Editorial: Shrink wage gap by raising tax on rich

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Updated: November 22, 2011 11:13AM

On this Labor Day, let’s stop beating up on each other.

The wars between American workers, mostly between public and private sector workers, and also between the middle class and the poor, really miss the point.

Are state workers right to be frustrated that their pension benefits might be cut to levels common in the private sector? Of course.

Are Chicago Public Schools teachers right to be mad about the canceling of their promised 4 percent raise, matching trends in the private sector? Of course.

Are middle-class workers justified in feeling a touch of resentment toward low-income Americans who accept government-funded food stamps despite holding a job? Sure.

But if you put the anger aside, the real reason workers are turning against each other is clear: The vast majority of U.S. workers are fighting over an increasingly small shot at the American dream.

America’s gaping income gap —the gulf between top earners and the rest of us — hasn’t been this wide since just before the Great Depression. More than 20 percent of the nation’s income now goes to the richest 1 percent of Americans. This is up from 7 percent in 1980.

And the top 10 percent of earners pull in almost half the total income, a level higher than any year since 1917.

Meanwhile the middle class, the working class and the poor are treading water.

Between 1950 and 1970, Cornell University economist Robert H. Frank writes, incomes grew rapidly and at about the same level, 3 percent annually on average, for families of all incomes. That pattern changed dramatically from 1970 to 2000. Incomes of the top 1 percent grew more than threefold while median household income grew less than 15 percent.

This not only makes Americans bitter and mad, it has real consequences for the economy.

For middle- and lower-income workers, stagnating wages make it that much harder to afford a home, to live in an area with good schools and to save for retirement.

The gap, former U.S. Labor Secretary Robert Reich argues, also deprives the middle class of the purchasing power needed to keep the economy going, a loss that cannot be made up by buying by the wealthiest Americans. Wide income gaps can also lead to political unrest, partisanship and ugly politics — all things we’re seeing in America and across Europe.

Government solutions for narrowing the wage gap are hard to come by — the shipping abroad of decent manufacturing jobs is the result of global forces that are often beyond a government’s control. We look forward to the Thursday unveiling of President Barack Obama’s job creation plan, though even his administration predicts that unemployment will remain at 9 percent next year.

At the moment, one of the only reliable routes Congress can take to help ease the wage gap is to advance a more fair and equitable tax policy. Not only are the richer getting richer, they’re also paying far less in taxes than they did 20 years ago.

As we’ve written before, Obama’s job between now and Thanksgiving, when a congressional committee must devise a plan to lower the deficit by at least $1.2 trillion, is to persuade the nation that more tax revenue — not just more spending cuts — is the answer. And this must include hitting those who can afford it most.

One proponent of increasing taxes on the wealthy is investor Warren Buffett, who laid out his case in a New York Times op-ed.

On this Labor Day, make time to chew on this: “We mega-rich continue to get our extraordinary tax breaks,” Buffett wrote last month. “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”