How Bush Widened The Wealth Gap

Not since the '20s has income inequality been this great

By Laura D'Andrea Tyson

During the last half-century the distribution of income and wealth in America has become more and more unequal. Even during the 1990s, a period of sustained expansion, most of the growth in income and wealth was concentrated among the top 10% of households. By 2000 this group accounted for 44% of total household income, compared with 33% in 1980.

Today the top 1% of households receives more pretax income than the bottom 40%. And the distribution of wealth is even more lopsided. The top 1% of households owns nearly 40% of total household wealth -- more than the bottom 90% of households combined -- and earns half of all capital income. Income and wealth are more unevenly distributed among Americans than at any time since the Jazz Age of the 1920s. On measures of income and wealth inequality, the U.S. tops the charts among the advanced industrial nations.

YET RATHER THAN fashion economic policy to ameliorate the trends of growing income and wealth inequality, President Bush has championed policies that have exacerbated them. And if he is elected to a second term, he has put voters on notice that they should expect more of the same. A recent study by the bipartisan Congressional Budget Office confirms that the 2001 and 2003 Bush tax cuts have disproportionately benefited the wealthiest households. The tax cuts have boosted the aftertax incomes of the top 1% of households, with average incomes in excess of $1,000,000, by 10% -- compared with a 2.3% increase for middle-income families with average incomes of $57,000 and a 1.6% increase for the bottom 20% of families, with average incomes of less than $17,000. The tax cuts for millionaires alone have reduced government revenues by $90 billion a year, more than the lost revenues from tax cuts for the 80% of families making less than $100,000. Ninety billion dollars a year is more than enough to pay for the comprehensive health-care plan proposed by John Kerry and for the promises President Bush himself made but has not funded in his No Child Left Behind education bill.

As an intended consequence of the Bush tax cuts, the share of federal taxes paid by the bottom 80% of taxpayers has increased, while the share paid by the top 1% has dropped. And that's before the elimination of the estate tax scheduled to take effect at the end of the decade, which will further reduce taxes on the wealthiest households. President Bush has repeatedly announced that the main economic priority of his second term will be making his tax cuts permanent. If he realizes this goal, he will have succeeded in passing the most regressive tax program in U.S. history. He will also have chosen tax relief for the rich over strengthening the Social Security system on which low-income workers, disabled workers, widows, and surviving children depend to avoid poverty. The tax code already favors those at the top. High-income households can afford to buy or build larger homes to take advantage of the tax deduction for mortgage interest payments. The top 20% of earners receives more than two-thirds of the benefits from tax deductions for private retirement savings. Most Americans are deeply in debt, and 95% can't afford to take advantage of such deductions. Yet President Bush wants to make them even more generous.

Employer-provided health-insurance plans also receive generous tax breaks, but less than half of low-wage workers enjoy such coverage, compared with 90% of high-wage workers. President Bush proposes a refundable tax credit for low-income individuals and families to help them buy health insurance. But according to the Kaiser Foundation, the credit is too small to enable most Americans to purchase coverage on their own. President Bush also proposes tax breaks for people who buy high-deductible health-insurance plans and who establish private health savings accounts to cover the bulk of their health-care costs. Under his plan, all contributions, earnings, and withdrawals from heath-savings accounts would be tax-free. This would be extremely attractive to high-income individuals but would raise the cost of traditional health-insurance coverage for lower-income and higher-risk populations. The inevitable result would be an increase in the number of uninsured and even greater inequality in access to health care.

If Bush is reelected, America will continue down the path of increasing inequality in income, wealth, and health, with dangerous implications for U.S. democracy.

Laura D'Andrea Tyson, dean of London Business School, chaired the Council of Economic Advisers from 1993 to 1995 and is an informal adviser to Democratic Presidential nominee John Kerry.

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