tax now, the tax system must be more progressive than it was in the past. Greenstein explained why that's not true:

A progressive tax cut, like a progressive tax system, is one that reduces inequality. The 2001-2003 tax cuts have done the opposite. When fully in effect, those tax cuts will boost after-tax income by more than 7 percent among households with incomes of more than $1 million, but just 2 percent among middle-income families, according to the Urban Institute-Brookings Institution Tax Policy Center. That is an average tax cut of $158,000 in 2010 for households with incomes of over $1 million, but just $810 for middle-income families. Tax analysts know that effective tax rates and shares of after-tax income, not the share of taxes paid, are the proper indicators of progressivity.

So what to do about all this? Greenstein points to the work of MIT professors Frank Levy and Peter Temin, who argue (gasp!) that the decline in union membership has played a major role in the decreasing ability of our society to distribute the gains from economic growth. That's not a reason to try to duplicate the structures of the postwar economy (likely an impossible task, anyway), but, "Reducing barriers to labor organizing, preserving the real value of the minimum wage, and the other workforce security concerns of this committee would surely be a part of the kinds of institutions and social norms that would contribute to an economy with less glaring and sharply widening inequality," Greenstein notes.

Despite a rough couple decades for the labor movement, reducing barriers to organizing is still a major goal for many on the Left. In his syndicated column last week, liberal writer David Sirota explored one of the ways unions might be able to claim a bigger role in the American economy.

Speaking with legendary labor lawyer Tom Geoghegan (author of the classic 1992 history of the labor movement, Which Side Are You On?), Sirota stumbled upon an interesting idea. Geoghegan thinks that instead of seeking to reform the National Labor Relations Board (the unions' current goal), labor should just get "six little words" added to the Civil Rights Act. What are those six words? Amending the act to prohibit discrimination "on the basis of union membership." That would create a legal cause of action, allowing workers to sue if they were discriminated against for trying to organize. The NLRB—seen by labor as slow, ineffective, and anti-union—would be out of business, and union-busting managers would be just as dangerous to hire as racist ones. Finally, Sirota says, "Companies would have a reason—fear of litigation—to respect workers' rights."

More union members in an economy generally means higher wages and less inequality. Geoghegan's solution might actually create more union members in America. That's probably why Sirota and others are now trying to draft Geoghegan to serve as a hypothetical Obama administration's Secretary of Labor. That would definitely put union busters on notice.