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Income inequality emerges as key issue in 2016 presidential campaign

Potential Democratic, Republican presidential candidates agree on one thing: Income inequality is a problem

Twenty-two months ahead of the 2016 election, the nascent presidential campaign already has a leading issue: the economy's failure to produce rising incomes for the middle class.

From World War II through the 1970s, virtually all working Americans saw paychecks rise. Those gains have become uneven since the 1980s, however, and in the last 15 years, they stopped for most families.

Americans at the middle of the income ladder now earn less, adjusted for inflation, than they did in 2000. Small gains during the early years of the last decade were wiped away by the deep recession that began in 2007.

Although economic growth has resumed, the stock market has soared into record territory, and the number of Americans filing new claims for unemployment benefits has fallen to its lowest level in nearly 15 years, income has remained stuck except for those at the very top.

Voters have noticed. A Gallup poll released Friday, for example, showed that two-thirds of Americans said they were dissatisfied with the way income and wealth are distributed in the U.S.

The unhappiness was most pronounced among those earning $30,000 to $75,000, roughly the middle third of the U.S. population. Nearly 80% expressed dissatisfaction.

That discontent has begun to shape the agendas of presidential hopefuls in both parties.

The issue has moved Democrats to the left, bolstering arguments for a more aggressive effort to redistribute income away from the wealthiest Americans and to do more to help families who earn far less.

The impact can be seen in the budget that President Obama released Monday and in a recent policy blueprint from a group closely aligned with former Secretary of State Hillary Rodham Clinton. Both advocated increasing taxes on inherited wealth to pay for tax cuts and wage supplements for middle-class and lower-income working families.

Republicans also have begun talking about the issue, as former Florida Gov. Jeb Bush did Wednesday in a speech to the Detroit Economic Club. Among other goals, Republicans hope to underscore the fact that income inequality has worsened on Obama's watch.

Until recently, most Republicans dismissed arguments about inequality as an invitation to what they labeled as "class warfare." Now Bush, as well as Florida's Republican senator, Marco Rubio, and other GOP hopefuls have publicly identified the issue as a key problem facing the country.

"The fact that Republicans are feeling they have to talk about inequality" testifies to the issue's power, said Dartmouth College political scientist Brendan Nyhan.

The language Republicans use, at least to describe the problem, often sounds much like Democratic rhetoric.

Bush's Right to Rise political action committee, for example, declares in its mission statement that millions of Americans feel "the playing field is no longer fair or level," a metaphor also employed by the liberals' hero Sen. Elizabeth Warren of Massachusetts for her PAC. In his speech, Bush said Americans were frustrated seeing "only a small portion of the population riding the economy's up escalator."

Rubio, at a recent breakfast for reporters sponsored by the Christian Science Monitor, said the country had experienced a "recovery at the upper echelons in the economy."

"So much of the recovery over the last couple of years has gone to such a small segment of the population that now middle-class and upward-mobility stagnation has become more apparent," he said. "I think it's good that there's a consensus that's what we need to focus on."

Republicans have criticized Obama's proposals, saying they would just make the problem worse. Rep. Paul D. Ryan (R-Wis.), chairman of the House Ways and Means Committee, for example, accused Obama of preaching "envy economics" in his budget, and Bush said in his speech that liberals had built "a spider web that traps people in perpetual dependence" instead of providing incentives for business growth.

Beyond that criticism, Republicans have had an easier time identifying the problem than proposing solutions. Bush, for example, said he would outline proposals in "coming weeks." Even identifying the problem, however, can help a campaign, at least initially.

"It's a way to demonstrate that 'I care about your needs. I care about the average voter,'" said pollster Margie Omero of the bipartisan firm Purple Strategies, based in Alexandria, Va. "'Does he get me?' is the door" that candidates have to get through before voters will listen to policy prescriptions.

When the argument does get to policies, Republicans face the problem that stagnant wages challenge a cornerstone of their economic creed. The GOP has historically argued that growth benefits all segments of society and that, as a result, government can largely leave economic affairs to the free market.

The results of the last 15 years undermine the idea that a rising tide reliably lifts all boats.

Even as the economy has rebounded from the recession, which technically ended in mid-2009, nearly all the gains have gone to the top.

In the first three years of the recovery, 91% of income gains went to the wealthiest 1% of households, a group with incomes above roughly $400,000, UC Berkeley economics professor Emmanuel Saez has found.

Inequality has reached levels not seen since the 1920s, his data show.

Democrats argue that the trend shows the need for a more active role for government. The U.S. and other major economies have experienced a "toxic combination of too little growth and rising inequality," a panel of Democratic economists and policymakers with close ties to Clinton recently declared.

The group, headed by Lawrence H. Summers, who served as Treasury secretary under President Clinton and as chief White House economic advisor under Obama, issued a report that has been widely seen as an early draft of a Hillary Clinton economic platform, should she decide to run.

The report was published by the Center for American Progress, a Washington think tank that is headed by Neera Tanden, policy director for Clinton's 2008 presidential campaign. It was previously run by John Podesta, the White House counselor, who is expected to head her 2016 effort.

Their report contends that the yawning gap between the wealthy and everyone else contradicts America's belief in social mobility and hurts the economy overall. That's because the wealthy tend to spend proportionally less of their income than middle-class families do, so concentrated wealth leads to lower demand for goods and services.

Globalized competition, changes in technology that have eliminated many low-skill jobs and the declining power of labor unions have all played a big role in producing the problem, it says.

Over the long term, the group says, the surest path to higher incomes is improved education to increase the skills of the U.S. workforce. But that could take years to show an impact. In the meantime, many Americans will continue to struggle to gain financial security, the report says.

To combat that, the report offers a menu of policies that add up to a relatively liberal, populist economic platform that Clinton could espouse. They include steps to strengthen unions, an expansion of wage supplements for low-income workers, a middle-class tax cut and more spending on roads, bridges and other infrastructure projects to generate jobs and improve the economy's productivity.

To pay for those measures, the report advocates increased taxes on inherited wealth as well as closing what the report labels as unjustified tax loopholes for corporations and wealthy individuals.

On the Republican side, most potential candidates have not come up with similarly detailed proposals, although Rubio laid out several ideas in a new book he is promoting.

GOP hopefuls have generally argued that Obama's policies should take the blame for stagnant wages, saying that too much regulation and high taxes have stifled business growth and job creation.

For Republicans, however, a credible plan for expanding middle-class incomes may be a necessity for 2016.

In the last election, polls showed one of Obama's strongest advantages was the voter perception that he, more than Republican nominee Mitt Romney, cared about the problems of average Americans. Changing that impression will be even more important this time around, when Democrats hope to finally be able to brag about solid economic growth and unemployment at or below 5%.

Accomplishing that goal is not impossible but will require the GOP to fight on what voters have traditionally seen as Democratic turf. Republicans, said Omero, "have a lot of ground to make up."

david.lauter@latimes.com

Twitter: @DavidLauter

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