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Timothy Noah: Why the Rich Are Getting Richer and the Middle Class Is Disappearing

In his new book "The Great Divergence," Noah digs into the causes of America's rapidly increasing inequality. In this interview, he talks to AlterNet about what he found.

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TN: While I absolve the income tax of principal responsibility for creating inequality, I think it would certainly be helpful to use the income tax to try and put more equality in the system. And I do think you need to create these new brackets to reflect changes in the demographics of the tax paying population. More of the money is going to those at the top and we need to change our tax brackets in order to reflect that.

Another thing is that taxes are probably going to have to go up on everybody in order to deal with the deficit problem and not slash away at existing programs. If the Obama administration is eventually going to have to raise taxes on the middle class, something they dare not talk about before the election, but I think will have to happen, then it will be all the more important to be able to demonstrate to the middle class that the rich are paying their fair share.

SJ: Right now with the massive unemployment crisis, people who are unemployed are not paying a whole lot of income taxes. Although unemployment is taxed – a thing that conservatives also don’t like to acknowledge. But we would have more tax revenue if the people who are making very little money right now were making more money.

TN: You haven’t asked me the question that a lot of people ask me. Which is, why should we care about income inequality at all?

I think it’s anthropologically interesting that that question even comes up. What I always say when I’m asked that, I start off with a little disposition on how this is not a question that over the last 100 years of American history people have felt obliged to ask. Because 100 years ago the elites were terrified that there would be an overthrow of the US government by socialists and anarchists. Fifty years ago the elites had to worry about income inequality because the US was battling the Soviet Union for the hearts and minds of other countries.

Today there’s no danger of anarchist overthrow of the US government and there’s no danger posed by Soviet Communism, or probably any communism at this point and so for the first time it has become possible to ask the question, “Why should we care?” And part of why we should care, I think, is that economically you have to incentivize the middle class. If the middle class no longer has an incentive to improve its productivity, after a dozen years when productivity has gone up and median income has not gone up, people working at the median are going to notice that and it’s going to affect their attitude toward their work and their attitude toward their companies. They may have no reason to care whether their companies prosper and they have no reason to care why the country prospers except fear of getting fired or losing their job some other way.

So I think that there’s a strong argument to be made for caring about income inequality simply from the perspective of economic self-interest. That’s before you even take into account the more common argument that the purchasing power of the middle class has diminished and that you need to pay people in order create consumption.

SJ: Rick Perry was famously complaining about the fact that nearly half of Americans don’t pay any federal income tax. It’s like, honey, that’s because they don’t make any money. Meanwhile, they are paying payroll taxes, which are regressive, as well as state and local taxes.

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