The rich get richer

Experts have been sparring for decades over the impact of tax rates on the economy, an unresolved debate that raged a little louder after President Obama argued in a speech Wednesday in Ohio that the tax cuts approved under President George W. Bush should be allowed to expire for the top 2% of income earners while being extended for the middle class. Republicans firmly oppose that idea, proposing instead to make all of the Bush cuts permanent. We’re wondering if they’ve checked in with the CIA on that.

According to the CIA’s World Factbook, an online repository of information on the world’s nations, the United States ranks 42nd on an index of income inequality. This is one of those lists you don’t want to be at or near the top of: A high score means a wide gap between the haves and have-nots. The United States has a more even distribution of wealth than such countries as South Africa, Hong Kong and Brazil, but it’s more unequal than Russia, Venezuela and Kenya, among 92 other countries that rank lower than we do. Obviously, the middle class has a far higher average income in the U.S. and a greater quality of life than in many of the countries that rank better, but regardless of how high or low the income floor is, big gaps in wealth can have pernicious effects on a society, encouraging corruption, disrespect for the rule of law, health problems and other woes.

Almost all of the gains in U.S. household income since 1975 have been among the richest 20% of households, according to the CIA. An ongoing series about income inequality by Timothy Noah in the online magazine Slate points out that the richest 1% of Americans now account for 24% of the nation’s income — up from about 18% in 1915, a time of worsening class warfare that preceded the rise of communist sympathy in this country.

Taxation policy is only a minor cause of this widening gap, and there are better ways to narrow it — such as by improving education or by shifting more of the tax burden off of businesses to encourage hiring — than by taxing wealthy individuals. Nonetheless, Obama’s proposal is a practical way to keep the deficit in check without shutting off growth, and it could at least slow the trend of income disparity. It isn’t remotely the socialist-style redistribution of wealth that hard-core conservatives fear; a return to the Clinton-era tax rate on upper earners would still tax them at far lower rates than they were under President Reagan in the booming 1980s.

Meanwhile, with the U.S. income gap attaining a level that must make Third World dictators feel good about their financial management skills, it’s increasingly untenable to argue that the wealthy can’t afford a small tax hike.