Solutions Needed to Address Growing Income Inequality, Witnesses tell Labor Subcommittee

Thursday, July 31, 2008

WASHINGTON, DC -- The growing income gap between top earners and the middle class is increasing in the United States, witnesses told the Workforce Protections Subcommittee of the House Education and Labor Committee.

“While those at the top of the income scale are prospering, since the 1990s, income has actually declined for workers at the bottom rung, and increased only slightly for middle class workers,” said U.S. Rep. Lynn Woolsey (D-CA), chair of the subcommittee. “Opportunity is slipping away for those in the middle class as wages remain stagnant and consumer goods, such as food and gas, have skyrocketed.”

According to Jared Bernstein, senior economist at the Economic Policy Institute, income inequality has been rising since the late 1970’s. In the 1970’s, the top 1 percent of wage earners earned less than 10 percent of all income. But since then, these top earners have increasingly accounted for a larger portion of the income pie: By 2006, the top 1 percent earned more than 20 percent of our nation’s wealth.

“The existence and expansion of this gap strikes at the heart of our core economic values,” said Bernstein. “Every year that productivity rises, but middle incomes stagnate, poverty increases, and children are blocked from the opportunities to realize their potential, is another year in which the basic American economic contract is broken.”

Income inequality has been growing at the same time that executive compensation has exploded. According to a congressional report, in 1965, an average CEO’s pay was 25 times that of the average worker.  By 1980, pay was 40 times more.  And by 2006, the average Fortune 250 CEO was paid over 600 times more than the average worker

“CEO compensation in America’s public companies is a perversion of the market that imposes enormous and growing costs on America’s working families,” said Nell Minow, editor of The Corporate Library. “These outrageous pay packages juxtaposed with losses in share value and jobs diminish our credibility and increase our cost of capital.” 

Federal tax policies have also contributed to the growing gap between the middle class and the wealthy. According to the Congressional Budget Office, since 2001, the share of before-tax and after-tax income of the top 1 percent increased while income for lower-income households declined.

“We hear from some quarters the argument that the tax system has become more progressive – and that this is proven by the fact that the affluent are now paying a higher share of total income tax revenues. This argument does not withstand scrutiny,” said Robert Greenstein, executive director of the Center on Budget and Policy Priorities. “Between 2000 and 2005, the average income tax burden of the top fifth of the population fell by an amount equal to 4.8 percent of their income; in contrast, the middle and lowest fifths of the population saw their average income tax burdens reduced by amounts equal to less than 2 percent of their incomes.”

For more information on today’s hearing, click here.

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