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Right Turn
Posted at 10:30 AM ET, 04/12/2012

Income inequality is an excuse, not a reality

It is remarkable that fact checkers must strain to come up with a “false” rating on Mitt Romney’s technically accurate claim that since President Obama took office over 90 percent of the layoffs have hit women. Meanwhile, the central economic premise of Obama’s income inequality spiel turns out to be false. Will anyone notice? Jim Pethokoukis of the American Enterprise Institute did:

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.” . . . .
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. (Here’s an earlier, working-paper version.) 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.

Oh, well then. Now, this is, of course, a product of liberals’ conviction that if the rich are getting richer someone must be getting shafted. The idea that the rich could be getting richer and others could too is somehow foreign to them. It’s even less conceivable to the left that the rich’s prosperity doesn’t detract from non-wealthy Americans’ opportunities.

But that is precisely how the economy works. It is not a zero-sum game, as the new study shows: "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. (Indeed, the study finds, income inequality has actually been shrinking since 1989, with the Gini index falling to 0.362 from 0.372.)”

The president and his allies on the left very much need income inequality to be real for several reasons. First, it provides an excuse as to why the recovery has been so tepid. (There’s no connection between inequality and growth, but we’re not in the realm of facts here.) Second, it justifies their goal of growing government and expanding the social welfare state. (But why then not make the rich pay more for Medicare and get less in Social Security?) And finally, it perpetuates the us vs. them mentality that is increasingly essential to the left in lieu of an innovative agenda. What’s their solution to reducing poverty? The rich are getting too rich! What’s their plan for real debt relief? The Buffett rule! It’s enough to give smoke and mirrors a bad name.

By  |  10:30 AM ET, 04/12/2012

Categories:  2012 campaign, Economy

 
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