More than a half century after Lyndon Johnson’s war on poverty, President Joe Biden is planning to take on the nation’s enduring challenge of inequality with a mass expansion of government spending and a revamp of the tax code.
The effort, which Biden will start to detail in a speech Wednesday in Pittsburgh, is already proving just as divisive among economists as it is among lawmakers. While right-leaning economists warn about damage to overall growth from higher taxes on companies and the wealthiest Americans, liberals say the “trickle-down” approach of recent decades has failed and it’s time for a new strategy.
The president’s remarks will lay out the infrastructure portion of an overall package expected to total more than $3 trillion. While social-spending programs will be outlined later in April, the administration’s drive to expand help for the poor will be visible even in infrastructure, through proposals such as the provision of safe drinking water.
“It’s important to acknowledge that we’ve seen decades of this rising economic inequality,” Heather Boushey, a member of the White House Council of Economic Advisers, said last week in an interview with Bloomberg Radio. “The ultimate measure of success of the economy is how well it’s working for people all across these United States.”
For many, it’s not working well. The gaps between the richest Americans and the middle class, along with the lowest-income households, widened in the years before the pandemic struck—even amid the longest U.S. expansion on record. Federal Reserve Chair Jerome Powell is among those agreeing that inequality holds the economy back, something that contributed to the overhaul in long-term monetary policy strategy he’s instituted.
Halting or reversing the trend even with major changes in policy won’t come easily or quickly, economists widely agree.
“You’re turning a supertanker, and it’s taken us a generation and half to get here,” said Brad Delong, an economics professor at the University of California at Berkeley. “But, yes, you can start to turn the supertanker.”
Yawning Gap
No single statistic captures the problem, but simple dispersions of wealth and income tell a discouraging tale.
Average incomes for the top 5% of households were quadruple those of the middle fifth of Americans in 1979. That swelled to 5.7 times as much in 2007 and further to 6.6 times by 2018, U.S. Census data compiled by the Tax Policy Center show.
The net worth of the top 10% of households in 1989 was 9.4 times that of the middle fifth, according to Fed data compiled by the Tax Policy Center. That increased to 13 times by 2007 and 17 times by 2017.
The share of total income going to upper-income households—defined as double the median level—surged to 48% from 29% from 1970 to 2018, according to the Pew Research Center. Middle-income households’ share of total earnings dropped to 43% from 62%.
Americans have long accepted some level of inequality, given the rationale that it reflects the rewards for hard work, risk-taking and ingenuity. Yet for researchers like John Friedman, an economics professor at Brown University, the problem is not just about outcomes.
“It’s not just that there’s growing inequality from an ex-post perspective, but there’s tremendous inequality of opportunity,” he said.
He points to data showing how children who display similar academic abilities at very young ages, but come from different income and racial backgrounds and varying types of neighborhoods end up with very different outcomes when it comes to incomes and career advancement.