What the Obama Administration Has Done to Reduce Income Inequality

There are those who say that President Obama’s most important speech is the one he gave in Osawatomie, Kansas in December 2011. He went back to the town were Teddy Roosevelt said, “The fundamental rule of our national life – the rule which underlies all others – is that, on the whole, and in the long run, we shall go up or down together.” Here is how Obama described our current situation:

Today, we’re still home to the world’s most productive workers. We’re still home to the world’s most innovative companies. But for most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success. Those at the very top grew wealthier from their incomes and their investments — wealthier than ever before. But everybody else struggled with costs that were growing and paychecks that weren’t — and too many families found themselves racking up more and more debt just to keep up….

But, Osawatomie, this is not just another political debate. This is the defining issue of our time. This is a make-or-break moment for the middle class, and for all those who are fighting to get into the middle class. Because what’s at stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, secure their retirement.

The steps this President has taken to reduce income inequality are not often highlighted as a package, and so they are sometimes unacknowledged or dismissed. Today, Paul Krugman takes a look at a few of them, but he begins by suggesting they can be placed in two categories:

Step back for a minute and ask, what can policy do to limit inequality? The answer is, it can operate on two fronts. It can engage in redistribution, taxing high incomes and aiding families with lower incomes. It can also engage in what is sometimes called “predistribution,” strengthening the bargaining power of lower-paid workers and limiting the opportunities for a handful of people to make giant sums. In practice, governments that succeed in limiting inequality generally do both.

Let’s take that framework and examine what has been accomplished over the last 7 1/2 years.

Redistribution

1. Obamacare – Via Medicaid expansion and subsidies, Obamacare enhances access to health care for lower income Americans and pays for that partly by increasing taxes on the wealthy. As Krugman says, “That makes it an important redistributionist policy — the biggest such policy since the 1960s.”

2. Taxes – A combination of Obamacare tax increases and expiration of the Bush tax cuts for the wealthy resulted in returning the tax rate for for the top 1% to pre-Reagan years.

Predistribution

1. Dodd-Frank – As Krugman says, it “has put a substantial crimp in the ability of Wall Street to make money hand over fist,” not to mention that it created the Consumer Financial Protection Bureau which, as we saw yesterday, is reigning in lending practices like debt traps.

2. Cutting financial institutions down to size – Matt Yglesias has been documenting how the Obama administration is implementing policies to reduce the overall size of the financial sector rather than attempting to break up individual banks. Those policies include: banning the inclusion of binding arbitration clauses, cracking down on tax inversions, cracking down on investment advisors and new rules to increase transparency of shell companies.

3. New overtime rule – As we saw earlier this week, the new rule makes millions of Americans eligible for overtime pay.

Beyond those, the President is also using his “pen and phone” strategy to extend minimum wage increases and paid family leave to federal contractors and working tirelessly with both state/local governments as well as private companies to do the same.

Krugman ends his column today with this:

…even these medium-size steps put the lie to the pessimism and fatalism one hears all too often on this subject. No, America isn’t an oligarchy in which both parties reliably serve the interests of the economic elite. Money talks on both sides of the aisle, but the influence of big donors hasn’t prevented the current president from doing a substantial amount to narrow income gaps — and he would have done much more if he’d faced less opposition in Congress.

And in this as in so much else, it matters hugely whom the nation chooses as his successor.

President Obama’s successor will either be Donald Trump, who will repeal and reverse all of these gains or Hillary Clinton, who has promised to maintain and build on them.

Nancy LeTourneau

Nancy LeTourneau is a contributing writer for the Washington Monthly. Follow her on Twitter @Smartypants60 .