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Debunking the "Growing Income Disparity"

BEGIN TRANSCRIPT

Now, one of the stories going around -- and it's been going around awhile -- is all of the disparity in income, the gap between the rich and the poor. And depending on what story you read, the middle class is about to be wiped out. There isn't going to be one much longer. Because the middle-class people are not moving north and upward, out of the middle class. They are moving south, and they're getting closer to poverty and near-poverty. And while that's happening, the rich are getting richer, and it's just not fair. James Pethokoukis, the American Enterprise Institute, writing at the American blog. Headline: "Obama's Inequality Argument Just Utterly Collapsed." Here's the pull-quote from his piece: "[A]ll income levels got richer.

"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. ... 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 US economy has grown markedly. The Obama explanation: Wealthier Americans grabbed all the money. Time to raise their taxes for the sake of 'fairness.'"

That's what Obama's saying. And incumbent in this, by the way, is the liberal belief that there just isn't enough to go around. That is something fundamental for people to understand. If you want to understand liberalism, Democrats and the economy, you have to believe they look at the economy as a finite piece of pie of a certain size that never gets bigger. And what's in there is distributed unfairly because we have a "you're on your own economy," as Obama describes it. So that pie is the same size always, it never gets bigger, and what happens is that the elite rich people inside that pie are taking all the money.

And because they do that, there simply isn't enough left to go around for everybody else.

So what we have to do is take, in the form of tax increases, the money away from those evil rich people and then somehow give it back to the people who really would have it if the rich hadn't stolen it from 'em. They believe in a zero-sum game, and that's best defined as saying liberals believe that if somebody gets a $10,000 raise, then somebody else had their salary cut $10,000. If somebody gets a job, somebody gets fired. Zero-sum game. There's no growth! They don't believe in overall GDP growth, and they don't believe that there's enough to go around. And that is what informs and animates their policies.

"Here’s Obama in January 2009: 'Middle class Americans have been working harder, yet not enjoying their fair share of the fruits of a growing economy.' Here’s Obama in Osawatomie, Kansas, last December: 'Over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk.' And here’s Obama this week: 'What drags our entire economy down is when the benefits of economic growth and productivity go only to the few, which is what’s been happening for over a decade now, and gap between those at the very, very top and everybody else keeps growing wider and wider and wider and wider.' Underlying Obama’s entire thesis is the work of two economists, Thomas Piketty and Emmanuel Saez.

"According to them, median American incomes rose just 3.2% from 1979 through 2007." Yet over that same period, GDP rose 67%. "So what happened to the rest of the [money]?" Well, according to Obama, "The top 10%, 1% and 0.1% grabbed all the money. Or pretty much most of it." They just took it because we're in a "you're on your own" economy and they're better on their own than other people are. They know how to take it when others don't know how to keep it. So because of that it's, "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 [these two economists] 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."

And speaking of the Bush tax cuts, Ezra Klein in the Washington Post yesterday: "On Taxes, George W. Bush Has Won -- Democrats have, for the most part, admitted that Bush was right, and the Clinton-era tax rates were too high on most Americans. For all that Democrats talk about returning to the Clinton-era tax rates, they only ever mean for the top two percent of taxpayers -- the folks who are now in the 35% bracket, but whom they would like to see in a 39.6% bracket."

But they don't want anybody else's taxes to go up.  The Democrats have conceded, the Clinton tax rates are too high; the Bush tax rates are just right.  It's in the Washington Post, did you know that?  Did you know the Democrats had agreed with that?  This is the first I've heard of it.  I know Obama didn't want to repeal the Bush tax cuts 'cause he needed the economy to keep growing, but this is my point. They know that tax cuts grow an economy.  They know it.  But they don't want it.  Too much money in your pocket means less need by you of them.  Means too much economic freedom for you. 

Anyway, back to Pethokoukis.  But all of this that I just described to you, "is not true, according to a new study in National Tax Journal from researchers at Cornell University." Cornell is not a conservative university.  "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." Now, you might think, wait, how can that be such a big... 3.2% versus 36%, median income growth, how can that be?  There are anecdotal ways that you can illustrate this, new car purchases. 

Look at all the television stuff people buy, gadgets, smart phones and this kind of thing.  The money for this is coming from somewhere, credit card debt or somewhere, but still the debts have to be paid, monthly payments have to be made.  So the point is this.  The bleak picture of this widening income gap that Obama is painting simply exists as an excuse to punish the achievers when it is not the reality of life on the ground.

END TRANSCRIPT

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