There is a lot of buzz around New Republic journalist Timothy Noah’s new book, The Great Divergence: America’s Growing Inequality Crisis and What We Can Do About It, which persuasively documents the nation’s burgeoning economic divide. While we appropriately pride ourselves for becoming a more egalitarian society with respect to African-Americans, women, and gays, Noah writes, our incomes have grown stunningly unequal. If in the 1960s and 70s, the United States became an “angrier place,” today, our enormous economic inequalities have helped make America “a meaner place.”
In the early part of the 20th century, when politicians were worried about growing concentrations of income and wealth among families like the Rockefellers, Vanderbilts, and Carnegies, the richest 1% took in 18% of the national income, Noah notes. That figure dropped to 9% in 1970, when unions remained an important factor in the economy, but by 2007, the richest 1% raked in 24% of national income.
Much of the book is appropriately devoted to the decline in organized labor as a contributing factor to rising inequality. In the private sector, Noah writes, union density rose from 7% in 1933 after passage of New Deal legislation providing for collective-bargaining rights to close to a third of workers in the 1950s. Today it’s down again to 6.9%. For unions, Noah writes, “it’s as if the New Deal never happened.” Labor no longer plays the role as the “people’s lobby” that it once did, as not a single labor union is in the top 20 groups expending funds for lobbying. (Full disclosure, Noah backs an argument Moshe Marvit and I advance to help revive labor by amending the Civil Rights Act to protect individuals against being fired or otherwise discriminated against for trying to form a union.)
Noah notes that education is no longer serving as a force for social mobility, with college tuition and fees having more than doubled after inflation from 1981 to 2006. The Pell Grant, although rising, has not kept up with increased costs, and yet, as a new report from Education Sector notes, an increasing proportion of federal aid, in the form of tax breaks, is going to Americans making up to $180,000 a year.
The report by Stephen Burd, “Moving on Up: How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class,”questions the failure to better target higher-education tax breaks, which totaled $70 billion from 1999 through 2009. Over time, these breaks have increasingly gone to relatively wealthy families, making between $100,000 and $180,000 a year. In 1999-2001, none of the benefits went to those making more than $100,000 but from 2007-2009, nearly one quarter of the benefits flowed to these families. The Tuition Tax Deduction, which is available for families making up to $160,000 a year, sends more than half of the benefits to families making more than $100,000 annually.
If legacy preferences in college admission are a form of “affirmative action for the rich,” then tax breaks for families making up to $180,000 a year are food stamps for the relatively wealthy.
Many readers of this article may be members of families making around $180,000 a year and if they have a child or two in a four-year college, may think of themselves as quite deserving of some help in the form of a tax credit or deduction. But remember that households making $180,000 stand at the 95th percentile of the American population. And in a society where less than one-third of adults have a four-year college degree, subsidies for college students are best justified when they make the difference between attendance and non-attendance. The test for financial aid should not be whether it eases the pinch for families but rather whether students would not go to college but for the aid provided. Tax credits are not a make-or-break policy for families making $180,000 the way the Pell Grant can be for a recipient whose family earns less than $40,000.
There are many steps that can be taken to address “the great divergence” that Timothy Noah so ably documents. But one place to start is to heed Education Sector’s advice and allow higher-education tax credits to expire and plow proceeds into Pell Grants for genuinely needy students.