New Study: Income Gap Inequality is a Myth
It’s a simple point, easily made for simple minds: Rises in economic fortunes disproportionately benefit the wealthy, liberal demagogues tell us. How is that so? Because during the years A to B, household incomes for the middle class rose only X dollars, while those of the upper class rose 10 times X.
The simple mind reels: My goodness! It says. You mean my income rose only $5,000 a year, while those in the highest income brackets rose $50,000?
The outrage simmers, bubbles to the surface, and holy class-warfare Batman - we’ve got ourselves the Obama Administration.
We also hear a lot about the converse: Tax cuts that reduce the typical middle class tax bill by $1,000, reduce the typical upper-class tax bill by $10,000.
Inequality! goes the cry. Tax the rich!
The robust intellect, though, knows this to be a ruse: Of course when household X makes 10 times as much as household Y, and taxes go down by Z percent, household X will see a benefit ten times as much in dollars, even though its benefit is the same by percentage points. The converse is true of percentage increases in household income.
Now, things would be quite different if the increase in percentage between different income levels differed by a factor of ten, and that’s exactly the kind of thing Barack Obama has been claiming throughout all of his five
short long years on the American national political scene.
Only thing is… it’s all wrong, as James Pethokoukis points out at the American Enterprise Institute blog:
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. (All figures are inflation adjusted.)
So what happened to the rest of the dough? The top 10%, 1% and 0.1% grabbed all the money. Or pretty much most of it. 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 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.
But it’s just not true, according to a new study in National Tax Journal from researchers at Cornell University. (Here’s an earlier, working-paper version.) 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.
The study presents challenges for both liberals and conservatives, as Ed Morrisey points out at HotAir:
Obama has been hammering Republicans for opposing his massive expansion of entitlements, claiming that they have been enacted on a bipartisan basis in the past, and that they do … pretty much what the Cornell study says they do. If Obama wanted to do so, he could embrace this study to make his point, but then it would devastate his class-warfare arguments and his demand for Buffett Rules, higher capital-gains taxes, and so on. On the other hand, Republicans can use this study to fight those policies, but it would hem in their arguments about safety-net programs and the complications of the tax code.
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