No Longer an Urban Legend: New Study Confirms Congressional GOP Aids Nation’s Wealthiest
Republican strength in Congress was associated with higher levels of inequality, the link between politics and inequality was not merely due to redistribution, as the study was based on income, including capital gains, prior to taxes and transfers.
“Democrats are more favorable than Republicans toward social programs that redistribute income, but the parties also differ over what the economic rules of the game should be,” Volscho said. “Based on our analysis, Democrats appear to favor an economic system that produces more egalitarian outcomes even before any redistribution occurs.”
From 1949 through 2008, the impact of a one percentage point increase in the share of seats (just over five seats) held by Republicans in Congress raised the top income share by about .08 percentage points, according to the study.
“At first glance, this might seem negligible, but that’s really not the case,” said Volscho. “Given that the estimated national income in 2008 was more than $7.8 trillion, an increase of only 1 percent in Republican seat share would raise the income of the top 1 percent by nearly $6.6 billion. That equates to about $6,600 per family in the top 1 percent.”
In terms of labor unions, over the course of the study period, Volscho and Kelly found that a one percentage point decrease in union membership among private sector workers was associated with more than a .40 percentage point increase in the income share of the super-rich. According to Volscho, private sector union membership was 34.9 percent in 1949, but had dropped to 7.6 percent by 2008.
Based on the estimated 2008 national income, the effect of a one percentage point drop in private sector union membership would transfer $33.4 billion to the top 1 percent, Volscho said.
“As union membership has decreased, a greater share of income has shifted toward the top 1 percent,” Volscho said. “With a decrease in union membership, workers’ wage bargaining power diminishes and this can increase firms’ market value and their profitability. A higher market value often translates into higher stock prices and executive compensation, thereby shifting income toward the top.”
The study also found that the effect of a percentage point decrease in capital gains and income taxes was similar in magnitude to the effect of a percentage point increase in the share of seats held by Republicans in Congress. Additionally, based on the estimated 2008 national income, a 100 point increase in the (inflation adjusted) Standard & Poor’s 500 composite stock market index over the previous year would transfer about $39.6 billion to the top 1 percent and a 10 point (inflation adjusted) increase in Robert Shiller’s real historical home price index would shift $34.1 billion to the top 1 percent.