Bush Addresses Income Inequality
Economic Speech Touches on Executive Pay as Senators Move to Rein It In

By Michael Abramowitz and Lori Montgomery
Washington Post Staff Writers
Thursday, February 1, 2007

NEW YORK, Jan. 31 -- President Bush acknowledged Wednesday that there is growing income inequality in the United States, addressing for the first time a subject that has long concerned Democrats and liberal economists.

"The fact is that income inequality is real -- it's been rising for more than 25 years," Bush said in an address on Wall Street. "The reason is clear: We have an economy that increasingly rewards education and skills because of that education."

In some respects, Bush's remarks were an unremarkable statement of what many economists accept as common wisdom. But they appeared to represent the first time Bush has personally addressed an issue on which his administration has found itself under fierce attack from Democrats. The official White House Web site offers no record of Bush uttering the phrase "income inequality" in a speech or remarks, and aides said they could not recollect such an instance.

The comments came during a generally upbeat economic speech outlining Bush's economic agenda and the state of the economy.

They appeared to be another presidential nod to the evolving political landscape on Capitol Hill, now controlled by Democrats after a campaign that focused in part on their complaints of corporate greed and growing middle-class insecurity. House Democrats have pressed that agenda with legislation to raise the minimum wage, cut interest rates for college loans and reduce prescription drug prices for Medicare recipients.

In three separate hearings Wednesday in Washington, Democrats probed the causes of middle-class angst, focusing on rising income inequality. Meanwhile, the Senate separately has taken aim at executive compensation, adding a provision to the minimum-wage bill that would limit the ability of executives to amass millions of dollars in tax-deferred accounts.

In his remarks, Bush also touched on that hot-button issue, saying the "salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders." While Bush said the government should not set compensation, he told the business executives gathered in the ornate rotunda of Federal Hall that they "need to pay attention to the executive compensation packages that you approve."

Democrats said Bush's speech is a reaction to the success of their agenda and to growing anger among voters who feel they are being left behind.

"They recognize the unhappiness voters have with inequity in this country," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee. "For much of last year, they tried to deny this. But the election finally clinched it. So I guess there's no point in denying it anymore."

Bush aides did not deny that Bush was seeking to address Democratic concerns, but they said income inequality has been on the minds of senior administration officials such as Treasury Secretary Henry M. Paulson Jr., who mentioned the subject in his first major address last spring, and chief economic adviser Edward Lazear.

"It's something that obviously the administration has made note of," said presidential counselor Dan Bartlett. The president "understands that there are many Democrats who have spoken to this issue. It is an important time for the Congress and the American people to hear what he says," Bartlett said.

Few economists would disagree that income inequality is real and getting worse. The gap between rich and poor has been growing wider since the 1970s. According to the nonpartisan Congressional Budget Office, the wealthiest 20 percent of households accounted for 45.4 percent of total U.S. income in 1979, but claimed 53.5 percent in 2004. Households in the bottom fifth dropped from 5.8 to 4.1 percent over the same period.

Democrats have blamed Bush's tax policies for contributing to that trend. Wealthy households reaped the most benefit from tax cuts enacted between 2001 and 2006, according to an analysis by the Tax Policy Center, a project of the Urban Institute and the Brookings Institution. Last year, families making more than $1 million a year saw their after-tax income increase by 6 percent because of the tax cuts, while families making $40,000 to $75,000 saw after-tax income rise by about 2.5 percent.

"Years ago, we used to have a grade at Princeton called 'flagrant neglect.' That's what they should get. Because they're aggressively making the problem worse," said Alan S. Blinder, a Princeton University economist and the former vice chairman of the Federal Reserve Board of Governors.

At the same time, Blinder said, neither Bush nor federal policies in general are responsible for the problem. And Bush is correct, he said, in arguing that the nation's economic losers typically lack sufficient education. "Sometime in the 1970s, the market turned ferociously against the less skilled and the less educated," Blinder told a hearing of the congressional Joint Economic Committee.

But that is likely to change in the future, he said, as globalization and technological advances begin to trigger the same kind of upheaval in the service sector as has hit manufacturing.

Bush cited income inequality in the part of his speech touting the No Child Left Behind Act. He described the bill as "one of the most important economic initiatives" of his presidency because of its role in closing what he terms the "achievement gap" between students.

"The question is whether we respond to the income inequality we see with policies that help lift people up, or tear others down," Bush said. "The key to rising in this economy is skills -- and the government's job is to make sure we have an education system that delivers them."

Montgomery reported from Washington.

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