A new report shows that the income gap between rich and poor in America is at an eight-decade high — the largest differential since the period immediately preceding the Great Depression. And economists fear that the education and job-creation programs that could bridge this gap are lacking in the recessionary economy.

[Economy1] On June 25, the Center on Budget and Policy Priorities released a report on the growing income gap in the United States. While the data it studies are not new — the income stats end at 2007, just before the advent of the current recession — the report synthesizes both census and Internal Revenue Service information to paint a more complete picture of the finances of the various strata of American society.

“It’s given us the first clear, comprehensive picture of income distribution over the economic cycle that ended in 2007,” said Arloc Sherman, senior researcher at the CBPP. “Now we know definitively that income inequality grew in that cycle. Just before the recession hit, we know that inequality was heading into record-breaking territory.”

In 2007, 17.1 percent of all after-tax income in the country went to the top one percent of earners. According to Emmanuel Saez, an economist at the University of California, Berkeley, who used a slightly different methodology in calculating his figures, the proportion of the country’s income going to the top one percent is at its highest since 1928.

The CBO data studied by the CBPP show that in just under three decades, the after-tax income for the top one percent rose by 281 percent. By contrast, incomes for the middle quintile of income distribution rose a much more modest 25 percent over the same time period, while incomes for the bottom fifth increased by only 16 percent. If Americans in the middle fifth of the income distribution curve had seen their incomes rise at the same rate as those of the top one percent, that would equal an extra $13,000 in annual income for middle-class households, says Sherman.

A variety of factors, some stretching back a generation or more, have played a role in cultivating this inequality. Throughout the generation following World War II, incomes rose in a more evenly distributed manner, and a broad middle class was established. This trend reversed itself in the 1970s, when the income gains of the rich started outpacing those of the rest of the country.

Economists say there were several factors at play, some of which might have been unavoidable. The growth of technology rendered low-skill manufacturing jobs redundant. Globalization accelerated this decline as companies moved their production facilities offshore to take advantage of lower labor costs. The shift from a manufacturing to a service economy weakened the collective bargaining power of unions, a key force in establishing the wages on which America’s mid-century middle class was built.

“Union contracts helped bolster wages across the distribution, and the manufacturing sector was historically a highly unionized sector,” said Heidi Shierholz, an economist at the Economic Policy Institute, a think tank. Declining union membership since the 1950s has eroded manufacturing wages.

Industrial and corporate deregulation added fuel to the fire. Executive compensation swelled even as the minimum wage failed to keep pace with the rising cost of living. Shierholz said a robust minimum wage doesn’t only benefit those who are paid minimum wage. Rather, that baseline impacts lower-income wages across the board.

Tax policies also widened the income gap. While many point to George W. Bush’s tax cuts as a key accelerant in the runaway income growth of the wealthy, economists note that other, long-standing parts of the federal tax code played a role as well.

“Our housing policy, with the mortgage interest reduction, is absolutely ridiculous in that most of the subsidies go to the richest people,” said Dean Baker, co-director of the progressive Center for Economic and Policy Research.

The net result is that the middle class today is in a precarious position, and the working class even more so. For much of the past decade, loosening credit standards and rampant consumer lending fueled by the housing bubble camouflaged the increasingly skewed dispersal of resources.

“The notion that ever-increasing home prices are going to provide us with wealth is clearly not sustainable,” said Lawrence Katz, a professor of economics at Harvard University. “There was a mirage of consumption growth, so some of the growth of inequality didn’t fully show up in consumption rates,” he said.

While the drop taken by the stock market during the recession has diminished the level of inequality from the 2007 levels shown in the CBPP report, the middle class is struggling more than ever as a result of the housing crash. “It’s a huge issue,” said Baker. “They’re getting to retirement and seeing most of their wealth vanish, since most of that wealth was in their house.”

As problematic as this is for the middle class, the households at the bottom of the income ladder are even worse off.

