ampaigning with a running mate who has
made his lament about the existence of “two America’s” his
political trademark, John Kerry promises to
create real opportunities for ordinary Americans. But a
careful reading of the 2004 platform suggests just how much
further the Democratic Party has to go before it has a
credible response to the economic forces ripping America
apart. Certainly, any imaginable Democratic president would do
less harm to the average American than the Bush administration
already has - even if that Democrat did nothing at all. But even were
Kerry’s exceedingly modest proposals to be fully implemented
(itself a rather unlikely prospect), they would do very little
to bridge the growing gap between the rich and nearly everyone
The Growing Gap
To fully gauge the limits of Kerry’s proposals, we
need first to understand the depth of the problem.
There are a variety of ways to measure economic inequality,
but the simplest is to consider what the Census Bureau calls
the “quintile” share of aggregate income, in other words how
much of what all Americans earn goes to people in various
positions on the income ladder. This methodology is
straightforward: line up the approximately 109,000,000
American households in income size places; divide into five
equal (in terms of the number of households) groups (i.e.,
quintiles); add up the total household income in each
quintile; compare that total to the total income earned by all
households. (A household consists of all people occupying a
single housing unit, whether or not they are related.)
simple statistical operation and several things jump out.
First, upper-income households take home a wildly
disproportionate share of what Americans earn. The top fifth
of households get fully half (50.1%) of the total, while the
bottom fifth are left with a very measly 3.5%. The affluent
(the top 5% of households) are doing especially well. This
narrow slice of America took home nearly one-quarter of all
household income in 2001. That America is a class society
should shock no one. The U.S. has always tolerated far more
economic inequality than conservative ideologues would ever
admit. But things are getting worse fast. Since 1978, the
share of the best-off households has increased nearly 15%
while the bottom fifth’s share dropped by nearly 19%. The top
5% have been especially fortunate. Their share has surged by
about more than Bill Gates and Donald Trump. Because most
Americans actually earn very little, It takes less than many
imagine to make it into the golden circle. A household income
of just $83,500 was enough to make it into the top 20% in
2001. Put another way, four out of five American households
earn less than $83,500 at a time when the costs of everything
from housing to education to health care are skyrocketing.
do focus on the share of the very rich, the chasm between rich
and poor is startling. According to the Congressional Budget
Office (CBO), as the most robust economic expansion in decades
was peaking in the late 1990s, the average after-tax income of
the top 1% of American households ($677,900), was 63 times the
average after-tax income ($10,800) of the poorest fifth. This
top 1% took home almost as large a share of total income as
did the bottom 40%. In other words, the richest 2.6 million
Americans earned almost as much as the least well-off 100
about the leveling effect of those nasty federal taxes? This
CBO report looked at after-tax income, in other words
what people had left over after the progressive income
tax had supposedly done so much harm to the overtaxed rich.
When we take into account the distribution of wealth – another
very good measure of who has what – we see an even wider gap:
the wealthiest 1% of American households now own nearly 40% of
all of the nation's wealth.
not just a matter of statistics. Economic inequality strips
people of real opportunity. It restricts access to health care
and social services. It affects who’s most likely to be a
victim of a violent crime. It leaves workers and the poor
saddled with consumer debt that they will struggle all of
their lives to pay off. It results in residential segregation
by class which, in turn, makes for unequal schools and
vocational opportunities. It leads people to take jobs that
they hate, that expose them to serious risks, that might even
this just the fate of a small subset of unfortunate Americans
who happen to find themselves at the very bottom of the income
scale. Thirty six million people live below the official
poverty line, and that line is exceedingly low: about $14,500
for a family of three (single parent and two children),
$18,300 for a family of four (two parents and two children).
But even these numbers underestimate the problem: by almost
any measure, the bottom 40 percent—the 44 million households
that make less than $33,314 a year—is struggling. The middle
class is suffering too. In fact, every quintile’s share of
total income except the top fifth has declined since
Meanwhile, the people who run corporate America have fared
quite nicely. In 2002, the median compensation of the CEO’s of
the largest 100 companies was $33.4 million. And nearly
one-third of these honchos got $50 million or more.
