President Obama’s economic advisers boasted Friday that he has presided over a “historic” lowering of income inequality, and presented a paper saying that Obamacare and higher taxes on the rich have reduced inequality.
“Over the last eight years, President Obama has overseen the largest increase in federal investment to reduce inequality since the Great Society,” the White House Council of Economic Advisers concluded in the paper. Jason Furman, the head of the council, also published an op-ed in the Washington Post making the same case.
Taking into account all of Obama’s tax hikes for high earners, tax cuts for poor families, and the effects of Obamacare, the share of income received by the top 1 percent will decrease by 1.2 percentage points in 2017, according to the paper. The share of income accruing to the bottom 99 percent will increase by a corresponding 1.2 percentage points, they said.
Those policies, the advisers write, only partially offset a significant ramp-up in inequality that took place over the years 1979-2007, a timeline that compares business cycle peak to business cycle peak.
While the administration doesn’t explicitly mention it, inequality also has risen during Obama’s years in office, by some of the measures used in the paper. For instance, the share of income earned by the top 1 percent of earners has increased during the years 2008-2015, according to the World Wealth and Income Database, as has the Gini Index, a measure of income inequality published by the Census Bureau.
In terms of aiming to reduce inequality, Obama’s tax hikes had the biggest impact, according to the paper. Compared to what would have happened under 2008 tax law, Obama’s changes will increase after-tax incomes in the bottom quintile of earners by 2 percent in 2017 and reduce after-tax incomes for the top 0.1 percent by 9 percent relative, the economists concluded.
Part of that reflects what happened after the Jan. 1, 2013 “fiscal cliff” deal with Republicans, which undid the parts of the Bush tax cuts that applied to high income earners and pushed the top income tax rate back up to 39.6 percent.
Less noted, however, have been the tax changes for low-income families, including the expansions of the Earned Income Tax Credit and the Child Tax Credit that were made permanent last year. The White House claims that the expansions of those credits directly lift 1.4 million people out of poverty, and reduce the severity of poverty for an additional 15 million people.
As for Obamacare, the report cites Treasury estimates showing that the law’s coverage provisions will increase incomes next year in the lowest tenth of earners by 25 percent and for the bottom fifth as a whole by 16 percent, or $1,900.
The report also argues that the 2009 stimulus and other anti-recession measures reduced inequality by keeping unemployment lower than it would have otherwise gone.
