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CBO Report Reveals Income Inequality

POSTED: October 26, 2011, 12:00 am

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As the Occupy Wall Street movement persists in cities across America and gains supporters across the globe, a new report by the nonpartisan Congressional Budget Office (CBO) echoes the concerns raised by the movement’s growing legions. The CBO report details trends in the distribution of household income between 1979 and 2007, and reveals that after-tax income for the highest income households grew more than it did for any other group during that period. After-tax income is income after federal taxes have been deducted and government transfer payments, such as Social Security and unemployment insurance, has been taken into account.

The report reinforces the message that President Obama has been delivering since the battle on Capitol Hill over the debt ceiling; that being the necessity to restructure taxes and make higher-income Americans pay a greater share. That message has become a consistent mantra of the Obama White House and is a centerpiece of the President’s “American Jobs Act,” the administration’s jobs plan that has been opposed by Republicans on the Hill.

Among its findings, the CBO notes that between 1979 and 2007 income grew by 275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent and just 18 percent for the bottom 20 percent. Moreover, the report notes that more concentrated sources of income such as business income and capital gains grew faster than labor income. The top fifth of the population saw a 10 percentage point increase in their share of after-tax income.

Increasingly, the question of income inequality is becoming a volatile political issue as the nation prepares for the 2012 presidential election. For the most part of his first term, President Obama has evaded the question of class disparities, and steered clear of making distinctions in economic impacts based on race, but the economic downturn has taken on a life of its own. In retrospect, the President’s battle with Congressional Republicans over raising the debt ceiling might have been the spark that aroused the latent anger of Americans toward their financial circumstances. What was widely characterized as a policy defeat for the President when he could not convince Republicans to consider revenue enhancements as part of a “grand bargain” to adjust the debt ceiling, might have been the equivalent of a political rope-a-dope on the part of Mr. Obama. By embedding a poison pill – the slashing of the Defense budget – in the mandate of the “super committee” if it fails to come to agreement on a plan, the President cleverly forced the reconsideration of his tax proposal. He went a step further by making certain revenue enhancement was part of his jobs plan. By doing so, the White House made the issues of income inequality and wealth disparity a part of the public discourse. It provided President Obama with the perfect contrast to enable him to point up Pennsylvania Avenue to House and Senate Republicans as the drivers of inequality. Then along came Occupy Wall Street and what started out as online venting quickly caught fire as a grassroots movement of the economically dispossessed.

The CBO report also comes against the backdrop of the latest New York Times/CBS News poll that shows most Americans – 84 percent- disapprove of Congress. It is perhaps the sense that members on the Hill are simply preserving the status quo; and are defiantly defending the growing income inequality the CBO report chronicles while ignoring the masses of Americans. The question remains whether Republican presidential candidates will begin to tone down their near obsessive adherence to their anti- tax increase stand, reinforced by the rhetoric of the Tea Party and conservative activist Grover Norquist’s anti-tax pledge. This latest report by a credible source could serve to unhinge a group of GOP candidates that have sought to portray the White House incumbent as oblivious to the concerns of middle class Americans; a charge that appears to be considered far less legitimate given the mountain of data that suggests our nation is being torn apart by widening inequality.

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