Federal government largest driver of income inequality?

posted at 3:31 pm on December 23, 2012 by Ed Morrissey

I missed this when Reuters reported on it earlier this week, but it’s worth a close look.  The scourge of income inequality has been the focus of Democratic politics since at least September 2011, when Barack Obama began demanding higher tax rates on the wealthy in order to achieve “fairness.”  Obama and his party have played class-warfare games ever since, playong footsie for a while with the Occupy Movement, until the stories of abuse, criminality, and weirdness got to be too damaging.  All the while, the Democrats have insisted that they are fighting income inequality, and that we need more government spending to eliminate it.

In their “Unequal State of America” series, though, Reuters discovers the epicenter of income inequality — and it’s right where all that federal spending starts:

In the town that launched the War on Poverty 48 years ago, the poor are getting poorer despite the government’s help. And the rich are getting richer because of it.

The top 5 percent of households in Washington, D.C., made more than $500,000 on average last year, while the bottom 20 percent earned less than $9,500 – a ratio of 54 to 1.

That gap is up from 39 to 1 two decades ago. It’s wider than in any of the 50 states and all but two major cities. This at a time when income inequality in the United States as a whole has risen to levels last seen in the years before the Great Depression. …

The federal government does redistribute wealth down to struggling Americans. But in the years since President Lyndon Johnson took aim at poverty in his first State of the Union address, there has been an increasingly strong crosscurrent: The government is redistributing wealth up, too – especially in the nation’s capital.

Why might that be?  This is one good reason:

Roughly 15 cents of every dollar from the entire federal procurement budget stays in or around the government’s hometown, said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. Last year, that was about $80 billion out of $536 billion in procurement spending, he said. The 15 percent share is far greater than the region’s 2 percent portion of the U.S. population.

“We’re seeing an enormous transfer of wealth from taxpayers to the Washington economy,” said Fuller.

And if you want to know how it works, this paragraph explains it pretty thoroughly:

Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. The federal government funneled $83.5 billion their way in defense and other work in 2010 – an increase of more than 300 percent since 1989, even after adjusting for inflation. Private industry poured more than $3 billion into lobbying to influence the government, nearly double what it spent a decade ago.

Like spokes on a wheel, the high-rise offices of this elite radiate out from Capitol Hill along major arteries deep into suburban Maryland and Virginia. The latest Census figures placed 10 of the capital’s surrounding counties in the top 20 nationwide for median household income – up from six in 1990.

The more regulation and spending expands, the richer Washington gets.  With those incentives in place, is there any wonder why Washington is reluctant even to cut the rate of growth in spending? Anyone? Anyone? Bueller?  Bueller?

The article is worth a full read, even if it somehow conflates tax cuts with redistribution in a weak attempt to apply a pox-upon-all-houses editorial tenor.  Tax cuts only represent redistribution if one believes that no one earns their own income, but that it’s a gift from Uncle Sam.  That’s the kind of thinking that created the Inequality Capital in the first place.  Still, the report overall makes it very clear that Washington is the driver of regional income inequality and a major contributor to personal income inequality, and that the federal government’s policies and regulations make the problem worse rather than better.

Note: The front-page cartoon originated a while back from the excellent site Cagle Cartoons.

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