This was at a time when the mean annual wage in the United
States was just $35,560 and many of the corporations that
these CEOs were running were struggling just to turn a profit.
Some would suggest that it’s the nature of the beast, but It
wasn’t always this way: between 1970 and 2002, the ratio of
the average compensation of top CEO’s to the average worker’s
pay increased five fold.
factor race and gender into the equation, things look even
bleaker. People of color are far more likely than whites to be
poor: the poverty rates of blacks and Hispanics are nearly
twice as high as the white poverty rate. The poverty rate for
black and Hispanic children is more than twice
as high. Black and Hispanic median incomes are also
substantially lower (around 2/3) than white median incomes,
while black and Hispanic families have far fewer assets. The
asset gap is especially striking: the median net worth of
white families in 2001 was $120,900—not in and of itself very
impressive since it’s mostly equity in houses and cars—while
the median net worth of non-white families was a meager
$17,100. Women are also more likely than men to be poor,
whether they live alone, or head single-parent families.
Why Inequality is Getting Worse
The limits of Mssrs. Kerry and Edwards vision is clear
when we consider what’s behind these trends and what it might
take to reverse them. The bad news is that rising economic
inequality in the U.S. is the result of some very powerful
forces that are ripping societies apart worldwide. This is not
to absolve the U.S. of responsibility for what is, in
comparative perspective, a particularly harsh and unforgiving
brand of capitalism. As is well known, there is a bigger gap
between rich and poor here than in other Western democracies.
The U.S. also has an exceptionally high poverty rate,
particularly among children. In the mid-1990s, among members
of the Organization for Economic Cooperation and Development
(OECD), only Mexico’s was higher – the U.S. even beat out
Turkey for this singular honor. Only America refuses to extend
health insurance to all citizens as a matter of right, leaving
45 million people without coverage.
Certainly, the failure to spend more on
social purposes is one reason why inequality is greater here.
Capitalism is everywhere a class society of course. But
governments that spend more have a greater chance of
equalizing income and opportunity because government programs
can shield individuals from the play of free market forces—the
very same forces that are the ultimate source of economic
inequality. At 35.3%, the share of government in the Gross
Domestic Product (GDP) is less than in any other advanced
capitalist society and less than three-quarters of the
have suggested that the U.S. government is smaller because
America shares with other English speaking nations an
“Anglo-Saxon” cultural preference for markets and individual
initiative, and a corresponding antipathy to collective
action. To be fair, the U.S. is more like the other English
speaking democracies on these measures. But even among this
group, it is at the low end of the spectrum.
also spends a far smaller proportion of its GDP on
specifically social purposes—the real test of whether
government intends to do anything about inequality. The GDP
share spent by the U.S. government on social programs is less
than half of Sweden’s; just slightly more than half of
Germany’s; less than 60% of Great Britain’s; just 80% of
Canada’s—the only rich OECD country that even comes close on
this measure. By spending so much less on social programs, the
U.S. makes sure that markets have the final say about who gets
conservative policies have obviously made things worse. In
particular, changes in marginal income tax rates in the U.S.
in the last two decades combined with cuts in programs
targeted on the most needy have reduced the tax burden of the
very wealthy while leaving the poor more vulnerable.
important to note that the U.S. is not the only capitalist
society under siege and that recent tax and spending policies
cannot entirely account for the rapid increase in inequality.
The rich countries of the West have all been rocked by similar
economic and political forces in the last few decades.
economic problem is, no surprise, capitalism. Inequality is
built into the structure of this system—only some people can
own and run the economic behemoths that dominate a capitalist
economy; most of the rest of us end up working for them. But
today’s hyper free-market version has made things much worse.
Increased international trade (and the concomitant competition
that comes in its wake) and the worldwide spread of new
technologies have put enormous pressure on the wages and
benefits of low-skill, blue collar and service sector workers.
At the same time, people with scarce skills, or money to
invest, have seen their incomes soar. Returns to education are
especially important in the “new” economy. College graduates
earn more and are less likely to be unemployed than people
who’ve never been to college, and both groups are doing far
better than people who’ve never graduated from high school.
