A Good Piece–and a Quick Thought–on Income Inequality

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Veteran journalist Timothy Noah is the winner of this year’s Sidney Hillman Prize for magazine journalism, recognizing his characteristically thoughtful and well-written series digging into the causes of rising income inequality in the United States. If you haven’t read it, Slate makes it easy to find today.

Over the past 30 years, while middle-class incomes have stagnated, the income share of the top 1% of earners has ballooned. Noah works systematically through a range of possible explanations, ultimately placing most of the blame on plutonium-plated executive pay packages and the failure of K-12 education to prepare non-college bound students for well-paid jobs. Lesser factors include the decline of organized labor and the globalization of trade.

I believe Tim missed one very significant factor—changes to the tax code that encourage owners of privately held companies and limited partnerships to declare corporate earnings as personal income. This phenomenon didn’t increase actual inequality; the corporate earnings always belonged to the partners or shareholders. As analyst Scott Winship has shown in a very fine blog post on the subject, these tax code changes exaggerate the seeming rise in inequality by about a third.

Nevertheless, the Noah series is a deep dive by a tough-minded liberal journalist into an important subject. The idea that folks have a fair shot and that hard work pays off for everyone—not just the elite—is a mainstay of American culture. We need to keep it alive.