The Income Gap: How Much Is Too Much?

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In the debate over income inequality, the right and left seem to agree on one point: The U.S. is the land more of equal opportunity than equal outcomes.

But what's the real relationship between the growing income gap and opportunity? A new report out last week has triggered more debate about the haves and the have-nots.

The study, led by Raj Chetty of Harvard University, says it's not any harder to achieve economically in the U.S. today than it was 20 years ago. That flies in the face of growing criticism that the income gap is putting some opportunities beyond the reach of average Americans.

A National Challenge

President Obama last month called income inequality and economic mobility "the defining challenge of our time." The president, who is set to deliver his State of The Union message on Tuesday, also promised to keep those issues front and center for the remainder of his presidency.

"While we don't promise equal outcomes, we've strived to provide equal opportunity," he said.

Historically, however, the country's policies have sought to address both. President Lyndon Johnson's War on Poverty created early childhood education programs and investments in poorer schools. But it also tried to address the income gap by creating social safety net programs like Medicare and food stamps.

Sheldon Danziger, president of the Russell Sage Foundation, a progressive think tank, says in the decades that followed, that approach worked. Wages rose for everyone. The economy bounced back quickly from brief recessions.

Neither of those things, he says, are true about the U.S. economy today.

"What's not going to happen is a return to the golden age, when a rising tide lifted all boats," he says.

A Fading American Dream?

Danziger argues that the yawning gap in the income distribution between the top earners and those at the bottom is becoming self-perpetuating. He says the rich get richer from investments in the financial markets, and secure better educations for their children.

Minimum-wage and middle-income earners, meanwhile, cannot keep pace, making it less likely their children will have the opportunities to move up.

"The American dream is less robust than the Canadian dream," he says.

Children born in Canada and some European countries do, in fact, have a better shot at working their way out of poverty than American kids. But an academic study published last week found that, contrary to popular perception, it has not gotten harder to climb the income ladder in the U.S. in the last two decades.

Or A Problem Of Perception?

Scott Winship, a fellow at the right-leaning Manhattan Institute, says that study debunks some commonly held misconceptions. Just because a handful of people at the top are making much more money than the rest of the workforce, he says, does not mean there are greater barriers to climbing the economic rungs.

"There's an intuition among a lot of people that inequality has these problematic effects, but when you really get down to the research that's been done, it's hard to find a reason to worry," Winship says.

Winship says policy should aim to increase access to opportunities to those on the lower rungs of the social ladder. But, he says, narrowing the income gap by taxing the rich more or raising the minimum wage is unlikely to have much of an effect on mobility.

Either Way, The Rich Stay On Top

Richard Reeves, policy director for the Center on Children and Families at the Brookings Institution, agrees the inequality gap is driven largely by those at the very, very top of the income scale making even more. And the discrepancy, while staggering, benefits a relative handful of those outliers. Which raises the question, how much does income inequality matter if we're talking about a relative handful of people?

"How much does that matter? In a way, I think you're asking the central question of much of current political debate," Reeves says.

Reeves says this is where philosophy meets policy. Some say those who can make money deserve to be richly rewarded.

"On the other hand, you can say that other things happen when people are doing that much better than the rest of society," he says. "They pull away. They might be able to avoid tax by complicated tax schemes. They may ensure their own children do much better, which I think is a problem, by opportunity hoarding. They may, if you have a political system that allows people with money to have disproportionate political influence, end up shaping the very policies that result in greater levels of income inequality."

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