Inequality plays big role in US Presidential election

The 2012 US Presidential elections were unusual for the relatively important role played by issues of inequality and the distribution of income and wealth, says a paper by researchers at the London School of Economics. On this occasion Americans seemed to abandon their normally 'relaxed' attitude to inequality.

Key points

  • US income and wage inequality have risen dramatically since the 1970s. The share of the top 1 per cent (those with annual incomes over $400,000) was as high in 2007 as at its historical peak in 1928. Income and wage differentials between the richest 10 per cent and the poorest 10 per cent have also risen in tandem. The result is that the US has the highest income inequality of all rich countries.
  • Issues of inequality and the distribution of income and wealth do not usually figure prominently in US elections. Compared with Europeans, Americans are generally more relaxed about large disparities of income and wealth, seeing high pay as the reward for effort and ability.
  • This time was different. The 'Occupy' movement reflected many Americans' anger towards the very rich, especially those working in the financial sector who helped cause the recession and yet were bailed out by the government. Increases in inequality were felt by Americans to be less acceptable when the unemployment rate has hit 10 per cent and real wages continue to stagnate.
  • Tax reforms initiated by the Bush administration in 2001 are due to elapse in January 2013. A major difference between the two presidential candidates was whether the Bush tax cuts should be renewed (as the Republican candidate, Governor Romney, wanted) or allowed to lapse for households earning over $250,000 a year (as President Obama wanted).
  • If the newly elected President Obama now gets his way in Congress, the top two rates of income tax will increase from 33 to 36 per cent, and from 35 to 39.6 per cent – though this only affects about 1.5 per cent of US households.

Source: Stephen Machin and John Van Reenen, Inequality and Opportunity: The Return of a Neglected Debate, Centre for Economic Performance (London School of Economics)
Link: Paper