“One of the things we know about the bottom fifth is that it’s harder for them to move up,” said Heather Boushey, senior economist at the Center for American Progress. “We talk a lot about encouraging people to work their way out of poverty, but without middle-class jobs, this consigns those at the bottom to staying there.”

Economists fret that the legacy of the wealth chasm will be greater than simply a shaky foundation for the country’s already-slowing recovery. Profound inequality sows the seeds for social unrest and widespread disenfranchisement.

“Politics have become increasingly rife with class conflict,” Boushey said.

The EPI’s Shierholz concurs. “When you have both high inequality and low mobility, we’ve turned into a place that’s inconsistent with American values,” she said. “It becomes a set class system.”

Even though the recession has put a small dent in the income gap, most economists agree that if the status quo holds, the trend will continue apace when the economy rebounds. Following the dot-com crash and 2001 recession, the incomes of the top one percent dropped from 20.6 times that of the middle fifth to 14.3 times as high. But this flattening of the income distribution disappeared when the economy recovered. In 2007, the top one percent earned 24 times as much as the middle fifth.

Economists say there’s no silver bullet for narrowing the income gap, but a number of policies and programs could help. First up, says Chad Stone of the CBPP, is letting the Bush-era tax cuts expire on schedule. “That will return rates at the top to approximately where they were at the boom of the 90s,” he said. Some say the imbalance could be partially offset by a more progressive federal tax code, a higher minimum wage and legislation that gives workers more bargaining power, while CEPR’s Baker suggests what he terms a “financial speculation” tax to capture some of the outsize profits generated by Wall Street and the financial sector.

But economists say the real key to regaining lost ground, especially for the middle class, is cultivating large numbers of jobs in new and growing industries like green technology and health care, and providing unfettered access to higher education so middle- and lower-income Americans can train for these careers.

“I think it’s widely agreed that education plays a huge role here and more so than in the past,” said Ron Haskins, an economist at the Brookings Institution. “The problem is a lot of people don’t have skills, and that’s because our high school dropout rates are high and people don’t go to college.”

The flip side of that coin is having jobs available for young people after they’ve invested in their education. “There’s potentially a lot of growth in health care and skilled manufacturing, but we need to do a much better job of providing access to training,” said Harvard’s Katz. “The traditional jobs that have provided wages to the middle class are clearly not doing well in today’s economy and are unlikely to come back. We need to think about a different middle class.”

“What we need is a policy conducive to innovation and entrepreneurship,” said Will Marshall, president of the Progressive Policy Institute, a think tank. “You need the energy of invention just as we saw in the late 90s. We need another spurt of innovation-fueled growth.”

“Inequality is one of the great structural challenges facing America,” Marshall continued. “It raises questions about whether the American dream still works. … That’s why it demands attention from policymakers as something we’ve got to squarely face.”

What’s the difference between “working class” and “low-income Americans”? It can be pretty significant. “Working class” often conjures up images of those who engage in physical labor for an hourly wage as opposed to office workers and service industry staffers; and yet, due to unionization and collective bargaining, the former often earn far more than the latter. For instance, a brickmason would probably proudly identify as “working class” instead of “middle class” if given the option, but the mean salary for a brickmason is $47,000 — certainly in the middle-income quintile (and pretty close to the median income). A worker assembling aircraft makes an average of $43,000 a year — also in the middle quintile.

By comparison, a teacher’s assistant — a more “middle-class” job, if the distinction between working and middle class is physical labor and physical setting — makes an average salary of $23,000. A laboratory technician makes an average of $37,000 a year. An optician makes a mean salary of $35,000 a year. A bookkeeping, accounting or auditing clerk will pull in an average of $33,800 a year. All of those jobs require some amount of postsecondary education, don’t involve physical labor and place the people in them in the “lower-middle-class” income quintile. Very few of them would, however, likely identify as “working class” when “middle class” was offered as an option.

