Sunday’s Washington Post has an article on the front page of the Business Section entitled “Income gap: Is Obama making a difference?” Not surprisingly, the article concludes that Obama reduced inequality. The article quotes Jason Furman, Chairman of the President’s Council of Economic Advisors: “just the tax “changes” (read increases) we made in this administration undid about half a decade of the increase in inequality.” Furman asserts that between the tax increases and Obamacare more than a decade of inequality was undone.
How did the President accomplish this? The article states that three pieces of legislation are responsible: the 2009 stimulus which expanded refundable tax credits for the poor; Obamacare, which raised taxes on the wealthy; and finally, “the tax deal forged on New Year’s Day 2013.” That “deal” raised tax rates on top earners. In other words, the key to reducing inequality is raising taxes on the upper classes! No wonder the Democrats “hate” the TEA party with their revolutionary theme of “Taxed Enough Already!”
Let us look at the results of these momentous actions. According to the table in the article, the lowest fifth of income earners received $161 a year more under Obama’s policies than if the policies in place at the end of the Bush administration had been allowed to continue. The middle 60% gained about $150 a year. But these forward looking policies reduced the incomes of the top 20% by $3,072 a year. For those of you with a mathematical bent may notice that total incomes go down – the gains for the bottom 80% don’t equal the loss to top 20%. But in Obamaland, this is good – inequality is more easily enhanced by pushing down top incomes than by bringing up the bottom incomes.
While we are all thankful that Obama is tackling income inequality, what about wealth inequality? Well, I guess Obama’s policies didn’t do much to help the poor become wealthier. In fact, between 2007 and 2013, the poor got poorer and the rich got poorer – so far, so good, but the poor got even poorer than the rich. For example, those in the 25th percentile of income saw their wealth decline from $6,966 to $3,200 while those in the 95th percentile saw their wealth drop from $1,629,133 to $1,364834. Clearly, Obama’s policies favored the rich, or at least harmed the rich less than the poor.
The article goes on to point out that income inequality is likely to widen in the future because of “market forces.” Think about this. Only about 105 million Americans are working full time (more than 35 hours). Another 33 million work part time while 11 million are unemployed and looking for work. Another 90 million are “not in the labor force.” Let’s assume that most of those in the bottom 20% are either not working or are only working part time. A better way to improve their lives would be for the government to get out of the way and let “market forces” grow the economy and provide better jobs for the millions that need them.
This country would be much better off if the focus was on growing the economic pie rather than how to split it up.
Rob Martin is a professional economist and semi-regular guest contributor at The Bull Elephant.