April 24, 2012
Has Obama's Inequality Argument Just Utterly Collapsed?
The Enterprise Blog: Obama’s Inequality Argument Just Utterly Collapsed, by James Pethokoukis:
President Barack Obama has a theory of the case, yes he does. For the past 30 years, the living standards of middle-class Americans have gone nowhere even as the overall U.S. economy has grown markedly. The Obama explanation: Wealthier Americans grabbed all the money. Time to raise their taxes for the sake of “fairness.” ...
Underlying Obama’s entire thesis is the work of two economists, Thomas Piketty and Emmanuel Saez. According to them, median American incomes rose just 3.2% from 1979 through 2007. ...
So what happened to the rest of the dough? The top 10%, 1% and 0.1% grabbed all the money. Or pretty much most of it. Time to crank up taxes on the rich and spend more on the middle class. It’s not overstating things to say that the findings of Piketty and Saez form the very heart of Obamanomics, giving a powerful economic rationale for Obama policies such as ending the upper-end Bush tax cuts to Obamacare to the Buffett Rule.
But it’s just not true, according to a new study in National Tax Journal from researchers at Cornell University. The academics, led by economist Richard Burkhauser, don’t say the findings of Piketty and Saez are wrong — just incredibly, massively incomplete. According to the Cornell study, median household income – properly measured – rose 36.7%, not 3.2% like Piketty and Saez argue. That’s a big miss. ...
And all income levels got richer. Yes, the very rich did exceptionally well, mostly due to technology and globalization. Incomes rose 63% for the top 5%, 56% for the top 10% and 52.6% for the top 20%. But everyone else made out pretty well, too. Incomes rose 40.4% for households between the 60th and 80th percentiles, 36.9% for the next quintile, 25.0% for the next, and 26.4% for the bottom 20%. There’s the “shared prosperity” Obama says he wants, right in front of his eyes. ...
So the tax and regulatory polices of the past three decades did not lead to stagnation for the middle class at the hands of the rapacious rich. Claims to the contrary — such as those made by Obama, the Occupy movement, and many liberal economists — never really passed the sniff test of anyone who lived through the past few decades. And now we know why: The inequality and stagnation alarmists were wrong. And so, therefore, is the economic rationale of the president’s class-warfare economic policies. Not that economics ever had much to do with them anyway.
Because Saez and Piketty do not take into account welfare payments, food stamps, Medicare, Medicaid, Social Security and employer-provided health insurance (which are not reported to the I.R.S. as income), they arguably overstate inequality trends. A second caveat to bear in mind is that the Saez-Piketty findings are based on pre-tax income, which is more unequally distributed than after-tax income. ...
In October, the non-partisan Congressional Budget Office, issued a 47-page report, Trends in the Distribution of Household Income Between 1979 and 2007.
At the moment, there is considerable agreement that the CBO analysis of overall income shares is the gold standard.
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I get it. The income increases to lower earners has come in the form of continued health care coverage in the form of employer provided insurance and Medicare, rather than raises.
Why then, is the "marvelous" (Mitt Romney's words) Republican response to repeal Obamacare and return to the status quo, and to voucherize and reduce Medicare spending?
Posted by: jimharper | Apr 24, 2012 3:20:55 PM