The problem with “working class” is that it denotes a class of labor and a particular social grouping, rather than a class of income, while middle and upper middle class — though obviously imprecise in the vernacular — connote a comparative income. The use of “working class” as a category, while obviously designed to overcome the questionable utility of a system by which 80 percent of Americans self-identify as middle class, creates a whole new host of problems for surveys that attempt to determine how income affects people’s perceptions — so much so that, in the middle of its own analysis, ABC News switches to using income-based definitions of the middle/working-class divide to tease out how concerned people are about the economy.

Interestingly, after people self-identify as working class, ABC’s survey stops caring about their opinions. Even though the survey designers are obviously aware that the middle/working-class divide is not about income — since they stop using it halfway through the survey — they still disregard the opinions of those who identify as working class. No wonder those who identify as working class think there’s some conspiracy among the “elites.”

Palin has described herself as an “every-day” American and a “Joe Six-Pack,” struggling with the same issues as other working-class families.

An idea I didn’t get to explore much in the story is: what does it mean to be working-class in Alaska?

Many people I spoke with here told me that Alaskans would have a similar view on “working-class” as other places in the country. A working-class person probably has a blue-collar job or works in the service industry at an hourly rate. Working-class families live above the poverty level, but often have to make tough budget decisions to get by.

Nelta Edwards, a sociology professor at the University of Alaska, Anchorage, who studies class in the state, said that people here understand class in the same way the rest of America does, by and large. She said the difference is that it is made much less of an issue — particular in political campaigns.

“We just don’t talk about class,” Edwards said.

Some here disagree with Edwards’s assertions. They say it’s not just that Alaskans don’t talk about class, but that the actual idea of class is different than other places.

One Alaskan I spoke with yesterday, Mead Treadwell, who is both an entrepreneur and government employee, sees class differently. Treadwell is chairman of the state’s Arctic Research Commission and CEO of a firm called Venture Ad Astra, that invests in and develops new geospatial and imaging technologies.

Treadwell came to Alaska 30 years ago, to cover state politics for the local paper. He reported on the complex issues involved in the construction of the oil pipeline that now connects Alaska’s oil to the wider market. He went to business school, and then spent much of his career working on natural-resource issues and Arctic research.

His story shares a Western theme with many others who came here as modern prospectors.

This common story looks at class much differently here compared to the East Coast, Treadwell said. He spoke about how, back East, you’re often asked where you went to college. In Alaska, that’s not part of the discussion. For example, before Palin was tapped to be the GOP vice presidential nominee, Treadwell had no idea she was a graduate of University of Idaho.

“Where [Palin] comes from is people living their lives simply,” Treadwell said, noting that most Alaskans enjoy the same pasttimes of fishing and snow sports. “It’s a place where pedigree doesn’t matter — where you’re judged by what you do to help build the country, not by what your last name is, or where you went to school.”

Treadwell wouldn’t say that everyone is the same financially, though he noted the difference in lifestyle between the very rich and very poor isn’t so different here.

“Alaska is a hard place to put on airs,” Treadwell said, “even if you wanted.”

Though the GOP vice-presidential nominee repeatedly calls herself “working class” and talks about her familiarity with its problems, her policies have been just the opposite.

Laura tracks four major issues where Palin is not exactly a friend of the working man and woman.

Gov. Sarah Palin (flickr: bbeanan)

ANCHORAGE, Alaska — On the campaign trail over the past two weeks, Alaska Gov. Sarah Palin has been courting the working-class vote.

“I know what Americans are going through,” she said after the stock markets took another dive last week. “Todd and I, heck, we’re going through that right now even as we speak — which may put me again kind of on the outs of those Washington elite who don’t like the idea of just an everyday, working-class American running for such an office.”

As economic forecasts remain bleak and the foreclosure rate continues to rise, the McCain campaign needs to shore up support among blue-collar workers in such key battleground states as Ohio and Pennsylvania. Palin’s folksy language and personal anecdotes are clearly part of that effort.

Illustration by: Matt Mahurin

Palin often calls herself working class and a regular “Joe Six Pack.” But her income, assets and access to health care place her higher up the economic ladder. While she describes herself as a member of the working class, when faced with policy choices on issues important to blue-collar voters, Palin, over the course of her political career, rarely breaks in their favor.

