Bloomberg News

Obama Says Income Disparity a Defining Challenge of Era

December 04, 2013

President Barack Obama, setting a theme that he’ll pursue in the final years of his presidency, said growing income disparity in the U.S. is the “defining challenge or our time” and Washington must confront it.

Upward mobility for middle-income Americans has been stymied by economic changes and government policy, Obama said.

“The basic bargain at the heart of our economy has frayed,” he said in an address in Washington today that echoed a speech he gave two years ago in Osawatomie, Kansas, that set the stage for his 2012 re-election race. Increasing inequality “challenges the very essence of who we are as a people.”

After being bogged down for the past two months by the botched rollout of the Patient Protection and Affordable Care Act, the president offered arguments to press his stalled economic agenda and set a foundation for Democratic Party candidates in the 2014 congressional elections.

Illustrating the political agenda within the speech, Obama challenged Republicans in Congress to offer their own ideas for reducing inequality and providing opportunities for middle-income Americans. He said relying on free markets to solve the nation’s problems isn’t enough.

“You owe it to the American people to tell us what you are for, not just what you’re against,” he said.

Global Issue

Obama said the gap between rich and poor is an issue across the globe. He quoted Pope Francis, who in a speech last month warned that unfettered markets are increasing income disparities and that risks fomenting social unrest.

The president said the U.S. has fallen behind other advanced countries in income mobility. Turning that around and closing the income gap can be achieved by driving economic growth and productivity, he said, listing many of the policies and programs on education, infrastructure spending and targeted investments to create jobs that he’s outlined before.

Related: Congress Members Urge McDonald’s CEO to Increase Wages

The idea that a child might never be able to climb out of poverty “should offend all of us,” Obama said. “We are a better country than this.”

The trend toward income inequality, which he said dates back to the 1970s, is “a fundamental threat to the American dream,” he said. The nation must push through “myths” that mostly minorities are trapped in poverty.

Poverty Rate

The poverty rate in the U.S. was 15 percent last year, compared with a 26-year low of 11.3 percent in 2000, and median household income was $51,017, little changed from the previous year, according to Census data.

While the rise in home prices and stocks -- the Standard & Poor’s 500 Index has more than doubled since Obama took office - - has boosted the finances of the more affluent, those on the lowest tiers contend with high unemployment and stagnant wages.

An updated research paper published in September by University of California at Berkeley economist Emmanuel Saez found that the top 10 percent of earners -- those with household income above $114,000 -- collected more than half the nation’s total income in 2012, the largest proportion since the government started gathering such data in 1917.

To close the income gaps, Obama reiterated his backing for raising the federal minimum wage. He proposed in February lifting it to $9 an hour from $7.25 by 2015, with automatic adjustments for inflation. Such an increase would affect about 15 million people, the White House said. A proposal in the Senate, supported by Obama, would increase it to $10.10 an hour.

Wage Debate

Even as Republican lawmakers in Washington argue that raising the rate would hurt small businesses, Democrats at the state and local level are attempting to increase the minimum wage for their constituents, including New York Mayor-elect Bill De Blasio, who made income inequality the centerpiece of his campaign.

“There’s no solid evidence that a higher minimum wage costs jobs,” Obama said, “and research shows it raises incomes for low-wage workers and boosts short-term economic growth.”

A CBS News poll conducted Nov. 15-18 found 69 percent of Americans back raising the minimum wage. The same poll showed low approval ratings for Obama and Congress, with the president at 37 percent and lawmakers at 11 percent. The margin of error for the poll was plus or minus three percentage points.

Obama defended the 2010 health-care law, his signature first-term initiative, as a key component of providing economic security for lower- and middle-income people.

With the law under attack by Republicans, and polls showing it unpopular, Obama said its benefits will ensure that it remains in force in the long run.

“This law is going to work,” he said. “And for the sake of our economic security, it needs to work.”

Congressional Elections

The president’s refocusing on the economy begins as the White House and lawmakers turn attention to the 2014 midterm elections and the risk Obama faces if Republicans maintain or increase their control of the U.S. House of Representatives.

“The wind is at the back” of Republicans for the midterm elections, said Chris Krueger said in a Dec. 3 market commentary for Guggenheim Securities LLC in Washington. “The House will very likely stay Republican.”

If that prediction holds, that would frustrate much of Obama’s agenda, including the minimum wage increase, making preschool available to all 4-year-olds, spending $50 billion on “urgent” infrastructure projects to generate jobs and creating manufacturing-innovation institutes that the administration says will maintain American competitiveness.

It also may stall action on a bill to revise U.S. immigration laws. While the Senate passed legislation with support from Republicans as well as Democrats to give an estimated 11 million undocumented immigrants a path to citizenship, the Republican-controlled House hasn’t taken it up.

Polls consistently show that the economy tops the list of voter concerns, especially with the recovery sluggish and an unemployment rate that’s been falling slowly since the end of the recession in 2009 and is now at 7.3 percent.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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