True or false?
President Obama's policies made income inequality worse than it ever was, despite the rhetoric of Democrats like Elizabeth Warren.
For the answer, I go to Thomas Piketty and his research partner Emmanuel Saez, who are famous for their ground-breaking study of income inequality trends over the last hundred years, featured in Robert Reich's documentary film, 'Inequality for All.' Their work focuses on the problem of inequality and possible remedies that governments could implement. Piketty is the economist from France who wrote the 2014 best-seller, 'Capital in the 21st Century.'
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Finding income inequality information is a snap using the online database Piketty and Saez provide free to the public.
It's called 'The World Top Incomes.' If you hop over there using the link, you'll notice that their project is ongoing. The database was updated earlier this year with US income figures for 2013.
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So how well did the Top 1% do in 2013, under Obama's policies? I selected the option that includes capital gains, an important source of income for the Top 1%.
Their income share was 20.08%, which is pretty terrible, but not as bad as the 23.50% they had in 2007, their record year. In fact, their share was down 12% from 2012.
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How about the super-elite Top 0.1%? Their income share in 2013 was 9.47% which was down from 12.28%, a peak also reached in 2007. Their share was down 19% from 2012.
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The top 10%? Their income share was 48.89% in 2013, and it was down from the peak of 50.6% they reached in 2012, and also down from the previous peak reached in 2007.
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So, clearly, by these measures which are the ones most commonly used, the answer to the question would have to be false. Income inequality isn't worse now than it ever was. How do the experts explain the results? The answer is found a research paper by Emmauel Saez.
To find the paper that explains the results:
You can also access the 10-page paper through Emmanuel Saez's webpage at the University of California, Berkeley.
The paper, summarized, explains that the rising inequality trend continued through the 1980s and 1990s to reach a peak in year 2000. It fell when the dot com bubble burst which began a recession.
As the economy recovered, inequality rose again to reach a new peak in 2007. When the real estate bubble burst and the Great Recession began, inequality fell again.
The top income share resumed its trajectory toward another new high with recovery from the recession. Income at the top is derived from capital gains, more than salaries and wages. It fluctuates with market conditions. But the pattern was broken in 2013. The financial markets were up that year and the economy continued its recovery. However, the top income share fell quite sharply.
Saez notes the higher income tax rates, especially the cap gains rate, that went into effect in 2013. His field of study focuses on tax rates that induce a change in behavior among the wealthy. When the capital gains rate was 15%, the wealthy had an incentive to extract profits from the economy which they used to create speculative bubbles. When the rate was raised to 23.8% in 2013, a different incentive partially replaced the old one, making it more likely that the wealthy would use profits to grow and expand business. It's an intriguing theory that needs more data for it to be confirmed. The increased pace of job growth in the last 16 months is consistent with his observations.
The idea that inequality can be controlled by setting taxes at rates that influence behavior is a separate strategy from 'redistribution' which is acceptable too except that the rich and the rightwing politicians they own adamantly oppose it.
The World Top Incomes Database is sponsored by:
- The Paris School of Economics
- The Institute for New Economic Thinking
- The Center for Equitable Growth, University of California, Berkeley
- The Programme on Economic Modeling
- The Economic and Social Research Council
- The Oxford Martin School