A close examination of Palin’s record on such issues as health care, the minimum wage, taxes and retirement funds shows that she has remained silent on proposals that would channel public money to programs beneficial to working-class Alaskans. In other instances, Palin supported programs that favored wealthy Alaskans over low-income families.

Financially, Palin and her husband, Todd, are far from being members of the working class. In America, where class is usually defined by household income, a middle-class family earns about $49,000 a year. In Alaska, the median income for a family is about $60,000. The Palins made $166,000 last year, putting them in the top 20 percent of U.S. earners, according to the U.S. Census Bureau. When including the $17,000 Palin received in per diem payments as governor, the family is bumped into the 95th percentile. The Palin’s assets total $1.2 million, including a lakefront house valued at about half a million dollars, a snowmobile and a float plane.

Todd, a union worker on the North Slope, and Sarah Palin both have jobs that include comprehensive health benefits for their family. And, unlike most Americans, Todd Palin and the Palin children are entitled to federally funded comprehensive health care because of Todd’s Native Alaskan ancestry. The Dept. of Health and Human Services provides comprehensive coverage through the Indian Health Service for people like Todd Palin and his children, who trace their Yup’ik heritage back to Todd Palin’s maternal grandmother.

Many working-class advocates in Alaska say that Palin’s affinity for the working class has not resulted in increased funding for programs that benefit working families.

Instead, as her supporters say, Palin has established her fiscal conservative bona-fides in resisting spending on social programs — even when the state’s budget surplus is expected to reach between $5 billion and $9 billion next year in a state of about 650,0000 people.

Palin has been specifically criticized for allowing Alaska to remain one of the least generous states in a federally backed health-care program for the children of working-class families; for remaining silent on a proposal to raise the state’s minimum wage; for tacitly supporting the privatization of public employee pensions; and for implementing a regressive tax in her hometown of Wasilla while mayor.

HEALTH CARE

Lack of health care is a hallmark of an hourly, working-class job in America.

Both Sen. John McCain and Sen. Barack Obama have taken up the health-care issue in the presidential campaign. Palin noted during the vice-presidential debate that her family has gone through periods when they were uninsured. She said she understands what it’s like for Americans “to sit around the kitchen table” figuring out how to “pay out-of-pocket for health care.”

While this may resonate with many voters, it’s unlikely that Palin or her family has gone for long without health insurance. Todd Palin has had high-paying union jobs on the North Slope for much of the Palins’ marriage. Now, as governor, Sarah Palin qualifies for state coverage.

Even if they did lack insurance, the family would likely have qualified for a federally funded state-based program, Alaska Area Native Health Service, because of Todd Palin’s Native Alaskan ancestry.

Residents are eligible for the program’s free services if they hold stock in one of four native Alaska corporations, including the Bristol Bay Native Corp. According to public disclosure forms that Sarah Palin filed with the state of Alaska, her husband and their children are BBNC shareholders, meaning they would likely qualify for the health service program.

The McCain-Palin campaign has not replied to repeated inquiries, left over the course of four days, requesting comment about the native health-care program.

As governor, Sarah Palin has not sought to dramatically expand coverage for the children of working-class Alaskans.

By next year, Alaska’s state budget surplus is expected to be between $5 billion and $9 billion because of the high price of oil. Taxes on oil production and oil royalties account for the bulk of the state’s revenue. Alaskans do not pay income tax.

A separate fund of just under $40 billion holds oil royalties that are distributed yearly to all Alaskans, even children. This year payments hit $2,000 per person. The state also dispensed an additional $1,200 per person to help offset the same high energy prices fueling the budget boon.

During this boom time in Juneau, Palin has proved herself to be a staunch fiscal conservative, rather than a populist politician of the working class.

For example, Alaska is one of the nation’s least generous states when it comes to working-class children’s health-care programs, according to a report from the non-partisan health-care research group Kaiser Family Foundation.

