Income “inequality” has been a favored issue on The Rugged Individualist. You can find several of my prior posts in the footnote 1.
Ask any leftist and they will tell you that the USA needs to be more like Europe. They seem to forget that we fought the Revolutionary War to untether ourselves from Europe. When you ask them whether Europe or the USA has more “income inequality” their answer will be a resounding “USA.” Too bad they are wrong AGAIN.
[Source: How Income Equality Helped Trump. Working Americans sense that taxes and transfers now leave them little better off than those who work less. By Phil Gramm and Robert B. Ekelund Jr.]
Further you can bet that during this election cycle every leftist candidate will again spew this political drivel. However, they will have a tough row to hoe because the Cato Institute’s John F. Early, a former assistant commissioner of the Bureau of Labor Statistics, just published the most comprehensive accounting to date of how taxes and government payments affect income distribution in the U.S. (approximately $1 trillion of annual government spending, not currently counted in the U.S. Census Bureau’s income-distribution tables, markedly effects “equality of income” in the USA).
The Cato study found that among the bottom 60% of income earners, income differences are materially less and poverty rates are a fraction of those previously quoted by the lame-stream media. In order to get a grasp of reality it was necessary for the researchers to:
- include Medicaid, food stamps, the earned-income tax credit, and 85 other federal payments and services,
- include state and local income supplements,
- subtract federal, state and local taxes from individuals’ measured income (the census data does not account for these).
Once this is done one instead finds “an astonishing degree of equality among the bottom 60% of American earners,” generated by the explosion of social-welfare spending under the Obama administration. Among hard working Americans in these groups, they can see with their own eyes that their hard work leaves them little better off than the growing number of recipients of government transfers. They perceive injustice in this and appropriately so. But the injustice is exactly the opposite of what is touted by leftists.
[Directly from the Gramm/Ekelund article] The bottom quintile earned 2.2% of all earned income in 2013, but after adjusting for taxes and transfer payments, its share of spendable income rose to 12.9%—six times its proportion of earnings. The second quintile’s share more than doubled, rising from 7% of earned income to 13.9% of spendable income. For the third quintile, middle-income Americans, the increase was much smaller, from 12.6% to 15.4%.
Not surprisingly, high earners lost a considerable share of their earnings after taxes and transfers are taken into account. The fourth quintile’s share fell from 20.5% to 18.6%, while the top quintile dropped from 57.7% of earnings to 39.3% of consumable income. In other words, the top quintile’s share of earnings was 26 times that of the bottom quintile, but after taxes and transfer payments its share of spendable income was only three times as much.
See if this kind of “equality” computes. If one looks at the bottom three quintiles:
- the bottom quintile (0-20% of earned income) earned only 2.2% of all earned income
- lower-middle-income workers (20-40% of earned income) earned more than three times the share of income but also worked two and one half times more (comparing each quintiles number of full-time workers)
- however, they had virtually the same share of spendable income (12.9% versus 13.9%)
Let’s do the same computation for the true “middle class” (workers in the 40-60% of earned income):
- these workers earned almost six times the share of income as the bottom quintile and worked almost four times as much (again, comparing each quintiles number of full-time workers)
- but they enjoyed only about 20% more spendable income (12.9% compared to 15.4%)
That is TRUE income inequality if you ask me. But it is actually much worse than that. The lower-middle-income quintile (20-40% of earned income) had almost four times as many working-age families whose members worked two or more jobs compared to the bottom quintile! The middle-income quintile (40-60% of earned income) had seven times as many families with members working two or more jobs compared to the bottom quintile!
My friend and frequent contributor of excellent data for my posts (HP) gleaned a few more remarkable conclusions from the Cato study:
- As measured by the CBO, government intervention with transfer payments and taxes has cut the difference between the top and bottom quintiles by a factor of five.
- Government redistribution eliminated 88.5 percent of the ratio between the highest and lowest income quintiles.
- A household at any point in the income distribution for the United States will have higher income than a household at the corresponding point in other OECD countries – i.e. we have less income inequality than all of the major EU countries!
- Missing transfer payments have caused poverty to be overstated fourfold.
- Two-thirds of children reared in the lowest quintile escape to a higher one as adults, and two-thirds of children reared in the highest quintile drop to a lower one.
Only about 2 percent of the population – not 13.5 percent – live in poverty and it is important, as well, to understand what “poverty” means in the USA (footnote 2). Before leftists say the word “poverty” they need to speak to some of the citizens of the Central African Republic.
And thanks again to HP for sending this to me.
Footnote 2: (these figures are from 2005)