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Obama's driving force are the economic disparities, can Prez narrow the income gap?

By FnF Desk | PUBLISHED: 25, Nov 2012, 13:20 pm IST | UPDATED: 25, Nov 2012, 13:20 pm IST

Obama's driving force are the economic disparities, can Prez narrow the income gap? When Barack Obama published his autobiography, “Dreams From My Father,” about racial identity in 1995, he talked with his neighborhood newspaper in Illinois, the Hyde Park Citizen, about the economic disparities he had seen while exploring the world as a child and young adult.

“My travels made me sensitive to the plight of those without power and the issues of class and inequalities as it relates to wealth and power,” he said in that interview. “Anytime you have been overseas in these so-called third world countries, one thing you see is a vast disparity of wealth of those who are part of the power structure and those outside of it.”

That sensitivity to inequality has stuck with Obama throughout his rise in politics, from Chicago’s South Side all the way to the White House. He remains largely a pragmatist in his approach to governing. But beneath his tactical maneuvering lies a consistent and unifying principle: to use the powers of his office to shrink the growing gap between the wealthiest Americans and everyone else.

If presidents set missions for themselves that are greater than winning the partisan battle of the moment, then this is Obama’s. Viewed through this lens, the imminent debate over the “fiscal cliff” is not simply a war over taxes, spending and how to tame the nation’s mushrooming debt. As Obama did in legislative fights during his first term, he also will be striving to reduce a three-decades-long wave of rising income inequality that has meant that fewer Americans have prospered while more struggle to get by.

The man who made history as the first black US president long ago embraced the idea that class now rivals race as the nation’s main dividing line. But he will be old and even grayer before he knows whether he has successfully stopped two related phenomena that have exacerbated the income divide.

During the past 30 years, much of the nation’s economic growth has benefited the top 1 percent of earners, while in the past decade, middle-class incomes have fallen. More recently, economic mobility has slowed or declined, providing young people with fewer opportunities than their parents had to ascend the economic ladder.

Obama’s actions as president provide a glimpse of how he views legislation as a means to his end. His health-care reform law, aimed at covering as many of the uninsured as possible, takes a shot at addressing income inequality by imposing new taxes on the wealthiest Americans. Beginning next year, upper-income earners will pay new surcharges that will result in an average additional tax bill of $20,000 for the top 1 percent.

The money will help finance insurance subsidies and other coverage in 2014 for people in the lower middle class and below. A recent study by Cornell University’s Richard Burkhauser estimates that “Obamacare” will add $400 to $800 in disposable income annually for these Americans.

Now, in negotiations over the fiscal cliff, Obama has vowed to follow through on his campaign pledge to push for higher taxes on those same wealthy Americans, and to ask the next 1 percent to pay more as well. Unlike previous presidents, however, he wants lower taxes for everyone else. If that happens, it will raise revenue to lower the debt — but it also will narrow the income gap that made such an impression on him in his youth.

These changes may only modestly affect inequality in the United States, but any reduction is notable. Among 35 of the world’s most developed countries, according to the Organization for Economic Cooperation and Development, only a handful of national tax systems do less than the US code to reduce income inequality.

Still, only so much can be accomplished through taxes and government subsidies, and Obama is well aware of that. To truly bend the slope of rising inequality over the next generation, he also has focused on education. Despite budget pressures, hemade a goal of having every student receive at least one year of college.

Every president talks about education, but Obama’s rhetoric reflects an acute awareness of recent research. The data show that rising inequality is largely the result of a changing economy that handsomely rewards people with better skills or credentials — a college education — and leaves people with a basic education at a disadvantage.

The White House is sensitive to the notion that the president could be called a “redistributionist” — an idea that fuels the animosity of Obama’s conservative opponents but also stirs uncomfortable feelings among many Americans who generally approve of greater fairness but object to programs that look like mere government handouts. “The idea was to promote opportunity and mobility and not equality of outcomes,” Jared Bernstein, a former White House economic adviser, told me in a conversation about Obama’s approach. “Where inequality came into the mix is the recognition that we’ve gotten to the point that inequality is blocking opportunity.”

Faced with a divided Congress that imposes significant limits on what he hopes to accomplish, it may seem, in 20 years, that Obama only tinkered at the margins. Several of the nation’s leading experts on inequality say that although he has pushed in the right direction, he may have to push much harder if he wants to make a significant mark. As University of Arizona sociologist Lane Kenworthy has written, that may mean universal child-care and preschool programs, designed to start children on an early path to the skills they will need to succeed while freeing parents to earn more. At the other end of the educational spectrum, Obama would need to go further to reduce the escalating cost of college. Either measure would require substantially more tax revenue, which would presumably be collected from the wealthy.

