Obama Doubles Down On Failed Policies for the Middle Class


President Obama apparently lives in an alternate universe. How else to explain his defiant attitude toward Congress after the Republican landslide in the recent mid-term elections? How else to explain his State of the Union address in which he doubled down on the failed economic policies of his last six years?

He’s correct in pointing out the sad state of the middle class. The chart below depicts real household median income from 1999 to 2013. After the dot com bubble of the 1990s, it peaked in 2007 at $56,436, just before the economic collapse of 2008 in the last days of the Bush administration. That was to be expected given the state of the economy.

Income Plunge

But what was not expected was that incomes did not rebound with the recovery as they have in every other expansion. Only in 2013 do we begin to see a rise, just barely, five long years into the recovery that started in June 2009.

What’s more, the slight increase was only seen in 14 states concentrated in metro areas like Washington-Arlington-Alexandria (median: $90,149), San Francisco-Oakland-Hayward ($79,624) and Boston-Cambridge-Newton ($72,907). Wyoming was the lone state exception, which benefited from the oil and gas fracking revolution and saw median incomes rise 5.7%.

What about the poverty rate? About 45.3 million people or 14.5% of the population live below the official poverty line, down from 15% in 2012 but statistically the same number of people. Poverty over the prior four years rose to the highest levels since the mid-1960s. The poverty rate was 14.3% in 2009 and 12.5% in 2007.

The Federal Reserve also released its triennial Survey of Consumer Finances for the 2010-2013 period. Overall average real family income rose 4%, but median income fell 5%, consistent with increasing income concentration. Those Americans between the 40th and 90th income percentiles saw no changes after steep losses from 2007-2010, while median income rose 2% among the top 10% and fell 5.5% among the bottom 40%. There’s no doubt the middle class has been left behind.

Failed Obama Policies

What’s remarkable about these numbers is that they are happening at a time when President Obama consistently rails against income inequality and has focused his policies on reducing that inequality throughout his presidency. His stimulus package of 2009-2010 mainly provided transfer payments like Medicaid and unemployment benefits. Unemployment benefits were increased from 26 weeks when Obama took office to a staggering 99 weeks, nearly two full years.

Food Stamps

He also expanded the number of Americans on food stamps to record numbers and increased the number of people receiving disability payments. He has raised taxes on the rich so they “will pay their fair share” even though they were already paying the lion’s share of income taxes before. Nearly half of all Americans pay no income taxes at all.

Minimum Wage Increases

Another failed Obama economic idea is raising the minimum wage to $10.10/hour. But the Democratic Congress already raised the minimum wage in three stages to $7.25/hour in 2009 from $5.15/hour in 2007. If raising the minimum wage is so beneficial to the American worker, where is the evidence? In fact, the Congressional Budget Office has estimated a raise of the minimum wage to $10.10/hour would cost workers 500,000 jobs.

The Wall Street Journal editorial board says the Census data show that every income group that was supposed to benefit from the higher wages is worse off than before the minimum wage was increased. This is because the benefits of mandated wage increases for some workers are dwarfed by the overall negative economic trends of slower growth and reduced opportunity.

Monetary Policy

Another factor in this perverse economic recovery has been the Obama administration monetary policy. The Federal Reserve’s Quantitative Easing (QE) has been targeted at raising asset prices, such as stocks and real estate. This policy, by creating nearly negligible interest rates, has fueled growth in stocks and real estate. These assets are disproportionately owned by the affluent and not low to moderate-income workers. Those who own these assets have seen substantial gains in the market value of their assets. Conversely, those low to moderate-income workers, who own savings accounts, have seen nearly negligible returns on their investments. The result of these differences is greater income inequality.

Raising Taxes

Now President Obama wants to raise taxes (again) on capital gains and on estates passed on to the next generation. He likes to call these “taxes on the rich” but many not-so-rich people will be affected, either directly or indirectly. Small business owners create more jobs than any other sector of the economy and they will be greatly impacted by these taxes. More taxes on small business owners means fewer jobs for the middle class

The Wall Street Journal editorial board explains the impact of these new Obama taxes:

“The truth is Mr. Obama is repudiating 35 years of bipartisan tax policy. Part of the reason for differential rates on investment and regular income is that the former is already taxed once at the corporate level and again when it is passed through to individuals. Even Bill Clinton recognized this double taxation when he cut capital gains rates as part of his balanced-budget deal with the Gingrich Congress in 1997.”

Obama also wants to tax the 529 savings plans that many middle income Americans use to pay for their children’s college education. These plans allow parents to contribute after-tax dollars into accounts that grow tax-free. Then the money can be withdrawn without additional taxes if it is spent for qualified educational expenses such as tuition, fees, books, and room and board. But now Obama wants the IRS to tax as income any future 529 withdrawals.

Unfortunately, instead of learning from the mistakes of the past, President Obama points to rising income inequality and calls for more of the same policies that have created the currently widening income gap. By putting more emphasis on equality than on economic growth, President Obama has both reduced growth and increased inequality. More of the same policies will only make the situation worse.


(Next post: The Impact of ObamaCare on Income Inequality)

No comments yet. You should be kind and add one!