Reducing income inequality not so easily dismissed

2013-12-30T00:00:00Z Reducing income inequality not so easily dismissed Arizona Daily Star
December 30, 2013 12:00 am

The following editorial appeared in the Arizona Daily Sun:

Income inequality, it turns out, really does matter economically.

When President Obama announced he would make reducing inequality the keystone of his final years in office, his political opponents scoffed. It was either the usual class warfare rhetoric of the far left or a way for the White House to deflect attention from the incompetent Obamacare rollout — or both.

But now a phalanx of economists — and not just the usual suspects from the liberal think tanks — have examined the data and agreed that the growing gap between the richest Americans and the middle class is holding back the economy. Some in fact see such inequality as the main reason for the continuing stagnation in the job market. The richest households don’t spend in aggregate their outsized pay and stock market gains the way the middle class and poor do.

But when the pay base is stagnant or shrinking, consumer spending, which drives the U.S. economy, goes down. Employers hold back on hiring and retain earnings because of the uncertainty over spending capacity of the middle class, which only reduces pay and spending further.

A growing pay gap wouldn’t be so bad if it were temporary, but the trend dates back 20 years: Average income for the wealthiest 5 percent is up 17 percent but up only 5 percent for the middle 20 percent. Translated into current dollars, it takes about $53,000 a year for a family a four in Coconino with a preschooler to be financially self-sufficient — that is, not needing government aid or incurring unreasonable household debt to survive. Yet 28 percent of all county residents live below the poverty line ($26,400 for a family of four) and 44 percent of all Flagstaff schoolchildren are enrolled in the free and reduced-price school lunch program based on income.

As Henry Ford noted, if business owners don’t pay their workers enough, who will buy their products?

Yet the news on that front seems to be going in the opposite direction. The recent budget deal in Congress means 1.5 million jobless will likely lose their long-term benefits in 2014, even though their job prospects — many are older and lack a higher education — are slim.

And now in Arizona, Clean Elections, the political reform following AzScam designed to take the big-money special interests out of legislative politics, has been rendered nearly toothless.  In a ruling that appears to hinge on a drafting technicality at the expense of the clear will of the people, the state Supreme Court will allow individual campaign contributions to quadruple to $4,000, essentially eliminating the incentive for candidates to take public money and forswear private donations.

As big money returns to state politics, it will be directed at policies that widen the income gap by opposing safety net programs like Medicaid and continuing to reduce taxes that underwrite government investment in education.

The latter, of course, is widely recognized as one of the key ways to lift not only the poor out of poverty but spur economic growth and increase the general standard of living. In Arizona, however, not only is public investment in education low, but what investment there is increasingly has become privatized through tax credits that benefit the affluent . As a result, schools in poor neighborhoods fall further behind.

Do the advocates of government intervention need to work on the details to get the incentives right? Yes, starting with Medicaid, which, at 133 percent of the federal poverty level, is a disincentive for the second of two parents in a family to go to work. Let the working poor keep more of their earned income and still qualify for safety net benefits or provide meaningful work like a modern-day CCC that will raise family incomes and do some good in the meantime .

In poll after poll, a majority of Arizonans say they want the best-quality schools, a top-flight health-care system, clean air and water, and the types of jobs that keep young people from fleeing the state. That’s just the opposite of cutting taxes and disinvesting in public education.

With economists now deflating the argument that income inequality doesn’t matter, we look forward to the 2014 campaign and a debate on the facts of how to turn around what ails this economy and this state.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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