Marianne Schneider-Petsinger
Geoeconomics Fellow, US and the Americas Programme
The gap between the haves and have-nots will be the defining economic challenge for the next US president.
A Bernie Sanders supporter holds a sign during a protest in Los Angeles on 27 August 2016. Photo by Getty Images. Bernie Sanders, though no longer a contender for the presidency, put the topic of inequality firmly on the election agenda. Photo by Getty Images.

The US election is less than a month away. With so much focus on the large gap between the rich and the poor in this year’s race, a slightly altered version of James Carville’s 1992 mantra captures the election quite well: 'It's the inequality, stupid.'

Inequality divides the United States. In 2015, the top 5 per cent of Americans earned about 16 times more than the bottom 10 per cent. There has been some recent positive news on closing the income gap from the Census Bureau, indicating that the median household income rose by 5.2 per cent between 2014 and 2015. This was the first increase since 2007 and the largest one-year gain on record. Income gains were stronger for those at the lower end of the income distribution. But another look at the data offers a much more sobering perspective. Accounting for inflation, the average American is bringing home 2.4 per cent less than in 1999. The adjusted incomes of poorer households have been stagnant for even longer - approximately 40 years - while households near the top of the income scale have seen their living standards rise. 

But income inequality divides the country in more ways than the rift between the haves and have-nots shown by these figures. The importance ascribed to the topic and the solutions prescribed by the presidential candidates are yet another aspect of how the topic of inequality divides Americans.

The big issue of the 2016 campaign

Of all the pressing problems facing the United States, income inequality is the one that concerns the largest share of voters. More than half of Americans (52 per cent) say that the gap between the rich and the poor is a very big problem. No other issue (including race relations, terrorism, crime, or immigration) causes as much worry. It is thus no surprise that the topic of inequality takes a central role in the 2016 presidential election. 

However, there are deep partisan lines that show divisions in the public’s concern over inequality. Seventy per cent of Clinton supporters say the gap between the rich and the poor is a very big problem and poses by far the most challenging issue. In contrast, just 31 per cent of Trump supporters feel the same. 

Bernie Sanders, though no longer a contender for the presidency, put the topic of inequality firmly on the election agenda. As part of his platform, he declared, 'The issue of wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time, and it is the great political issue of our time.' Sanders held Clinton’s feet to the fire throughout the primaries, causing her to move to the left on the subject of inequality and other economic issues such as trade. As a result, a major part of her campaign now focuses on 'an economy that works for everyone'. Though Donald Trump does not mention income inequality directly, he offers a blunt message about the system being 'rigged' against American workers who see their lives hollowed out. For his supporters, the focus on inequality has less to do with anger at the rich, but is geared more at foreigners that are supposedly stealing US manufacturing jobs and lowering their wages. 

While on opposite ends of the political spectrum, Trump and Sanders both have tapped into a deep sense of discontent by appealing to voters who feel disenfranchised by the existing political and economic institutions. Slow growth, stagnant wages and rising income inequality have festered distrust in elites because the better times promised by politicians, business leaders and experts have failed to materialize for many in the wake of the 2008-09 financial and economic crisis. This is a phenomenon that goes far beyond the United States. The United Kingdom and many parts of continental Europe are experiencing a similar backlash. 

Competing visions on how to address inequality

In order to lift the wages of the working class and reduce the gap between the rich and the poor, Hillary Clinton and Donald Trump are proposing different policies. Clinton focuses on 'making sure the wealthy, Wall Street, and corporations pay their fair share in taxes'. She would introduce a 'fair share surcharge' tax of 4 per cent on multi-millionaires and encourage companies to share profits with their employees. Other proposals include increasing the federal minimum wage and introducing family-friendly workplace policies like paid leave, earned sick days and affordable childcare. She has also laid out plans for free college for the middle class and debt-free college for everyone. 

Donald Trump wants to help the middle class by bringing back blue-collar jobs. To do this, he has suggested cutting regulation, supporting infrastructure spending (which is also on Clinton’s agenda), and reviving the fossil-fuel sector. He would pull out of trade deals and impose tariffs on countries like Mexico and China to bring back jobs from overseas. His tax plans would cut rates across-the-board. While middle-income Americans would get a tax cut, Trump’s proposals would allow the wealthiest Americans to keep more of their earnings. 

In their pitches, both Clinton and Trump heed the electorate’s dim mood concerning inequality and cast themselves as the champion of the middle class. But while many presidential candidates before them have focused their campaigns on offering a better deal to the middle class, this year is different: the focus on inequality as the driving issue of the campaigns comes at a time when trust in the willingness and ability of politicians and governments to deliver on closing the income gap has reached bottom levels. Regardless of who will be the next occupant of the White House, it’s clear that income inequality will be the defining economic challenge for the 45th president of the United States.

This article was originally published by Real Clear World.

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