The issue of increasing disparities in wealth and income has become a focus in Washington. President Obama has said that increasing inequality and decreasing social mobility present “the defining challenge of our time,” and that “making sure our economy works for every working American” would be a central focus of his remaining time in office. Senate Majority Leader Harry Reid (D-NV) joined in: “There is no greater challenge this country has than income inequality, and we must do something about it,” he declared.
So what are they going to do about it? As Brian Graff, NAPA's executive director/CEO, notes in the most recent issue of NAPA Net the Magazine, the issue of income inequality can be viewed from both a policy perspective and a political perspective. From a policy point of view, Graff notes, “It’s hard to argue with the proposition that we can do more as a society to provide lower-income individuals better access to the tools they need to succeed.” Examples include improved primary education, greater access to college and access to small business start-up loans.
“The problems start when the issue is used as a political weapon — and, unfortunately, it is now this perspective that appears to be most prominent,” Graff notes. Viewed politically, the issue of income inequality is seen as an opportunity to portray successful, wealthy individuals as those “denying” others their rightful share of the pie. In that portrait, the “pie” of total wealth is presented as finite and the wealthy are hoarding an unreasonably fair share. “Leveraging such a powerful populist message is what makes the issue so politically attractive to liberals and progressives,” says Graff.
“It is not unreasonable to imagine a split-government political dynamic for the next 10 years,” he believes. The White House could easily remain in the hands of the Democrats; the House of Representatives districts seem well-designed to retain Republican control; and the Senate appears likely to be so closely split that party control could change a few times over the next decade. With such a tight political balance, the likelihood that the issue of income inequality would be used for political purposes only increases.
“Going forward, then, we should expect to see almost any issue being discussed in Washington, whether fiscal or social policy, to be framed in terms of income inequality,” says Graff. “For example, we need to provide pre-K education to lower-income families not because it is a good idea, but because ‘only the wealthy can afford pre-school.’”
The same argument can easily be applied to tax and retirement policy. In fact, Graff notes, it already has. The president’s FY 2015 budget included (once again) a lifetime cap on retirement savings and other restrictions on retirement tax incentives for the “wealthy.” As Graff notes, “Such proposals reflect the political desire to present every policy initiative as being necessary to correct perceived failures of the current system, as opposed to simply trying to expand access to what is — based on actual facts — a good system that is working for the middle class. Regrettably, income inequality as misapplied to retirement policy is a theme that our industry will need to get accustomed to hearing.”
Read Graff’s “Inside the Beltway” column from the spring issue of NAPA Net the Magazine here; a pdf of the entire 64-page issue is here.
