What it will take to address income inequality

Published 10:14 am Friday, January 22, 2016

by Lee Hamilton

When the history of this year’s presidential campaign is written, one of its more remarkable features will be that candidates of both parties feel it necessary to talk about income inequality. Surely that makes this a watershed moment.

The issue is hardly new. As historian and writer Jill Lepore pointed out last year, income inequality in the United States has been rising since the late 1960s. As she put it, “The evidence that income inequality in the United States has been growing for decades and is greater than in any other developed democracy is not much disputed.”

More notable is that it has become a defining issue of our day, with Republican candidates seizing on it just as avidly as Democrats — though with different views of its causes and solutions. Some reformist Republicans have argued for some time now for the right mix of public policies to give poor and middle-income Americans more opportunity without shifting power to the federal government. On the Democratic side, as expected, both Bernie Sanders and Hillary Clinton press for a firmer public stance to redress the problem. No one suggests there are easy solutions.

To be sure, there are politicians, especially on the right, who believe there’s not much room for public action. Market forces will sort it all out, they argue. In this telling, inequality has come about because of globalization and technological changes that are unstoppable and that on the whole have raised living standards. Eventually, they believe, the gap between the highest earners and the rest of us will diminish. Instead of fighting inequality, we should be protecting and expanding the rewards for skill, leadership and entrepreneurship.

This argument assumes that the very wealthy won’t act to tilt the field even more in their favor. Yet as the New York Times noted last month, they are doing just that. “With inequality at its highest levels in nearly a century,” the newspaper wrote, “the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes… . Operating largely out of public view… the wealthy have used their influence to steadily whittle away at the government’s ability to tax them.”

Yet some reform-minded conservatives agree with Democrats on at least one point, which is that government needs to act to achieve greater fairness and opportunity in the economy. The stresses we see in our political system today — free-floating public anger and distrust of government and large institutions — stem at least in part from the widespread perception that economic insecurity has become entrenched in our system and there’s very little ordinary people can do about it. If inequality continues to grow, the stress on the system will ratchet ever tighter.

No one is arguing for a straight-ahead equalization of economic resources, which would not just require extreme restrictions on personal freedom, but would almost certainly hamstring economic growth. Nor, however, should government make the problem worse — which is what some politicians’ call for further tax reductions on the richest would do.

There are some broad directions we should be moving to ensure a degree of fairness. Current trends are not inevitable if citizens are determined to reduce the influence and power of money on the system. We need to shift resources to education and workforce training, though that will take time to produce change. Encouraging technological change that boosts unskilled employment — rather than stripping it away — will matter. So will protecting the progressivity of the income tax, encouraging the well-to-do to follow the excellent examples of their peers who are sharing their wealth, focusing on trade deals that favor workers and not just the business community, and providing incentives for people of ordinary means to save and invest.

We need to promote policies that help all children advance, and discourage efforts to further concentrate wealth. These are incremental changes requiring limited government action.

A reduction in inequality is an essential ingredient in a healthy democracy. To let the gap between rich and ordinary Americans grow larger will allow political pressures to build in our economic and political systems. We should aim for a country where opportunities are more equal and the distribution of wealth and income is fairer.

LEE HAMILTON is a Distinguished Scholar, Indiana University School of Global and International Studies; and a Professor of Practice, IU School of Public and Environmental Affairs. He was a member of the U.S. House of Representatives for 34 years.