The Hindu Business Line : Rising income gap heats up US Presidential trail

AT a time when the Republican and the Democratic Presidential candidates are slugging it out on who has the best economic prescription for the country, the fact is that over the last two decades the income gap between the rich and those in the middle and bottom tiers has steadily increased.

To the Democrats it would mean that their campaign slogan of the existence of "Two Americas", one of the Rich and the other of Everyone Else has a lot of merit.

In fact, repeated opinion surveys has shown that while the President, Mr George W. Bush, keeps talking of the economy having turned the corner, a majority of the Americans have more trust in the way Senator, Mr John Kerry, would handle the economy. Statistics from the Census Bureau show that the wealthiest 20 per cent of the households accounted for 44 per cent of the total US income in 1973. That figure went up to 50 per cent in 2002 while others were taking a hit.

It is pointed out that for the bottom 20 per cent the share dropped from 4.2 per cent to 3.5 per cent.

Economists and analysts have been pointing to the fact that the Republican administration may be claiming to be on track in the jobs market but this continues to be a soft area. For instance, last month a mere 32,000 jobs were added or far less than the anticipated 2,00,000 plus.

And, overall, the point has been made that more than one million jobs may have been added to the 2.6 millions lost since 2001, but that most of these jobs pay less, have fewer benefits such as health insurance and well below the national median hourly wage.

The huge disparity in the income gap, it is pointed out, is showing up in the retail sector — booming sales of fancy cars and upscale department stores such as Saks Fifth Avenue, Nieman Marcus and Nordstorm doing much better than sales in such outlets as Wal-Mart or Sears.

The Democrats' argument that the rich in America have most to gain by the tax cuts is not politically driven rhetoric if Congressional Budget Office figures are to be trusted.

Democrats in Congress are making the point that the top one per cent with incomes averaging $ 1.2 million a year will get an average tax cut of $ 78,460 this year and the share of their total tax burden will fall about 2 percentage points to 20.1 per cent.

But it is said that households in the middle 20 per cent with incomes averaging $ 57,000 a year will get an average tax cut of $ 1,090 with their share of tax burden moving to 10.5 per cent from the present 10.4 per cent.

According to CBO calculations about two thirds of the benefits from the tax cuts went to households in the top 20 per cent which had annual average income of $ 203,740.