Lawmakers Split Over Trump Economy’s Impact on Income Inequality

Evan Sully

(Bloomberg) -- Democrats and Republicans on the House Budget Committee disagreed not only about how to tackle economic inequality, but also over whether President Donald Trump and the GOP have made the problem better or worse.

Republicans argued at a panel hearing Thursday that their 2017 tax cut sparked economic growth and upward mobility for the middle class and low-income workers. Democrats, however, said the problem is getting worse and that urgent steps are needed to reverse the dynamics.

“Economic inequality is suppressing economic growth and eroding our tax base,” said committee Chairman John Yarmuth, a Kentucky Democrat. “It’s putting pressure on federal, state and local budgets, and increasing the likelihood of a financial downturn.”

Reversing income inequality is a central issue among Democrats running for their party’s 2020 presidential nomination. Progressive candidates like Elizabeth Warren and Bernie Sanders have offered proposals to expand the social safety net by increasing taxes on the wealthiest Americans.

While not all congressional Democrats have embraced this strategy, members of the Budget Committee spoke in favor of raising the minimum wage, making college and early childhood education more affordable and expanding job training opportunities. Yarmuth warned that more disruption is on the way, citing an executive who said that artificial intelligence will change or eliminate 120 million jobs around the world in the next three years.

Income for the median U.S. household grew more slowly than the economy in 2018, while the poverty rate fell to 11.8%, the lowest since 2001, the Census Bureau said last week.

Market for the Middle

The challenge for the U.S. economy will be to spread gains throughout society, rather than concentrating the bounty at the top, according to William Spriggs, an AFL-CIO economist and a Howard University economics professor who testified at the hearing.

“We need a market that is aimed at the middle,” Spriggs said. “Whoever is at the table first gets the money, not the American workers.”

Republicans dismissed Democratic proposals as too costly for the federal government, even though the 2017 tax cut they credit with spurring economic growth is projected to cost more than $1 trillion over the next decade.

Texas Republican Bill Flores referenced a report from the Federal Reserve Bank of Atlanta indicating that low-wage workers have experienced the fastest growth in salaries. He cited statistics to show that more than 1 million people have been lifted out of poverty since last year as the number of full-time workers increased.

“This tells us that Americans are getting off the sidelines and finding full-time work and earning good paychecks,” Flores said. “It appears that the other side of the aisle is simply ignoring these facts and supporting budget-busting approaches to income inequality.”

Racial Inequality

The hearing also touched on the causes of economic inequality, and California Democrat Barbara Lee pointed to racial disparities as a factor in the persistence of poverty in some communities.

“We always talk about income inequality, but why don’t we frame this as income and racial inequality?” Lee said. “Because we can’t talk about income inequality without talking about racial inequality.”

Citing a report from the Institute for Policy Studies, Lee said the wealth of the median black family is just $3,600, which represents 2% of that owned by the median white family. She said the report found similar discrepancies for Latino families.

Spriggs said public policy should include a frank discussion about “racial disparate impacts” including which demographics are protected by the minimum wage, who can organize a union and who receives housing and college benefits.

To contact the reporter on this story: Evan Sully in Washington at esully2@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Anna Edgerton, Laurie Asséo

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