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“When I got elected to office as a 29-year-old kid to the Senate in 1973, and I was sworn in, the discrepancy between the salary of the average CEO in America and the lowest-paid worker in that company was 22 to 1. Let me say that again, it was 22 to 1.

“That’s a legitimate disparity. The CEO made 22 times as much. Now, today, the average CEO in America makes 273 times as much as a person working on a line. What happened?

“In 1980, the top 1 percent — and this is in the beginning of the Reagan administration — the top 1 percent of the wage earners in America took home 10 percent of the nation’s income, all its earnings. By the year 2008, at the end of the Bush administration, the top 1 percent took home 21 percent of all the income earned in America. The discrepancy has not been seen since the early 20s, the 1920s. Something fundamental has happened here.”

— Vice President Biden, speech at George Washington University, April 28, 2014

Vice President Biden broadly attacked the House Republican budget in a speech on April 28, reprising some attack lines (such as the GOP supposedly ending the Medicare “guarantee”) that the Fact Checker has found dubious before.

But here, let’s take a look at how he frames the data on income inequality. Note that he mentions only two presidents — Ronald Reagan and George W. Bush. Is it fair to look at what happened through such a partisan lens?

The Facts

First of all, the information on the disparity between chief executive officer pay and the average worker (not “lowest-paid worker,” as Biden put it) comes from the Economic Policy Institute, which receives some funding from labor unions. We are not going to argue with the data, but take a look at the chart that illustrates the trend.

As you can see, the really huge jump in disparity took place between 1992 and 2000, when it went from about 75 to 1 to nearly 400 to 1. Who was president then? Bill Clinton, a Democrat.

In fact, the ratio is better now, after the recessions that took place at the beginning and end of the Bush presidency. A large part of the reason for the growth in the gap during the Clinton presidency is a soaring stock market and the increasing practice of awarding stock options to corporate executives. Recessions — and the subsequent decline in stocks — made those options less valuable, so the disparity declined a bit.

A similar dynamic exists with income figures for the top 1 percent cited by Biden. (Here, again, Biden was not precise when he referred to “wage earners.” He should have said “income earners,” as that would include capital gains, which accounts for a lot of the income for the top 1 percent.)

With sleight of hand, Biden refers to 1980 and mentions Reagan, and then 2008, and cites the “end of the Bush administration.” He somehow skips over Clinton, but look at the chart (Figure 2) from which his numbers are drawn, courtesy of Emmanuel Saez of University of California at Berkeley.

Once again, readers can see that the really big spike took place during the Clinton years, when incomes of the top 1 percent rose in real terms at an annual rate of  10.3 percent a year between 1993 and 2000 — compared to 2.68 percent for the bottom 99 percent.

There is also a bit of a jump in the Reagan years, but to some extent you need to discount that because of noisy data — the Reagan era is distorted by a change in tax policy in the tax reform act of 1986, when doctors, lawyers and so forth shifted from filing corporate income taxes to individual income taxes. The shift in reporting is reflected in an apparent surge in the income of top earners between 1986 and 1988, especially when you do not include capital gains income.

(We should note that there have been critics of Saez’s work, notably Richard V. Burkhauser of Cornell University and colleagues, who argue that the analysis fails to take into account transfers such as employer-provided insurance; that critique has also been attacked. But that is beyond the scope of this column.)

As regular readers know, The Fact Checker generally does not think it is appropriate to measure broad economic trends by presidential term. (Indeed, Saez measures income growth by business cycles.) But the Economic Policy Institute offers a chart that shows the issue has not abated during the Obama presidency — and in fact has gotten worse.

Economic Policy Institute

In response, the vice president’s office provided this statement:

The vice president was making a point he often makes — we inherited a mess in 2008, but the middle class was being squeezed long before the Great Recession, and has not shared in the gains from the economic expansions of the last 30 years. Any way you measure it, the pay discrepancy between the wealthy and the middle class has grown dramatically over that period. The partisan takeaway from the vice president’s speech is not which president or administration is primarily responsible for the discrepancy, but which political party wants to put policies in place that will help improve the situation. As the vice president made clear, supporters of the House Republican budget want to double down on the same policies that helped contribute to the status quo.

The Pinocchio Test

Laying aside questions about the accuracy of the data, it is not intellectually honest for Vice President Biden to suggest that the disparity in income growth is entirely caused by Republican presidents and policies. The biggest changes occurred during the presidency of Bill Clinton, an economic boom period that Democrats frequently cite as a model for their policies.

You can’t talk about the 22 million jobs created during Clinton’s presidency while at the same time sugarcoating the growing economic disparities as well. Biden’s references to Reagan and Bush, thus, were misleading.

Two Pinocchios


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