Alaska allows children of parents earning up to 175 percent of the poverty level, or about $30,000 a year, to participate in the program. Only two states in the nation, North Dakota and Nebraska, have less generous programs. Another 40 states cover up to at least 200 percent of the poverty level, around $42,000 nationally.

In May 2007, Palin signed a bill that re-instated 1,300 of 2,500 children who had been cut from the state’s version of the federal “SCHIP” program — the State Children’s Health Insurance Program — during tight financial times a few years before.

Under SCHIP, the federal government grants states 70 percent of the cost of providing health-care for the children of the working-class.

Palin’s critics say that during a time of budget surplus the program should be expanded, not just partially reinstated.

“[SCHIP] is a very cheap way of getting health-care for working families,” said Rep. Les Gara, a Democrat from Anchorage who is critical of Palin’s policies affecting the working class. Gara said he thought Alaska should cover children up to 200 percent of the poverty level, as most other states do.

MINIMUM WAGE

One cornerstone of Palin’s campaign on the national stage has been “job creation.”

While mayor of Wasilla from 1996 to 2002, Palin supported growth and job creation as well. Her policies ushered in rapid commercial development — particularly the construction of new big box stores. Today, the biggest employer in Wasilla is Wal-Mart, employing more people than the city.

Palin supports job creation, but she has not supported government’s role in setting wages.

Though the cost of living in Alaska is higher than most other states in the United States, because most basics have to be shipped in, Gov. Palin regularly remained silent on efforts to raise the Alaska state minimum wage from $7.15 an hour to $8 an hour last year. In rural parts of Alaska, like the town of Nome, milk recently topped $7.50 a gallon and gasoline cost $5.36 a gallon. About 5 percent of the Alaska workforce makes minimum wage, some 14,000 people.

Next summer the Alaska state minimum wage will fall below the federal minimum wage if it remains the same. The hourly rate is lower than that of 35 other states – and the lowest minimum wage on the West coast.

RETIREMENT PRIVATIZATION

In an interview with Hugh Hewitt last week, Palin sympathized with Americans whose retirement plans are in the market, noting how she felt the pain too.

“The relatively low number of investments that we have, looking at the hit that we’re taking, probably $20,000 last week in his 401(k) plan that was hit. I’m thinking, geez, the rest of America, they’re facing the exact same thing that we are.” When asked why things are tight for her family, she said, “It’s just the great financial crisis that America is in as our savings accounts also, and a 401(k), they’re being hit.”

Palin didn’t mention that she did not intervene when state lawmakers attempted to reinstate a state pension plan supported by labor unions and public employees, for which Palin qualifies.

In 2005 President George W. Bush wrote to state legislatures across the country urging them to privatize state pension programs. Alaska lawmakers, led by then-Gov. Frank Murkowski, adopted such a plan for all new state employees.

Three years later, there is little public support for the system. A coalition of unions, state employees and public policy analysts has formed to push the legislature to re-adopt the old system.

Though both Republican and Democratic leadership has agreed the privatized system probably does not save the state money, a vote to return to a standard pension plan broke along party lines.

Palin did not weigh in during the debate.

“I think with some leadership,” Gara said. “We’d be able to reverse that Murkowski rule.” Gara pointed out that Palin had an 80 percent approval rating at the time of the vote, and her backing could have been vital.

REGRESSIVE TAXATION

Palin’s signature project as mayor of Wasilla was a sports complex, complete with an indoor hockey rink. The project was meant to be a community focal point, particularly in the long, dark winters here. It’s popularity has taken off recently.

To pay for the rink, Palin took out a $14.7 million bond. She raised local sales tax by half a percent to cover the cost of the project.

The move perhaps paints a slightly different picture from what Palin’s has presented on the national stage.

“As mayor, every year I was in office I did reduce taxes,” Palin said during the vice presidential debate. “I eliminated personal property taxes and eliminated small business inventory taxes and as governor we suspended our state fuel tax.”

