NCPA - National Center for Policy Analysis

Liberal Programs Deserve Share of Blame for Income Inequality

November 17, 2011

Liberals are touting a new Congressional Budget Office study showing that income inequality increased in America over the last three decades as a true indictment of capitalism.  They cite the enormous gains made by the country's wealthiest as evidence of the inherently unequal and unfair social outcomes brought about by a system that leaves the nation's poor behind.  However, this misrepresents the complete message of the report and fails to acknowledge the role played by liberal policies in limiting gains made by the poor, says Shikha Dalmia, a senior analyst with the Reason Foundation.

  • The factoid that garnered the most attention is that after-tax household income of the top 1 percent of Americans grew by 275 percent between 1979 and 2007, yet this fails to take into account the losses absorbed in 2008 and 2009 when the wealthiest took large hits.
  • But the study also reports that in the same period, households in the top quintile saw a 65 percent income gain; the vast middle in the 21st to 80th percentiles saw about a 40 percent gain; and the bottom quintile saw an 18 percent gain.
  • In other words, no group lost ground or even stagnated.

Another thing liberals are worked up about is that the study attributes rising inequality to fewer "federal transfers" to the poor.  But that's not because poor people are getting less money from Uncle Sam in absolute dollars.  In fact, they get more every year.  It is just that they are getting a smaller portion of total transfers.

  • In 1979, households in the bottom quintile received more than 50 percent of all transfer payments.
  • In 2007, similar households received about 35 percent of transfers.

"The shift reflects the growth in spending for programs focused on the elderly population (such as Social Security and Medicare), in which benefits are not limited to low-income households," the study explains.  "As a result, government transfers reduced the dispersion of household income by less in 2007 than in 1979."  In other words, poor people are getting relatively fewer handouts thanks to the Great Society programs that liberals themselves put in place for the elderly.

Source: Shikha Dalmia, "Liberal Programs Deserve Blame for Income Inequality," Reason Magazine, November 8, 2011.

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