Why the U.S. Wealth Gap Is a Political Issue

We don’t know if you know this, but over the last few years there’s been a bit of disproportion to America’s distribution of wealth. And it’s been growing. What started out as a wealth gap is slowly becoming a wealth chasm. And while many factors to the issue are part of what’s arguably outside the realm of American political influence — corporate cultures that pay CEOs at higher rates than years previous, the rate of return on private investments, etc — some of the big ones aren’t.

It's a hard truth, but the American middle class has been eroding. The rate of unemployment gets higher among those of lower income and lower education. Many people, especially recent college graduates, work jobs for which they are overqualified. And the majority of Americans, 67% in fact, are dissatisfied with the way income and wealth are distributed.

But the rich? They’re doing great. The Associated Press reported that the top 1% saw a 31% increase in income between 2009-2012. Meanwhile for the rest of us made about 0.4% more. But through even all of that, state governments are actually among the biggest culprits when it comes to keeping poorer people even poorer.

For years now, one of the major political ideologies in this country has been: If you want to fix the economy, cut taxes for "job creators." The idea is that leaving the upper class and business owners with more funds will encourage them to spend more of that money on expansion, which leads to hiring more regular people. And while there are many political differences that are a matter of opinion and will never get a clear answer, this one has become decidedly untrue.

According a report from the the Institute on Taxation and Economic Policy, the numbers show that “the increasing wealth gap is partly because of the unfair tax policies that shift the tax burden from the rich to the middle class and poor.” It seems that the top U.S. income earners pay an average federal tax rate of 15-19%, while everyone else usually pays a rate of 25 to 30%. The big reason for this is that most of us earn our income through our salaries, while most of those in America's wealthy top five percent make their money though capital gains and dividends, which are taxed at a lower rate.

And the disparity isn’t just limited to federal tax policy. On the state and local level, the bottom 20% of earners pay the majority of taxes. Twice as much as the top 1%, in fact.

To put it plainly, the people with the least amount of money, are giving back more than those who control most of the wealth — a lot more. So the “job creators” have their money, so where are all of the jobs? And why are people still struggling? The fact of the matter is, the wealth gap in America has been widening, past even Great Depression levels, and one of the reasons is taxes, which are set by elected officials.

And it’s not just tax policy that’s fueling the wealth gap. According to recent reports, state lawmakers have been making the issue worse by launching policies intended to spurn economic growth, these include things like cutting money to safety-net program, lowering taxes, and fighting to keep the minimum wage down. Such policies are great for those who own businesses or hold shares in companies that move to the state to do business, but not so much the workers.

So while many might like to think that the wealth gap is a byproduct of the economy and a problem that’s best solved in the private sector, it’s actually looking more and more like an issue for America’s politicians. Somehow that doesn't make us feel better.

[Pic via Flickr - Jorris Louwes]