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Inequality Has Run Amok. Do U.S. Leaders Care?

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By Dmitri Iglitzin and Steven Hill

When pets are poisoned by imported pet food or U.S. attorneys are fired under suspicious circumstances, Congress gears up hearings and vows quick action. A far greater scandal, however, has hardly gained the interest of legislators or the presidential candidates. That is the increasing wealth gap between the rich, the middle class and the poor, which is reaching alarming proportions.

The top 10 percent of income earners in the United States now owns 70 percent of the wealth, and the wealthiest one percent owns more than the bottom 95 percent, according to the Federal Reserve. In 2005, the top 300,000 Americans enjoyed about the same share of the nation's income -- 21.8 percent -- as the bottom 150 million.

New York is an especially bleak case study. The top fifth of earners in Manhattan now makes 52 times what the lowest fifth makes -- $365,826 annually compared with $7,047 -- roughly comparable to income disparity in Namibia.

Meanwhile, the ratio of average CEO-to-worker pay in the U.S. shot up from 301-to-1 to 431-to-1 in 2004. The average CEO now earns substantially more in one day than the average worker earns all year. Adding insult to injury, taxpayers actually give tax breaks to corporations for those salaries, to the tune of hundreds of millions of dollars.

In a country founded on the principle that "all men are created equal," this stark and growing economic inequality has become a third rail of politics. Almost no one in political leadership touches it for fear of being accused of inciting class warfare.

But we've reached a point where the "land of equality" has become a very unequal place. Government has an important role to play in restoring another fine American value: fairness.

A small first step would be passing the Income Equity Act, denying corporations a tax deduction for excessive CEO salaries (defined as pay greater than 25 times the company's lowest full-time worker). They could still pay CEOs whatever they wished, but taxpayers would no longer subsidize it. That would create some downward pressure on executive income while saving taxpayers hundreds of millions of dollars.

More substantive would be a fix to Social Security's dirty little secret of favoring the rich: Annual wage income above $94,200 is completely untaxed by Social Security. While an average worker pays 6.2 percent of her income to Social Security, a CEO earning $1 million pays only 1 percent of his salary. As is, only 83 percent of all wages are subject to Social Security taxes, so this would increase annual revenues by nearly 20 percent, or $100 billion a year, keeping Social Security solvent.

Other worthy proposals include increasing the minimum wage, providing child care for working parents, expanding health care and lowering college costs. But the most direct way to address inequality is to reimpose higher income tax rates. Current rates are extremely low, historically-speaking. Under President Dwight Eisenhower's Republican administration, the maximum marginal tax rate was 87 percent. The Reagan tax cut of 1981 dramatically lowered this to 50 percent, then again to 28 percent in 1986. Since then, no surprise, our nation has seen a steady rise in wealth disparity.

It is long past time for our political leaders to put aside the scandal du jour and take urgently needed action to slow if not reverse our nation's growing economic inequality.

Dmitri Iglitzin is a labor law attorney based in Seattle. Steven Hill is director of the political reform program of the New America Foundation and author of 10 Steps to Repair American Democracy.