Kurtz: Public underestimates severity of income gap

Michael Kurtz

Last week, President Obama announced a new plan to reduce the federal deficit by roughly $3.6 trillion over the next decade. He intends to raise $1.5 trillion in taxes primarily on wealthy Americans and corporations by allowing the Bush tax cuts to expire and limiting various deductions and loopholes.

The most controversial provision in the plan, however, was the “Buffet Rule,” named after billionaire investor Warren Buffet, who has lamented that his investment profits are taxed at a lower rate than his secretary’s salary. The rule would ensure that millionaires pay the same percentage of their earnings as middle-class Americans do and would raise approximately $13 billion over the next ten years, although the federal government will probably be looking at deficit reduction between $1 and $4 trillion during that period. Obama’s proposals prompted predictable cries of “class warfare” and “theatrics” from his opponents on the right.

Usually, this is the part of the debate where I tune out and silently seethe over the fact that the two parties seem to occupy mutually exclusive realities. But this time, the ensuing shitstorm made me wonder: Do traditional attitudes about wealth and achievement in this country bear any resemblance to current reality? If not, why not? And what, if anything, can one do to survive amidst such bleakness?

We’ve been told since we were young – by our parents and by politicians – that anyone can make it in this country if he or she works hard and plays by the rules. This idea is officially on life support. A recent study from the Organisation for Economic Cooperation and Development found that the US has less social mobility than infamous socialist hellholes such as Germany, Canada and Australia. Our Gini coefficient – the measure of national economic inequality employed by the CIA World Factbook – places us alongside chronically violent and unstable countries such as Mexico and the Ivory Coast.

In contrast to these larger macroeconomic analyses, we, the American people, underestimate our current level of income inequality. A recent study by Professor Michael Norton of Harvard Business School and Professor Dan Ariely of Duke University found that people believed that the richest 20 percent of Americans own 59 percent of all wealth, even though the latest data indicates that the top quintile actually owns 84 percent of all wealth. In other words, people think that the wealth distribution in this country is vastly more equitable than it actually is.

There are a couple of explanations for this. Firstly, widely available consumer credit (and its ugly twin, heavy debt) has allowed middle and lower middle class Americans to finance lifestyles with cutting edge amenities – think flat screen TVs and top-notch SUVs – beyond what they can actually afford.

Secondly, ours is a very aspirational society; even poor Americans oppose higher taxes on the wealthy because they hope or think that they will one day grow wealthy themselves. A 2003 Gallup survey found that just under a third of Americans expect to get rich, including more than half of all young people and more than a fifth of those making less than $30,000 a year.

In the near term, it does not seem as though federal policies can change things. Obama’s recently proposed jobs bill probably can’t survive the solidly Republican House of Representatives, even though credit rating agency Moody’s estimates that it would add 2 million jobs and Goldman Sachs predicts that the plan would boost growth by 1.5 percentage points. In a farcical display of political opportunism, the same people – led by Wisconsin Rep. Paul Ryan – who voted for George W. Bush’s budget-busting prescription drug program in 2003 now oppose Obama’s attempts to kickstart the economy out of some newfound concern about the deficit.

So whatever your political persuasion, don’t expect much until the spring of 2013. But the good news is that if you’re reading this, you don’t have quite as much to worry about. Between your Northwestern degree, your inherent ambition and our well-regarded career services office, you’ll have every chance to advance. A cynic might call the dwindling prospect of upward social mobility the carrot that moves the horse, but if anyone has a chance at gobbling the whole thing, it’s the fine students at NU.

Michael Kurtz is a Weinberg junior.

You can reach him at [email protected].