July 31, 2008

TESTIMONY OF ROBERT GREENSTEIN,
EXECUTIVE DIRECTOR, CENTER ON BUDGET AND POLICY PRIORITIES,
BEFORE THE SUBCOMMITTEE ON WORKFORCE PROTECTIONS COMMITTEE ON EDUCATION AND LABOR

Hearing Titled: "The Growing Income Gap in the American Middle Class"

Thank you for the invitation to testify about widening income inequality in the United States. As former Federal Reserve chairman Alan Greenspan has said, “this is not the type of thing which a democratic society — a capitalist democratic society — can really accept without addressing," and I commend the subcommittee for holding this hearing.

My testimony falls into three parts.

• The first is an overview of the data on household income and its distribution, where I will discuss recent developments in the context of longer-term historical trends.

• The second is a discussion of the role of public policy in influencing the distribution of income. That discussion largely focuses on government tax and transfer policies — that is, on how government policies affect the distribution of after-tax income. But policy also can have some influence on the distribution of pre-tax income determined by market forces, through such things as trade policy, education policy, and labor-market policy.

• The third is a discussion of the implications for public policy generally and some specific policy recommendations for addressing the problem of widening income inequality.

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