And compared to waged work, the returns to both capital and
self employment have been rising considerably.
political part has to do with changes that have made it nearly
impossible to sustain the kind of reformist commitment that
defined democratic politics for nearly a hundred years. From
the late 19th century to the end of the 20th,
liberal and social democratic governments sought to impose
limits on the inequality resulting from unequal market
incomes. That’s what the welfare state was about. Even the
U.S. adopted spending and taxing programs to mitigate
capitalism’s worst effects.
the late 20th century, just as the problem got
worse, the political will to challenge inequality began to
wane. Political analysts have suggested all sorts of reasons
for this ground shift, including the impact of heightened
global competition on export-oriented economies, the aging of
the population, sharper racial, ethnic, and language
conflicts, increased immigration, and the political
mobilization of corporate interests and the affluent against
the taxes that fund costly social reform.
whatever the precise mix of political causes, the effect is
incontrovertible. As the political spectrum has shifted to the
right, few governments have been willing to sustain, let alone
renew, the effort to make capitalism more equal. To the
contrary, in combination, these forces have ripped apart the
political compacts between capital and labor that were forged
in the aftermath of World War Two, putting enormous strains on
government budgets and welfare state programs. Everywhere in
the West, including in the social-democratic states of
Northern Europe, efforts to equalize opportunity have
faltered. Data collected by the OECD show the impact quite
clearly. Throughout the West, upper-income groups typically
receive a greater percentage of household income than they did
thirty years ago. Not every country has suffered equally.
Canada and Finland seem to have bucked this trend, while
Denmark, Germany, and France have avoided the worst of it. But
egalitarians are fighting an uphill battle everywhere.
What Can Be Done Now and Later
politics is also at play here, we still have political choices
to make—even in the U.S. What then would a progressive
approach to inequality look like in America and what would it
take to make it happen? The short answer is that it will
require major changes on both the political and institutional
fronts to stop, let alone reverse, the economic trends
the U.S. needs to spend more, not less, on the welfare state.
This flies in the face of accepted wisdom in Washington, but
as long as the fiscal instruments available to government (the
various taxing and spending programs) remain even mildly
progressive (because most benefit programs are means tested,
they do), growing government is a good thing. Leaving markets
alone to address people’s needs will only drive incomes
further apart. That doesn’t always mean that New Deal or Great
Society versions of “big” government are preferable; as a
rule, it makes more sense to see government as a “partner,”
allowing grass-roots and other participatory movements to join
with public authorities to make needed social changes. But in
many cases, from education to job training, more spending
is the answer. This is especially true if the U.S. is to
finally have some form of national health insurance, or,
equally important, real “welfare reform”—a welfare system that
would provide poor parents who take jobs the income and
support services they need to keep them and their children out
labor movement will also need to change. Without more workers
in stronger and more militant unions, employees (organized and
unorganized) will not be able to capture whatever productivity
gains emerge from the new economy. Strong unions are not a
panacea. For one thing, labor will have to take more seriously
the fight for social programs, like universal health
insurance, that matter more to non-unionized than to unionized
workers. And even if labor were to grow stronger, it would
still face an uphill battle. European unions, typically
stronger than American unions, have also found it hard to
resist these economic trends. But a more powerful American
labor movement would be better able to fight against the
growing dispersion of wages among workers and, equally
important, fight for a more generous welfare state. If the
labor movement is to grow, the U.S. also needs serious labor
law reform, if only to make sure that the millions of workers
who say that they want to join a union have the opportunity to
to help the poor, the minimum wage must be increased
substantially. The scandalous decline in the minimum wage’s
real value - from $7.10 in 1970 to $5.15 in 2000 (in 2000
dollars) – is one important reason that so many working
families are poor. It’s a simple problem with a
straightforward remedy: a “living” not a “minimum” wage;
$12.00 an hour, not $7.00.
