Policy changes needed to reverse economic inequality in U.S.

WASHINGTON – Skewed economic policies are a driving factor for economic inequality in the United States.

That’s the opinion of witnesses at a hearing held by the Senate subcommittee on economic policy Sept. 17 chaired by Sen. Jeff Merkley, D-Ore. Areas of significant difference in policy were taxes and deficits, trade and globalization, regulation of business and labor protection.

“Every day thousands of lobbyists come onto the hill and seek to influence policy debates, usually in favor of the interests of more affluent citizens. We must make sure that the voices of millions of Americans with low or middle incomes are not drowned out by those with far more resources,” Merkley said.  

The hearing sought to highlight causes of economic inequality and identify possible solutions, focusing on policy where higher education and home ownership served as examples.

Half of Americans are unable to pay a $400 bill without going into debt or selling something, according to a 2014 report by the Federal Reserve.

Two-thirds of students from low-income households and half of four-year college part-time students risk dropping out because they work 20 plus hours as they attend school. College costs have increased more than 400 percent in the last 25 years, while median family income increased less than 150 percent. Financial aid to students grew even less.

A student from a low income household would have to use 95 percent of her family’s income to go to college for a year after financial aid, Heather McGhee, president of D?mos, said. D?mos is a nonprofit policy group that supports a diverse middle class and seeks to reduce the role of money in politics.

Amir Sufi, professor of finance at the University of Chicago, gave an example of a homeowner who had a home worth $100,000 in 2007, a $60,000 mortgage, and therefore $40,000 of home equity.  However, between 2007 and 2010 the value of the home dropped to $60,000, and the homeowner lost all of his equity.  

“That the standard mortgage contract is inflexible, no matter the circumstances, cushions the rich from risk while passing on disproportionate risk on middle and lower income households,” Sufi said.   

The Fed report found that 56 percent of Americans who were unable to complete a college program they borrowed money for felt the costs of education outweighed any financial benefits they received. 

“If we can’t count on CEOs and senior management to reinvest at least some of their corporate profits in their workers like they used to, what steps should the government take to fill that void?” Sen. Elizabeth Warren, D-Mass., asked.

A recent report derived from a survey of Harvard Business School graduates found that a competitive U.S. economy would lift both businesses and citizens, lamenting that this is not the case today.

Congress should stop giving preferential treatment to capital gains and dividends, McGhee said, noting only about half of Americans own stocks. Dividends and capital gains are taxed at a lower rate than wages.

She said passing a bill that would make it easier for employees to unionize by changing the current two-step vote to a single vote, giving workers more bargaining power. 

“Congress should commit to investments that build foundations for strong growth for a broad middle class to grow the economy from the middle out,” Adam Hersh, senior economist at Center for American Progress, said.  

“If we are serious about addressing income inequality, then we need to support entrepreneurship across the spectrum,” Claudia Viek, CEO of the California Association for Micro Enterprise Opportunity, said.

“My hope is that we can take this fundamental set of repetitive failure to create living wage jobs … and drive the conversation on good legislation in the next cycle,” Merkley said in an interview after the hearing.

He said the top of his agenda includes investments in infrastructure and education and changes in  financial products to make them accessible to more investors.