Rising income inequality and a shrinking middle class harms U.S. economic growth, a White House economist said Thursday.
"Rising inequality has reached the point that inequality in incomes is causing an unhealthy division in opportunities and is a threat to our economic growth," said Alan Krueger, chairman of the White House Council of Economic Advisers, in a speech at the Center for American Progress, a Washington-based think tank.
"The increase in the share of income going to the top one percent people from 1979 to 2007 exceeds the total amount received by the bottom 44 percent households," he noted, adding that "as the consequence of the shift, the middle class has shrunk".
He said that tax policy has played a role in rising inequality.
Tax changes in the early 2000s benefited the very wealthy much more than other tax payers, he said, adding that the wealthy are paying some of the lowest tax rates in the history of the United States.
Krueger emphasized that rising income inequality would drag down aggregate demand and impede economic growth, especially in the long run.
"Economy would be in better shape and aggregate demand would be stronger if the size of the middle class had not dwindled as a result of rising inequality," he said.
Krueger's view echoed the point made by U.S. President Barack Obama in his speech in Osawatomie, Kansas last month. Obama said then that when middle class families can no longer afford to buy the goods and services, "it drags down the entire economy, from top to bottom."
Obama has reiterated in his recent remarks that "this is a make or break time for the middle class." He called for action to restore fairness and urged the Congress to extend the payroll tax cut for a whole year of 2012 as he geared up for his reelection campaign./.