the working and middle classes, the tax “reforms” of the last
two decades must be reversed. The shameful redistribution of
the tax burden downward must be a top priority of any
progressive movement; it’s especially important to raise rates
on upper income groups who have benefited mightily from three
decades of economic growth but are no longer paying their fair
share of the government’s bills. The left should also work for
aggressive tax enforcement, closing loopholes that cost the
federal government billions of dollars. Without real tax
reform, expanding welfare state spending will not have the
equalizing impact it once did. In turn, tax reform should be
joined to a frontal assault on “corporate welfare” as well as
a very hard look at military spending, which is too often just
another public subsidy to the defense industry.
with the impact of global trade on wages, the U.S. must
coordinate “fair” trade policies with its trading partners,
including less developed nations, in order to establish real
labor and environmental standards. This would involve more
than Kerry’s rhetorical assault on “outsourcing” and “Benedict
Arnold” corporations. It would mean a substantial commitment
to helping poorer countries develop their own economies and to
support reform movements in those societies that are fighting
to improve living standards for those workers too. Progress on
this front would reduce pressure on everyone’s wages.
this perspective, the Republican and Democratic contributions
to the debate about economic inequality seem either willfully
ignorant of the underlying reality or too ready to downplay
what really needs to be done.
surprisingly, Republicans ignore the problem, arguing that
more business investment will make everyone richer.
Occasionally, one or another conservative will add some
bromide about making this an “opportunity society”—Bush’s
hauled this tired trope out again at the 2004 Republican
National Convention to remind voters of his populist
pretensions. But given what is happening in America today, the
idea that sheltering investment income and corporate profits,
partially privatizing social security, and creating Medical
Savings Accounts will create greater opportunity for the poor
and working class is laughable; these “reforms” will only
worsen the class divide because the affluent will benefit
disproportionately from them.
were the economy to grow as rapidly as the right promises it
will, it would not in and of itself produce greater equality.
Ignored is the fact that while the American GDP has tripled in
real dollars since 1960, real wages have only risen about 50%.
The gap between the average household income in the top 1% and
the average household income in the middle fifth more than
doubled between the late 1970s and the late 1990s.
So much for free market miracles.
the right’s job growth policies make matters worse. Bush’s
pro-investment tax cuts have made public spending in the U.S.
less, not more, progressive by heavily skewing the pay out to
the very wealthy: the top 1% of households are getting one
third of the benefits.
Bush’s cuts have also created a fiscal nightmare in which any
future effort to reduce the burgeoning deficit will lead
inexorably to demands to increase taxes on the working and
middle classes (through, for example, a national sales tax)
and/or to cut the safety programs that the average American
depends upon (e.g., Social Security and Medicare).
more forthright about the problem of inequality and has some
good suggestions. Unlike Bush, he’s willing to admit that
“Americans are working harder, earning less, and paying more
for health care, college, and taxes.” Many of his proposals
are also sensible.
create good jobs and prepare Americans for them, Kerry offers
a number of perfectly reasonable suggestions. He wants
stricter enforcement of the environmental and labors standards
found in existing trade agreements; an expansion of the Trade
Adjustment Assistance program to help displaced workers;
federal subsidies to increase research and development in new
technologies and manufacturing; increased funding for K-12
schools and for day care; and a moderate increase in the
minimum wage (to $7.00). He also supports “card check”
unionization to make it easier for workers to join unions.
provide “affordable, high quality health care,” Kerry proposes
a number of incremental proposals that would expand coverage
and maybe even lower some costs. He proposes to extend
Medicaid coverage to all children; to allow re-importation of
drugs from Canada; to allow HHS to negotiate drug prices with
drug companies; to provide tax credits to help small
businesses pay for health insurance; and to relieve employers
of responsibility for catastrophic health care (costing more
than $50,000) if they extend health care coverage to their
for all of this, Kerry proposes to repeal the tax cuts that
Bush showered on families earning more than $200,000 a year.
The problem is that even taken together, these ideas are a
modest response to a very large crisis. There is no suggestion
that under Kerry the U.S. would alter its basic approach to
economic growth, job creation, or income distribution. Rather,
these proposals refocus, expand, better fund or otherwise
adjust existing programs – despite very little evidence that
any of these program, or even all of them in combination,
could do much to close the growing gap between rich and poor.
