There's a lot of quibbling going on about the nature of income distribution in the U.S., but no matter how you slice it, the gap between the poor and rich got wider in the 1980s. Although liberals and conservatives argue over the exact numbers, nearly everyone agrees that America has become more unequal. In essence, the top 1% of families nearly doubled their share of aftertax income, receiving 12% in 1989, up from 7% in 1977, according to calculations by the Congressional Budget Office. At the bottom, the percentage of Americans below the poverty line rose from 11.7% in 1979 to 13.5% in 1990. And according to a just-released Census Bureau study, the number of working poor rose dramatically from 1979 to 1990.
The root of the widening income gap is America's ailing economy. Two decades of decline in U.S. global competitiveness has helped eliminate millions of manufacturing jobs. The continuing emphasis on financial assets created fortunes at the same time that U.S. corporations skimped on new investment in plants and equipment. If this trend continues, it will threaten the very fabric of the American economy and society, as the recent unrest and looting in Los Angeles show all too disturbingly.
But though there's substantial agreement about the problem, there's political and intellectual gridlock about the solution. Generally speaking, liberals want to make the tax system more progressive and restore benefits for the poor cut during the Reagan years. Conservatives would much rather follow a market-oriented policy of enterprise zones, school choice, and individual responsibility. The warmed-over schemes disinterred by President Bush and Congress are O.K. as far as they go, but does anyone really believe, for example, that tax breaks will lure much new business into ghettos?
Congress and the Administration can best help the poor and middle class by adopting dramatic economic policies that strengthen the U.S. economy, thus creating jobs. The U.S. needs to create the conditions for broad-based economic growth by beefing up civilian r&d spending, boosting funds for repairing the nation's infrastructure, supporting education, and reforming the welfare system. That's the way to boost competitiveness, and a national competitiveness policy is by far the best way to narrow the income gap.