I strolled over to the Occupy Denver protest last week to look for signs denouncing Oprah Winfrey, LeBron James and Bruce Springsteen, but struck out on all three. And yet their contribution to growing income inequality in America is at least as great as that of many CEOs. Why don’t we hear more about these scoundrels?
Although “the precise reasons for the rapid growth in income at the top are not well understood,” the Congressional Budget Office admits in a new report, it offers three likely reasons, including “technical innovations that have changed the labor market for superstars (such as actors, athletes, and musicians).”
To be sure, the CBO also mentions changes in the “structure of executive compensation” — and here let me temporarily join the throng denouncing this era’s surge in CEO pay as nothing short of scandalous.
If capitalists had set out to discredit capitalism, they could hardly have devised a better tactic.
But the point is that the simpleminded tale of the 99 percent vs. the corporate suits misses a lot of what’s going on. To cite just one other example: Not a single university president earned a million dollars until 2004. Now dozens do.
Of course, focusing on CEOs is easier for the protesters because they’re not as well liked as entertainers, athletes and college presidents, and the political left needs a bogeyman to buttress the thesis that growing income inequality is destroying the middle class and requires higher taxes on the rich to rectify the trend. The CBO report provides mixed news for this storyline: It actually undermines the claim of a disappearing middle class, while somewhat supporting the view that federal tax policies have contributed to inequality.
It turns out that every income group saw its average real (inflation-adjusted) after-tax household income grow between 1979 and 2007, according to the CBO. The top 20 percent did very well, with income growing by 65 percent, in contrast to an 18 percent rise for the bottom 20 percent. But income growth for the 60 percent in the broad middle class, at nearly 40 percent, was nothing to scoff at, either. That growth obviously occurred before the past decade, when household income stalled or declined because of two recessions, but it hardly suggests the death of the American dream.
(And the reviled 1 percent? They fared spectacularly, with real incomes soaring by 275 percent.)
What no doubt will gladden progressive hearts is the finding that federal taxes and transfer payments, while reducing inequality in 2007, didn’t do it as well as in 1979.
I don’t quite understand the obsession with income disparities so long as the economic tide is lifting most boats, which it usually does (the last decade being an exception). But income gaps clearly are an obsession on the left, and will have to be addressed in any bipartisan budget deal.
The most destructive path would be simply to raise tax rates on high earners, as President Obama proposes. The alternative is to satisfy goals of left and right by trimming tax breaks and then lower rates and raise more revenue from the well-to-do, as the president’s debt commission chairmen proposed.
For example, the largest benefit in the federal income tax code is the mortgage interest deduction — what Reason magazine correctly dubs “the upper-class entitlement.” Writing there, Dean Stansel and Anthony Randazzo point out that “only a small portion of taxpayers with incomes below $50,000 claim the deduction. In contrast, two-thirds of those with incomes above $100,000 do so.”
Short of simply seizing wealth, nothing the federal government can do will bring superstar income down to Earth. But if the public is determined to extract its pound of flesh, it should be sure to choose a scalpel over a cleaver.
E-mail Vincent Carroll at vcarroll@denverpost.com.