America these days faces a daunting array of economic challenges. Still in the midst of a weak recovery from a recession that technically ended more than four years ago, the economy continues to suffer from high unemployment and weak income growth. Americans are anxious about their own and their children’s economic prospects, and they are unsatisfied with what their political leaders have offered them.
The Democrats think they know how to address these problems and anxieties. To hear them tell it, income inequality is at the core of what ails us. “Income inequality is a threat to the strength of our middle class, the health of our businesses, the security of our workers, and the growth of our economy,” Nancy Pelosi argued last spring. President Obama has repeatedly called rising inequality “the defining challenge of our time.” Liberal commentators insist on a tight link between increasing inequality, declining growth, and weak social mobility. And for the Left, the centrality of inequality among our economic woes demands an agenda of redistribution: higher taxes, higher spending on our existing assortment of social-welfare programs, new programs (such as universal preschool), and, most prominently just now, a higher minimum wage.
That agenda has repeatedly put Republicans on the defensive on economic issues, as the Democrats have frequently succeeded in portraying themselves as standing with the poor and middle class while Republicans are associated in the public mind with the rich and are assumed not to care about most people’s economic troubles and worries. But this success has had more to do with Republicans’ lack of understanding of (and at times discomfort with) the public’s economic concerns than with the strengths of the Democrats’ arguments.
The truth is that neither party’s existing agenda is well suited to addressing today’s economic challenges or voters’ concerns. The Democrats don’t have much of an alternative to attempting to harness public anxiety for their own longstanding priorities, since their electoral coalition does not leave them much room to maneuver. As the president recently demonstrated in his State of the Union address, the Left seems exhausted. But Republicans could do better: If they took better account of what worries Americans today and why, they would see that the Democrats’ obsession with inequality could leave the GOP with a great opportunity to offer the public an appealing, constructive, conservative economic agenda.
The Left’s argument about inequality begins with a largely accurate observation about economic trends but proceeds to economic assertions and political judgments that are much less well founded. Inequality, liberals correctly note, has been rising in recent decades. That trend can be seen throughout the developed world, not just in the United States, and its causes are not clear. Over the past three decades, a growing portion of Americans’ total income has gone to the wealthy. The top fifth of earners saw their share of pre-tax income rise from 45 percent in 1979 to 52 percent in 2010. Much of that gain went to the much discussed top 1 percent, whose share increased from 9 percent to 15 percent over that period, according to the Congressional Budget Office’s latest figures, released in December 2013. The poorest fifth, meanwhile, received just 5.1 percent of all pre-tax income in 2010, down from 6.2 percent in 1979, while the income share of the second-poorest fifth dropped from 11.2 percent to 9.6 percent over that time.
Accounting for the effects of taxes and government benefits tempers those figures some but does not change the basic pattern. Between 1979 and 2007, the CBO found, after-tax income grew by 314 percent for the top 1 percent of households, by 73 percent for the remainder of the top fifth, by 42 percent for the next three-fifths of households, and by 45 percent for the bottom fifth. Everyone’s incomes grew, but those of the wealthy grew more, leaving America’s wealth more concentrated at the top.