Economic inequality and congressional action in the United States: A comparison of the minimum wage and alternative minimum tax

Abstract

A central puzzle in American politics is the stark increase in economic inequality since the early 1970s due, in part, to the absence of public policies to address this trend. One explanation is policy drift: Inequality has grown in the United States because the political process has been unresponsive to economic trends toward inequality. A second explanation is unequal political influence: Wealthy individuals and corporations wield superior political influence and tilt public policy toward their interests. We compare these explanations using the federal minimum wage and alternative minimum tax (AMT) from 1969 to 2012 as comparison cases. These policies were both denominated in nominal dollars, so the effect of policy inaction is comparable for both policy domains. We find that (1) the U.S. Congress was much more likely to update AMT policy than minimum wage policy after 1978, (2) Congress protected and increased the real value of the AMT deduction for married couples, whereas the real value of the minimum wage and individual deduction declined after 1978, (3) Congress and the President eventually converted the AMT-but not the minimum wageto automatic adjustments for inflation. These patterns highlight the role of political inequality in economic policy-making.