At best, we might hope to staunch the bleeding, but a real
cure is not in the offing.
matters worse, Kerry also throws some rather bad ideas into
the mix. To create “good paying” jobs, he wants to cut
corporate income taxes. To help pay for new programs, he wants
to adopt “pay as you go” rules on federal spending—budget
rules that, if implemented, would likely force cuts in other
equally deserving programs serving other equally vulnerable
Corporate conservatives argue that even these modest proposals
are foolish: any effort by labor or government to increase
American wages will put American employers at a competitive
disadvantage, resulting in further job losses. Higher wages
and higher taxes are, they say, the reason why European
unemployment rates are so much higher than those in the U.S.
America to take this high wage, high benefit path, other
countries, both rich and poor, that compete with the U.S.
might be able to avoid the ruinous wage competition that now
threatens standards of living everywhere. In concert, “fair
traders” might even be able to alter the rules of
international trade in ways that could allow all countries to
act more humanely, to take labor standards seriously, and to
protect the environment.
it is worth asking whether anything bolder than Kerry’s modest
proposals are politically feasible at this time. Everywhere in
the West, even in political systems where the left is far
stronger, movements advocating serious social reform are
clearly on the defensive. No one in or near the U.S.
government is prepared to take multinational corporations on
directly. Cuts in defense are especially problematic in the
midst of what is likely to be a never-ending and politically
opportune War on Terror.
Nonetheless, the left should raise these issues every time
someone talks about the “two Americas.” It’s not enough to
empathize with the working poor or worry about shrinking
opportunity for the middle class. We need to make clear the
political-economic roots of this crisis and the impossibility
of addressing it without structural reforms.
One place to start would be with the
political institutions themselves. Unless the U.S. seriously
limits the role of private money in politics, rolls back media
concentration, and institutionalizes authentic, grass-roots
participation in political decision making, no one in power is
going to feel the need to do much more than talk about the two
Unless otherwise noted, all data on income inequality by
quintile, income shares of the top 5%, and changes in
income inequality over time are taken from the U.S. Census
Bureau series “Historical Income Tables – Households,”
Data on poverty in the U.S. are from the Current
Population Reports series, “Poverty in the United States”
and found at
on income and poverty rates by race, gender, and education
are taken from the 2003 Statistical Abstract of the
United States, found at
Comparative data on income inequality and poverty in the
West are from Timothy M. Smeeding. “Globalization,
Inequality and the Rich Countries of the G-20: Evidence
from the Luxembourg Income Study (LIS).” Prepared for the
G-20 Meeting, Globalization, Living Standards And
Inequality: Recent Progress and Continuing Challenges,
Sydney Australia, May 26 – 28, 2002; Michael Forster and
Mark Pearson. “Income Distribution and Poverty in the OECD
Area: Trends and Driving Forces.” OECD Economic Studies
no. 34, 2002/1: 7-39. Data on GDP shares are from data
collected by the Organization for Economic Cooperation and
I. Shapiro, R. Greenstein, and W. Primus. 2001.”
Pathbreaking CBO study shows dramatic increases in income
disparities in 1980s and 1990s: An analysis of the CBO
data.” Retrieved September 26 2002 from LexisNexis
Database (Current Issues Universe, R010-39) on the World
Edward N. Wolff. 1995. Top Heavy: A Study of the
Increasing Inequality of Wealth in America. New York:
The Twentieth Century Fund Press. P. 11; Charles E.
Lindblom. 2001. The Market System. New Haven: Yale
University Press. p. 122.
Measured as a ratio, which increased from 7.8/1 to 18.2/1.
Shapiro, Greenstein, and Primus.”Pathbreaking CBO study.”
Edmund L. Andrews. “Report Finds Tax Cuts Heavily Favor
the Wealthy.” The New York Times. August 13, 2004.
is the author of
The Collapse of
Liberalism: Why America Needs a New Left
(Rowman and Littlefield), Chair of the Department of
Political Science and Director of the International
Studies Program at California State University, Long