Why does income inequality rise more under the Democrats?
By JOHN MERLINE, INVESTOR'S BUSINESS DAILY Posted 11/03/2011 08:05 AM ET
his weekend radio address, President Obama decried that "over the past
three decades, the middle class has lost ground while the wealthiest few
have become even wealthier." Although he was trying to leverage the
Occupy Wall Street movement, the income gap has been a longstanding
concern of his.
During the 2008 campaign, Obama said, "The project of the next
president is figuring out how do you create bottom-up economic growth,
as opposed to the trickle-down economic growth that George Bush has been
so enamored with."
But it turns out that the rich actually got poorer under President Bush, and the income gap has been climbing under Obama.
What's more, the biggest increase in income inequality over the past
three decades took place when Democrat Bill Clinton was in the White
The wealthiest 5% of U.S. households saw incomes fall 7% after
inflation in Bush's eight years in office, according to an IBD analysis
of Census Bureau data. A widely used household income inequality
measure, the Gini index, was essentially flat over that span. Another
inequality gauge, the Theil index, showed a decline.
In contrast, the Gini index rose — slightly — in Obama's first two
years. Another Census measure of inequality shows it's climbed 5.7%
since he took office.
Meanwhile, during Clinton's eight years, the wealthiest 5% of
American households saw their incomes jump 45% vs. 26% under Reagan. The
Gini index shot up 6.7% under Clinton, more than any other president
To the extent that income inequality is a problem, it's not clear
what can be done to resolve it. Among the contributing factors:
Economic growth. Strong economic growth, rising stock prices and household income inequality tend to go hand in hand.
Technology. Tech advances have put a premium on skilled labor, according to a Congressional Budget Office report . Because the pool of skilled workers hasn't grown as much as demand, their wages have climbed faster.
Free trade and immigration. Cheap labor abroad and an influx in
low-skilled immigrants can depress wages at the bottom, according to the
Women in the workforce. As the CBO put it, "an increase in the
earnings of women could boost inequality by raising the income of
couples relative to that of households headed by single people."
Tax policy changes don't explain the widening income gap. The CBO
found that, by one measure, "the federal tax system as a whole is about
as progressive in 2007 as it was in 1979."
Of course, all this assumes there's a problem at all. As University
of Michigan economist Mark Perry notes, while the income gap has grown
since 1979, almost the entire increase occurred before the mid-1990s: "There is absolutely no statistical support for the commonly held view that income inequality has been rising recently."
A similar analysis found that income inequality has fallen
among individuals since the early 1990s, but risen among households due
to factors such as more marriages of people with similar education
levels and earnings potential.
Others argue that income mobility matters more than equality.
One study found that more than half of the families who started in
the lowest income bracket in 1996 had moved to a higher one by 2005. At
the other end of the spectrum, more than 57% of families fell out of the top 1%.
A survey by the Economic Mobility Project found 71% said it's more
important for the country to focus on improving upward mobility. Just
21% prioritized reducing inequality.
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