Tired Arguments and Stubborn Facts
"While some have prospered beyond imagination in this global economy, middle-class Americans -- as well as those working hard to become middle-class -- are seeing the American dream slip further and further away."
—Then-candidate Obama, campaign speech in Iowa, November 8, 2007
Just saying it doesn’t make it true
By now many Americans could be forgiven for believing that the economy has created a bifurcation in standards of living: the “haves” and the “have-nots.” After all, President Obama and Democrats have been saying it for years, especially of late as their misguided policies have led to record unemployment and poverty. But despite their best efforts to divide Americans along class lines and pit individuals of different economic stations against each other, the American people know that the problems are not variations in economic outcomes. Rather, they are the inefficient and uncompetitive tax system and the bloated federal spending that it falls short of financing, as well as the overactive regulatory apparatus imposing crippling uncertainty across many economic sectors.
Interpreting the stats
Free market capitalism necessarily means there will be a disparity in income levels among individuals and households. A worker’s wage is directly determined by his or her productivity in the economy—a teenager working his first summer job is, by factors of education and experience, less productive than a forty-year-old small business owner with a college degree, for example. The greatest aspect of the American economy is that these stations in life are neither static nor guaranteed; they depend on equality of opportunity and individual initiative, as hard work and diligence is generally rewarded. Coincidentally, it is this income mobility—currently under threat by Democrat policies—that invalidates many of the false narratives of economic dysfunction and income inequality.
As a recent Investor’s Business Daily editorial stated:
There's no caste system here, really no such thing even as a middle "class." The poor aren't stuck in poverty. And the rich don't enjoy lifetime membership in an exclusive club.
A 2007 Treasury Department study bears this out. Nearly 58% of U.S. households in the lowest-income quintile in 1996 moved to a higher level by 2005. The reverse also held true. Of those households that were in the top 1% in income in 1996, more than 57% dropped to a lower-income group by 2005.
Every day in America, the poor join the ranks of the rich, and the rich fall out of comfort.
Indeed a report last year from the Federal Reserve Bank of St. Louis concluded much the same thing. The report argued that inferring income inequality from Census Bureau statistics that merely group all household incomes into quintiles—providing a static snapshot of incomes—ignores the fact that most households’ incomes change over time. Economist Thomas A. Garrett, Assistant Vice President at the Bank, wrote, “Common reference to ‘classes’ of people (e.g., the lowest 20 percent or the richest 10 percent) is quite misleading because income classes do not contain the same households and people over time.”
Garrett’s report also noted the lack of consideration for differences in household size in the census statistics, which ignores the following:
Lower-income households tend to consist of single people with low earnings, whereas higher-income households tend to include married couples with multiple earners. The fact that lower-income households have fewer people than higher-income households skews the income distribution by person. When considering household size along with transfers received and taxes paid, the income share of the lowest quintile nearly triples and the income share of the highest quintile falls by 25 percent.
Yet when was the last time Democrats argued for more traditional family formation as a remedy to economic struggle?
Economics reporter James Pethokoukis provided the following insightful anecdote in a recent blog post for the American Enterprise Institute:
Set all the numbers aside for a moment. If you’ve lived through the past four decades, does it really seem like America is no better off today? It doesn’t to Jason Furman, the deputy director of Obama’s National Economic Council. Here is Furman back in 2006: ‘Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn’t have any of the now virtually standard items like air conditioning or tape/CD players?’
The irony is unfortunately lost on many amid President Obama’s and Congressional Democrats’ constant calls to soak the rich with new taxes and spend ever more taxpayer money. The President’s deficit reduction plan would raise taxes on those with household incomes above $250,000 (i.e. NOT just the top 1 percent), which would hit many successful small businesses that pay taxes at individual rates. Added to the already scheduled tax increases in the President’s federal takeover of healthcare, these job creators would suffer as the top individual tax rate increases from its current level of 35 percent to nearly 45 percent in 2013.
On top of the higher taxes, the President’s “American Jobs Act”—dismissed as a non-starter in the Democrat-controlled Senate—would be equal folly. According to the White House, the bill would increase deficits by $447 billion over ten years to pay for temporary stimulus spending, new job training programs, unemployment insurance, and temporary tax reductions.
Democrats have had some effect…not the good kind
And the result of Democrat attempts to play politics with bad policies over the past three years? Consider the following statistics:
- According to an October 10 report from Sentier Research, based on U.S. Census Bureau data, median annual household income has fallen significantly more during the economic recovery period from June 2009 to June 2011 than during the recession lasting from December 2007 to June 2009. During the recession, real median annual household income fell by 3.2 percent, from $55,309 in December 2007 to $53,518 in June 2009. During the economic recovery period, real median annual household income fell by an additional 6.7 percent, from $53,518 in June 2009 to $49,909 in June 2011.
- CBO released its monthly budget report for September, the final month of Fiscal Year 2011. According to CBO, the 2011 deficit was $1.298 trillion, the second highest deficit in the history of the U.S, only eclipsed by 2009. According to CBO, the deficit is $4 billion higher than the previous year’s deficit. Compared to the previous year, revenues increased by $141 billion or 6.5%, spending increased by $144 billion or 4.2%, and the deficit increased by $4 billion or 0.4%.
As Majority Leader Eric Cantor (R-VA) stated recently, focusing on income mobility instead of Democrats’ class warfare rhetoric is the best way to grow the economy and put Americans back to work. House Republicans are continuing efforts to turn around the Obama economy by passing major elements of the House Republican Plan for America’s Job Creators.
For additional information, contact:
The House Republican Conference Policy Office
