Obama’s economic philosophy, in 8 charts

Posted by Zachary A. Goldfarb on November 28, 2012 at 5:27 pm

If you look at President Obama’s biography and policies, you see one unifying theme more than any other: Obama wants to reduce income inequality.

His policies seem designed to achieve other objectives. The 2009 stimulus sought to end the recession. The 2010 Affordable Care Act strove to expand health-care coverage as widely as possible. And in the upcoming tax policy debate, Obama is seeking to shrink the nation’s deficits over time. But in each case, Obama is also trying to reverse three decades of growing income disparity in the United States.

Here’s the story of Obama’s approach to inequality – in eight charts.

Obama came of age when something dramatic was changing in the U.S. economy. During his grandparents’ generation – a period for which he has expressed deep nostalgia – incomes at all levels of the economy grew at roughly the same pace. But around the time Obama moved to Chicago to start his adult life, the prospects of the top earners and most Americans had started to wildly diverge. Here’s a chart documenting the trend from Harvard professor Lawrence Katz.

As a result, top earners captured much of the country’s prosperity. In the past decade— including through the first three years of Obama’s term— people in the middle class saw their incomes decline, after adjusting for inflation.

Obama has tried to tackle inequality through short-term and long-term policies. The first major piece of inequality legislation was the 2009 stimulus. This chart from the Tax Policy Center shows that the benefits of the legislation were directed disproportionately to lower and middle income earners.

The Affordable Care Act also is a major piece of anti-inequality legislation. The Tax Policy Center estimates that the top 1 percent of earners will pay roughly $20,000 a year to fund the legislation. Meanwhile, a study by Cornell’s Richard Burkhauser suggests that it could be worth hundreds of dollars a year to millions of Americans in the middle and lower class.

 Obama wants to pay for some of his earlier borrowing through tax policy changes that would significantly raise taxes on the wealthy while sparing the middle class and poor. This chart from the Tax Policy Center shows that Obama’s wish-list would require the average member of the 1 percent of earners to pay $104,000 more per year, while someone in the middle class would pay virtually the same.

But Obama can only achieve so much through tax policy, and he knows that. The most cited reason for growing inequality is that technological advancements have created huge financial rewards for people with advanced education, leaving people with only basic schooling at  a disadvantage. Obama has reviewed this research, including the following slide by Harvard’s Katz, which shows that the earnings gap between people with a college degree and high school degree has widened dramatically.

Obama has tried to tackle the problem by expanding access to education for young children and, as seen in the next chart, high school students who need financial aid to attend college.

But he has a long way to go. The following chart, based on data from the Organization for Economic Cooperation and Development, shows that the U.S. has a high Gini coefficient, a measure of high inequality, and does relatively little to reduce it through the tax code.