Scientific research contradicts President Barack Obama’s claims about the sources of inequality in America and the best means to reduce it, experts say.
Obama called reducing inequality "the defining challenge of our time" in a speech last month, using the term inequality 26 times in total. Other Democrats such as newly elected New York City Mayor Bill de Blasio have made inequality a central theme of their electoral campaigns, and more plan to do so ahead of this year’s midterm elections.
Obama attributed what he called a "profoundly unequal" economy to globalization beginning in the late 1970s but also weaker unions, a stagnant minimum wage, and tax cuts.
"As values of community broke down and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage," Obama said. "As the trickle-down ideology became more prominent, taxes were slashed for the wealthiest while investments in things that make us all richer, like schools and infrastructure, were allowed to wither."
However, a recent analysis of data from the Congressional Budget Office (CBO) by the Tax Foundation found that both income inequality and the progressive nature of the tax code have risen in the last few decades, despite some tax cuts. The overall federal tax system is more progressive—higher tax rates for the wealthy—today than it has been in the past 35 years, according to the analysis.
The data casts doubt on the claim that a more progressive tax code can combat inequality, said William McBride, chief economist at the foundation, in an interview.
"The president makes the claim that the tax code is the way to deal with inequality—that is a very shaky statement," McBride said. "There is not much evidence at all to support that."
The evidence, if anything, points to the contrary, he added. Taxing the wealthy at higher rates tends to result in reduced profits for employers, fewer hirings, lower wages, and ultimately slower economic growth.
"The strong evidence we have about progressivity and particularly higher tax rates on high-income earners is that it hurts the production of income," he said. "You’re taking money from one guy; you’re taking the money from the guy he spends his money on. It trickles down, it trickles up, it trickles sideways all over the place."
The evidence is also scant that more progressive tax rates have helped alleviate poverty, McBride said, noting that federal poverty rates have only marginally decreased since President Lyndon B. Johnson declared his "war on poverty" in the 1960s.
Obama and others have also proposed raising the minimum wage and mandating pre-school for every U.S. child to lower poverty rates. But with those proposals too the evidence is mixed. Some studies show that minimum wage hikes would largely benefit upper class teens, and that the benefits of universal pre-school are ephemeral.
Other experts argue that inequality tracks much closer with family structure, pointing to evidence that social mobility is more difficult for children raised by single mothers. Proposals like wage subsidies for the long-term unemployed and an expanded child tax credit are better tools for fighting poverty and inequality, they say.