By Kin Talk on Monday, January 27, 2014 with 7 comments
As measured by the Gini index, income inequality has accelerated during the Barack Obama presidency more than any other recent presidents. It is currently at record highs.
In his Tuesday State of the Union speech, President Obama is anticipated to focus in on income inequality in his lengthy address.
Political commentators opine that it is a means of connecting with the general public that has been showing some angst about the lukewarm economic recovery – now in its fifth year. As it is, American voters are angry at Obama for the devastating ObamaCare rollout.
So it makes sense for Obama to make income inequality a centerpiece of his address so that the commander-in-chief can rally his liberal base prior to the midterm elections this year.
Obama most likely won’t say that income inequality has actually risen faster during his term(s) that it did on the watch of the three preceding presidents. You can also be sure that Obama won’t mention that the Gini index has surged to its highest level since 1947 – the year the Census started recording it.
The American public might know by now that the policies that the President has been pushing have had little impact on inequality and has offered very little in terms of benefits to individuals that are supposed to be assisted by these measures. His policies seem to widen the inequality, instead of reducing it.
Let’s examine some of President Obama’s proposals.
Taxes. Increasing taxes for the wealthy has not been the best approach to solve the income inequality issue. President Clinton raised taxes on the rich, but inequality actually increased faster on his watch than President George W. Bush who cut them. Interestingly, there was no change in the Gini index from the time Bush entered the White House to when he left it.
Another important point is that the wealthy are now paying a larger proportion of total income taxes than at any other time over the last few decades.
Minimum Wage. The President is looking to hike minimum wages once more. When looking at the past, pushing up the minimum wage hasn’t brought down inequality.
There was a law passed in 2007 that raised the federal minimum wage over three years to $7.25 an hour – a 41% gain while inflation has soared only 12% since that year. Nevertheless, inequality was a lot wider in 2012 than it was five years ago.
Under Clinton, the federal minimum wage rose 21% and there was a good increase in inequality as well.
The latest wage increases have hurt the chances of those just entering the job market. According to the Bureau of Labor Statistics, the jobless rate among 16-to 19-year-olds is 20% today. This is higher than the 16% reading recorded when the wage hikes began in the summer of 2007.
Meanwhile, according to Sentier Research, real median household income is 7% below the level it was at prior to the minimum wage increases.
Infrastructure spending. President Obama will likely talk about big infrastructure projects with increases in spending on roads, bridges, etc. Obama has seen these type of projects as a nice way to get more people working in good income jobs.
But when looking at the statistics, this type of spending hasn’t been effective. Federal transportation spending is now 22% more than it was in ’08 and there hasn’t been anything worth talking about caused by it.
Promise Zones. This is a concept that seeks to obtain extra federal assistance and a few tax breaks for economically troubled areas. Obama has talked about setting up five “Promise Zones”. This is not necessarily a new idea and it is looked as a variation of the “enterprise zone” model initiated by conservative lawmaker Jack Kemp.
The theory is to boost businesses and create jobs in distressed areas by lowering red tape, cutting taxes and offering other types of incentives. Even President Clinton ratified numerous “Empowerment Zones” during his time in office.
However, the usefulness of these zones is not that clear, with a lot of studies finding little change in the regions. For instance, a 2009 Public Policy Institute of California study found that the state’s enterprise zone plan “has no effect on job or business creation.”
College Aid. Obama loves college aid and this may appear to be the right way to go about things on the surface. But scratching the surface reveals a different story. The issue is that federal aid for college in recent years has exploded. According to the College Board, it’s up over 80% in the last 10 years.
But even with all this federal aid, college costs haven’t declined. When looking at the average net tuition which is after accounting for special tax breaks and grants, the private four-year colleges have not had any increases since 2003. Nonetheless, the average list price climbed 23%.
What is really interesting to note, however, is that the average net tuition at public four-year universities has shot up 59%, in spite of all this additional federal assistance.