To govern effectively for the middle of America’s economic ladder, the incoming Congress and Obama administration are going to have to take aim at the top.

By Sam Pizzigati

The new Obama administration, House Speaker Nancy Pelosi pronounced last week, “must govern from the middle.” What exactly did she mean by that? Governing from the middle, Pelosi explained, demands a focus on priorities like “growing the economy” and “expanding health care.”

For Pelosi, in other words, governing from the middle means governing for the middle.

In a nation as deeply divided economically as the United States, that’s not easy. In America today, an administration can govern effectively for the middle — but only if that administration stands willing to take on power and greed at the top.

Barack Obama seems to understand this reality more clearly than any Democratic candidate for the White House since Harry Truman in 1948.

“I think when you spread the wealth around,” as Obama famously said to Joe the Plumber, “it’s good for everybody.”

Historically, in the United States, the most effective spreading has come via the progressive income tax, and Obama has pledged to make the tax system more progressive — by raising the tax rate on top-bracket income from 35 percent to the 39.6 percent rate of the Clinton years.

This increase, if enacted, would subject America’s richest to a tax rate still far below the 70 percent top rate in place when Ronald Reagan entered the White House back in 1980. Would an Obama administration eventually be willing to move closer to that pre-Reagan rate? That remains to be seen.

But the incoming Obama administration has another powerful tool, besides income tax rates, for restraining the concentration of wealth at America’s economic summit. That tool: the billions of taxpayer dollars that are going into bailing out the nation’s financial and corporate giants.

By insisting on meaningful limits on executive pay at bailed-out companies, the Obama administration could change Corporate America’s entire executive compensation culture — and, in the process, put the brakes on American inequality’s single most powerful engine.

For the new Obama administration, one outspoken business leader said last week, jamming on these brakes needs to be job one from day one.

In a Business Week column, that leader — Leo Hindery, the former CEO of AT & T Broadband and a current private equity fund managing partner — called “excessive executive compensation” a “cancer” that sits “at the core of many of our nation’s economic ills.”

Top executives, Hindery points out, now make around 400 times what their average workers take home. In 1971, his first year out of business school, top execs rarely made over 20 times worker pay.

“With the ills of our broken executive compensation system rippling through so many” of the critical issues that face the new President and Congress, Hindery contends, lawmakers should early in 2009 start “fixing the system and reestablishing its fairness.”  

The bailout could be an ideal vehicle for that fix-it — because the bailout now appears likely to involve not just banks and insurance companies, but America’s most dominant manufacturing corporations as well. Without bailout help, news reports last week indicated, General Motors may actually run out of cash in three months.

Candidate Barack Obama campaigned on a promise to make sure CEOs don’t make out like bandits in the course of the bailout. So far they are. The executive pay limits in the original bailout legislation do little to end the windfalls cascading into America’s executive suites.

The financial giants now getting bailout dollars, Wall Street Journal research last week revealed, “owed their executives more than $40 billion for past years’ pay and pensions,” as of the end of last year, and the current bailout rules “won’t affect” these sums that banks “already owe their executives.”

Changing all this — taking steps to end the bailout’s status as an executive pay protection program — may emerge as the first big battle royale of the Obama administration. Middle class Americans know where they stand in this battle. If Congress and the new White House truly want to govern from the middle, they’ll stand with them.

Sam Pizzigati, an associate fellow at the Washington, D.C.-based Institute for Policy Studies, edits Too Much, the online weekly on excess and inequality.