“Obama’s proposals are not strong enough, per se, to undo the very large inequality increase the U.S. has experienced since the 1970s, particularly when it comes to the incomes at the very top,” Emmanuel Saez, an economics professor at the University of California at Berkeley and one of the world’s top experts on the subject, told me. “To really make a dent, you would need to consider more radical policies.”

Saez noted, for example, that Obama’s policies do not match those of Franklin D. Roosevelt during the New Deal. By the end of the 1930s, the wealthiest 1 percent of earners were paying more than double the taxes they did at the beginning of the decade, said Elliot Brownlee, a history professor at the University of California at Santa Barbara. By contrast, according to the Tax Policy Center, Obama’s wish list of tax policy changes would require the top earners to pay 15 percent more.

Obama is the first president in the modern era to focus so much on economic inequality. Democratic predecessors concentrated more on poverty, such as Lyndon Johnson’s “Great Society” and Bill Clinton’s tax credit for the working poor. But Johnson also lowered taxes on the wealthy, and Clinton, having increased taxes early in his term, cut capital gains taxes in his second term, benefiting richer Americans who had substantial income from investments.

When Obama discusses this subject — as he often has over the years — he sometimes begins his narrative in the period right after World War II. In late 2011, he delivered a seminal speech on income inequality in Osawatomie, Kan., where Teddy Roosevelt had proclaimed his progressive agenda a century earlier.

Obama expressed nostalgia for the post-war America of his grandparents’ generation, when incomes were rising remarkably fast, especially at the bottom of the economic ladder, when people could get decent-paying jobs as file clerks or factory workers. “They believed in an America where hard work paid off, and responsibility was rewarded, and anyone could make it if they tried — no matter who you were, no matter where you came from, no matter how you started out,” he said. “These values gave rise to the largest middle class and the strongest economy that the world has ever known.”

That common prosperity was coming to an end about the time Obama arrived in Chicago as a community organizer in the 1980s. He saw firsthand how workers were displaced from good jobs in the once-vibrant Chicago steel mills.

Working in that hotbed of black politics, he might have been tempted to focus exclusivelyon racial inequalities, the crusade of an earlier generation. But class was rising to the forefront of his thinking. In “Dreams From My Father,” Obama recounts a conversation he had in the late 1980s with his now-estranged pastor, the Rev. Jeremiah Wright. Obama was telling him that the church could do more to reach out to working-class blacks. Wright was disagreeing.

“It’s not about income, Barack,” the pastor responded. “Cops don’t check my bank account when they pull me over.”

Reflecting later on his conversation, Obama wrote in his book, he wasn’t convinced. “Wasn’t there a reality to the class divisions?” he wondered.

About two decades later, as Obama began his presidential campaign, he met with a group of economic advisers to craft his policy. Lawrence Katz, a Harvard economist, arrived for a meeting near Union Station with a stack of slides on inequality to show the candidate.

One slide, “Growing Together vs. Growing Apart,” documented how the income of top earners had once climbed at about the same pace as every other category, but had sharply diverged in the previous 30 years. Another showed that the value of a college degree, always lucrative, had soared as a financial advantage. A third showed the startling drop in the demand for workers — in auto factories and clerical positions — who were being replaced by computers and machines.

Altogether, the slides conveyed the thesis that Katz and another economist, Claudia Goldin, had recently documented— that increasingly sophisticated technology required more educated workers, who subsequently could capture more of the nation’s income. Over the following months, in interviews with reporters, and in his campaign policies, Obama would take aim at precisely those challenges.

Arriving at the White House amid a threat of a second Great Depression, Obama’s first major piece of legislation was an $800 billion stimulus bill to boost the sinking economy. Although it was not sold or viewed as an attack on income inequality, it was precisely that.

The legislation cut taxes in a way that most benefited the middle and lower class, increased safety-net payments for poor Americans, and launched construction projects that helped create jobs for working-class Americans. Obama funded the stimulus package through more federal borrowing, a bill that’s now coming due — and one he’s hoping to pay with new tax revenue provided by the wealthy. “We want our children to live in an America that isn’t . . . weakened by inequality,” he declared in his victory speech on the night of his reelection.

Eight days later, as he stood in the East Room of the White House for his first post-election news conference, he took a question about his mandate. His answer sounded like the usual rhetoric ahead of a big legislative battle. But it reflected his unifying philosophy.

“I’ve got a mandate to help middle-class families and families that are working hard to try to get into the middle class,” Obama said. “That’s my mandate.”

# Source: The Washington Post, Writer Zachary A. Goldfarb is The Washington Post’s White House economics reporter.