Quickly growing CEO pay is a significant contributor to income disparity, according to a recent Washington Post article that ran in the Milwaukee Journal Sentinel. Executive pay has increased fourfold since the 1970s according to the article, while the average worker pay remained relatively flat. Of the top 0.1% of earners in 2008, 59% were CEOs, managers, or financial professionals. This top 0.1% of earners took in more than 10% of total personal income in the U.S.
A number of recent public policy decisions at the federal and state level also contribute to and reinforce income disparity. The Bush tax cuts are among the policies that predominantly help high earners. In a recent blog post, the Wisconsin Budget Project highlighted a new report showing that the top 1% of income earners in the state alone receive 28% of all the Bush tax cut dollars in Wisconsin, almost twice the combined tax savings of the lowest three-fifths of income earners (whose share of the Wisconsin total is just 15%). However, that is just one of the many public policy choices factoring into a widening gap in incomes and wealth between the rich and the majority of Americans.
Limiting the estate tax to only the largest estates, which was part of the package that extended the Bush tax cuts for all taxpayers, also contributes to the growing concentration of wealth. A December 2010 Wisconsin Budget Project blog post described how the tax deal sets a two-year estate tax exemption level of $5 million per person, or $10 million per couple for the federal estate tax. Estates will be taxed at a reduced maximum rate of 35% for assets above that level, through 2012. Wisconsin currently does not have an estate tax.
At the state level, the budget includes several provisions that will reduce the taxes of corporations and the well-off, and increase taxes paid by low-income individuals. The budget includes a partial rollback of combined reporting laws ($46.4 million over the biennium), a phased-in credit for certain manufacturers ($10.1 million), and tax breaks for income from capital gains ($36.3 million). A recent Wisconsin Budget Project post described additional proposals for further reducing the tax on capital gains, which could cost the state as much as $400 million in reduced revenue over the next three years.
Meanwhile, the budget cuts tax credits for low-income individuals by $70 million over the next two years.
As we respond to growing concerns about income and wealth disparities, we should remember that while a good deal of that gap is due to CEO pay that has far outpaced that of typical workers, at least some portion of the gap can be traced back to federal and state policies.