At a press conference in Wasilla, the town’s current mayor differentiated the sales tax hike from other types of taxes, noting that it will be eliminated once the bond is repaid.

The tax, though temporary, is still regressive as opposed to progressive. There is no sliding scale adjusted for income level. Federal income taxes, for example, are structured so that those who make more money pay a higher percentage of earnings in taxes. Low-income people, with less disposable money, pay a smaller portion of their overall pay.

“The tax is unfair,” said Bob McIntryre, the director of the non-partisan Citizens for Tax Justice.

McIntyre explained that the tax disproportionately affects low-income families, who generally spend everything they make. “Things that you spend money on that are subject to sales tax goes down dramatically as income rises,” McIntyre said.

In a 2003 report, McIntyre studied Alaska tax policies from 1989 to 2002 and found that regressive tax policies are common in the state. McIntyre found that the poorest Alaskans, those making under $15,000 a year, paid 3.8 percent of their income in Alaska state and local taxes. Middle-income earners paid about 3 percent of their income. Wealthy Alaskans paid roughly 2.8 percent.

With no progressive income tax in place, working-class Alaskans end up paying a higher percent than their wealthy counterparts.

On the campaign trail, in battleground states across the nation. Palin is running as a strong advocate of the working class. This is an essential part of her message. But her record in Alaska, as both a mayor and governor, shows someone who has not been eager to push for pro-working-class policies.

Update: This story has been corrected to say Gov. Sarah Palin signed a health care bill in 2007, not 2004.

Before an audience of about 3,000, McCain repeated his assertion that “the fundamentals of the of our economy are strong,” adding, “these are very, very difficult times.” Here’s the video:

The current banking crisis comes in the wake of the federal “don’t call them  bailouts” bailouts of mortgage giants Fannie Mae and Freddie Mac. The Obama campaign wasted no time in jumping on McCain’s comments. Obama spokesman Bill Burton released the following statement:

“Today of all days, John McCain’s stubborn insistence that the ‘fundamentals of the economy are strong’ shows that he is disturbingly out of touch with what’s going in the lives of ordinary Americans. Even as his own ads try to convince him that the economy is in crisis, apparently his 26 years in Washington have left him incapable of understanding that the policies he supports have created an historic economic crisis,” said Obama campaign spokesman Bill Burton.

At a rally in Michigan, Sen. Joe Biden took the opportunity to hammer McCain.

“John McCain has confessed, and I quote – I want to make sure I get it right – he said, ‘It’s easy for me to be in Washington and frankly be somewhat divorced from the day-to-day challenges people have.’ Well, he’s right. He’s right. If all you do is walk the halls of power, all you’ll hear is the wants of the powerful.

Ladies and gentleman, I believe that’s why John McCain could say with a straight face as recently as this morning, and this is a quote, ‘the fundamentals of the economy are strong.’ That’s what John said. He says that we’ve made great progress economically, in the Bush years. Ladies and gentlemen, I could walk from here to Lansing, and I wouldn’t run into a single person who thought our economy was doing well, unless I ran into John McCain.”

With the nation’s financial markets in shambles; the national unemployment rate at a five-year high; the foreclosure rate continuing to increase, and gas prices expected to rise again in the aftermath of Hurricane Ike, one might wonder, what exactly these fundamentals are that McCain refers to? McCain offered some clarification at a town hall meeting in Orlando this afternoon:

“My opponents may disagree, but those fundamentals — the American worker, the innovation, the entrepreneurship, small business — those are the fundamentals of America, and I think they’re strong.”

McCain also said working Americans are not to blame for the crisis, but the fundamentals are “being threatened by greed and corruption that some are engaged in on Wall Street…because some on Wall Street have treated it like a casino.”

It nice for the McCain campaign to let the American worker off the hook. But nobody’s blaming working-class America for Wall Street’s problems, especially not the Obama campaign.

Neither campaign has yet released any specifics as to how they would address the problem, other than vague references to change and reform. Still, it is nice to see an actual issue driving the news cycle, for a change.