Obama on Income Equality and Economic Recovery

Nat O'Connor26/01/2012

Nat O'Connor: President Obama used his State of the Union address 2012 to highlight income inequality. His speech is only one of a number of examples of a growing international awareness that economic inequality is a core problem for developed economies and societies.

In addition, his speech echoed many progressive suggestions for how to achieve economic recovery in the current context.

President Obama was very clear on the issue of inequality. For example, saying, "We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot ..." He observed that "Folks at the top saw their incomes rise like never before, but most hardworking Americans struggled with costs that were growing, paychecks that weren’t, and personal debt that kept piling up."

In particular, President Obama focused on the tax breaks that Congress has given to the wealthiest Americans: "Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans. Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. ... Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else – like education and medical research; a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both."

Obama was also clear about the mathematics of tax breaks for wealthy individuals. "... when I get a tax break I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference — like a senior on a fixed income, or a student trying to get through school, or a family trying to make ends meet."

In terms of economic policy, President Obama is of course hugely restricted in what he can actually achieve if Congress disagrees. Also, the speech is a centrepiece of his re-election campaign, therefore some of the promises may be taken with a grain of salt. He nevertheless spelled out a clear critique of previous policy and a framework for a progressive economic recovery that would serve society.

Obama stated that "we will not go back to an economy weakened by outsourcing, bad debt, and phony financial profits."

He outlined some measures to help "responsible homeowners" caught in mortgage debt, such as "a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates." And it would be financed through "A small fee on the largest financial institutions [to] ensure that it won’t add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust."

Obama made a number of observations about the same rules applying equally to everyone, including the financial system: "we need smart regulations to prevent irresponsible behavior." ... "if you are a big bank or financial institution, you’re no longer allowed to make risky bets with your customers’ deposits. You’re required to write out a 'living will' that details exactly how you’ll pay the bills if you fail – because the rest of us are not bailing you out ever again." And significantly, Obama seeks to "establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments."

As he outlined his preferred economic policies, Obama's message on multinational corporations should not be ignored in Ireland: "no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas" ... "From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here in America."

He had a clear focus on supporting productive investment and job creation in the USA, especially good jobs in deprived areas: "if you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here. And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers."

He also identified the important role of education in long-term sustainable growth: "Higher education can’t be a luxury - it is an economic imperative that every family in America should be able to afford."

He also had clear messages on gender equality and environmental sustainability: "women should earn equal pay for equal work" and "we don’t have to choose between our environment and our economy".

He clearly identified that productive investment by government can form part of productive investment to grow the economy, for example: "government support is critical in helping businesses get new energy ideas off the ground".

Furthermore he identified the need to repair national infrastructure: "So much of America needs to be rebuilt. We’ve got crumbling roads and bridges; a power grid that wastes too much energy; an incomplete high-speed broadband network that prevents a small business owner in rural America from selling her products all over the world."

In brief, Obama's desired economic policy is: smart regulation of financial institutions; ensure multinationals pay their taxes; support for manufacturing (especially high-tech and investments in deprived areas); affordable higher education for all; equal pay for women and men; environmentally sound investments in clean energy; government-funded research and development; and state-led action to repair and rebuild national infrastructure (from basics like roads, to new essentials like broadband).

All of these objectives are equally valid here and should form part of a Plan B alternative to current economic policies that are socially destructive and economically inefficient.

Of course, while supporting much that Obama proposes, one can still dislike a lot of the reality of US economic policy and accompanying ideology. The admiration of wealth gained by 'success' tends to underestimate the deep economic and social divides between different groups in the USA, and the reality that a family's wealth often allows their children to become wealthy in turn. Likewise, the narrow focus on equality of opportunity tends to ignore the evidence that a measure of equality of outcome is required before an economic system will actually reward merit rather than privilege. Nonetheless, there is much to agree with in the economic vision that Obama has outlined. Just as there is much to disagree with the lack of a similar vision for a change of direction in economic policy here.

Posted in: InequalityPolitics

Tagged with: incomeinequalityObama

Dr Nat O'Connor     @natpolicy

Nat O'Connor

Nat O’Connor is a member of the Institute for Research in Social Sciences (IRiSS) and a Lecturer of Public Policy and Public Management in the School of Criminology, Politics and Social Policy at Ulster University.

Previously Director of TASC, Nat also led the research team in Dublin’s Homeless Agency.

Nat holds a PhD in Political Science from Trinity College Dublin (2008) and an MA in Political Science and Social Policy form the University of Dundee (1998). Nat’s primary research interest is in how research-informed public policy can achieve social justice and human wellbeing. Nat’s work has focused on economic inequality, housing and homelessness, democratic accountability and public policy analysis. His PhD focused on public access to information as part of democratic policy making.


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