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The Single Easiest Way Congress Can Reduce Inequality

David Callahan

America's huge income gaps are routinely described as inavoidable, thanks to large structural forces like globalization and technological change. Skilled labor has become worth more, unskilled labor is worth less, and that's that. 

Of course, though, we know that story is incomplete. Any number of public policies have also fanned inequality, like giving big tax breaks to the rich, and any number of policies could help close the income gap. 

Consider one super easy thing Congress could do tomorrow to reduce inequality: Create more equal pay in the federal government's own workforce. 

I'm not talking about career civil servants, but rather the hundreds of thousands of Americans who work for government contractors doing everything from building jet fighters to changing bed pans. 

Earlier this year, Demos published a report -- "Underwriting Bad Jobs" -- that found that 560,000 Americans employed by direct federal contractors were paid $12 or less an hour, which is essentially a poverty wage. Another 1.5 million people whose jobs are suppored by Medicare, Medicaid, and other government programs also earned such low wages. 

Federal spending, Demos found, underwrites more lousy poverty jobs that Walmart and McDonald's combined!

But this isn't the end of the story. Because it turns out that our tax dollars are also supporting executive pay up to $760,000 a year. Outsized compensation at the top of the contracting food chain is explored in a new Demos report released yesterday, "Underwriting Executive Excess." Drawing on GAO data, the report estimates that:

the federal government is spending an estimated $20.8 to $23.9 billion a year to pay private contractors for the compensation of top executives.$ 6.97 to $7.65 billion in taxpayer dollars is spent annually on pay that exceeds the U.S. Vice President’s salary of $230,700 a year.

Why do executives at places like Booz Allen get paid so much while, say, the cafeteria workers who serve them lunch get paid so little? In large part, for the same reasons that fuel inequality writ large: Good executive talent is hard to come by, cafeteria workers are easy come by. 

But the difference in this case is that the free market need not be in the driver's seat when it comes to placing a value on workers paid with federal dollars. Congress is. And it's an easy thing to cap executive compensation for contractors -- or at least the portion taxpayers pay -- and raise wages for workers at the bottom of that system. 

Reducing inequality in contractor pay would require a two-step process. First, the Demos report argues that 

Congress should pass the Commonsense Contractor Compensation Act of 2013, a bipartisan bill sponsored by Senators Joe Manchin (D-WV), Barbara Boxer (D-CA), Chuck Grassley (R-IA) and Congressman Paul Tonko (D-NY) that would cap the maximum amount taxpayers reimburse or price into all defense and civilian government contractors for their salaries at the same amount as the Vice President’s salary, currently $230,700.

And, second, President Obama should issue an executive order raising labor standards for workers supported by federal contracts. If Congress doesn't stand in the way of that order, it would mean higher pay in the very near future for hundreds thousands of workers. 

Why do I describe all this as the "easiest" way Congress can reduce inequality? Because such changes should be able to attract bipartisan support, particularly the part about capping executive pay. How many time have we all heard conservatives railing about overpaid federal employees? A lot of times. In truth, though, the Fox News jeremiads on this subject almost always miss the really disturbing story -- which are those mid-six figure paychecks that are routinely handed out to white collar professionals working for taxpayers. Politicians in both parties would love to boast about cracking down on this kind of excess. 

I know, I know: Flattening the contractor pay system won't make much of a dent in inequality overall. But it's easy to do and flies in the face of the idea that we're helpless in the face of a growing ecoonomic divide