The real story about income inequality

[Richard]

The published census data for 2017 portray the top quintile of households as having almost 17 times as much income as the bottom quintile. But this picture is false. The measure fails to account for the one-third of all household income paid in federal, state and local taxes. Since households in the top income quintile pay almost two-thirds of all taxes, ignoring the earned income lost to taxes substantially overstates inequality.
The Census Bureau also fails to count $1.9 trillion in annual public transfer payments to American households. The bureau ignores transfer payments from some 95 federal programs such as Medicare, Medicaid and food stamps, which make up more than 40% of federal spending, along with dozens of state and local programs. Government transfers provide 89% of all resources available to the bottom income quintile of households and more than half of the total resources available to the second quintile.”

https://jewishjournal.com/newsroom/m...me-inequality/

The link there will take you to the WSJ which has a paywall,not sure if I would be in copyrighted violation if I posted the whole story?


Today government redistributes sufficient resources to elevate the average household in the bottom quintile to a net income, after transfers and taxes, of $50,901—well within the range of American middle-class earnings. The average household in the second quintile is only slightly better off than the average bottom-quintile household. The average second-quintile household receives only 9.4% more, even though it earns more than six times as much income, it has more than twice the proportion of its prime working-age individuals employed, and they work twice as many hours a week on average. The average middle-income household is only 32% better off than the average bottom-quintile households despite earning more than 13 times as much, having 2.5 times as many of prime working-age individuals employed and working more than twice as many hours a week.

[Daniel-J]

Thank you for the information you have provided, there is really something to think about.

[Canadian Visitor]

Level of income inequality in the United States are among the very highest in the world among developed countries AFTER taxes and transfers; though yes these due reduce the degree of inequality somewhat.

For reference, see this chart of Nations by Gini Coefficient.

https://blog.datawrapper.de/weekly-chart-gini/

The chart is from 2014, its shows before and after tax numbers; and for those trying to figure this out, the lower the Gini number is the closer a nation is to relative income equality among its citizens.

***

Here's another chart showing similar data, but in a different format.

https://slate.com/business/2015/03/p...breakdown.html

[JBMcB]

For reference, see this chart of Nations by Gini Coefficient.

I love looking at data. It's also part of my job. The first thing I do when I look at a chart is to see where the primary axis starts. If it doesn't start at zero then where and why. Then you look at where it ends. Here we have a range of 0.2 to 0.6. Why was this range selected? Don't know, not in the article.

Anywhoo, we see that, after taxes, the difference between the US and the next country down is 0.01. The difference between the US and the UK is 0.03. The difference between the US and Iceland is 0.14.

So, what does that mean? I guess you could argue that taxing the heck out of people will increase the standard of living, ala Iceland, however the next few entries are Slovenia and the Czech Republic, countries not exactly known for their fantastic standards of living. Turkey has a higher GINI index than the US, but it's standard of living is decent for the part of the world it's in.

So....

[Canadian Visitor]

I love looking at data. It's also part of my job. The first thing I do when I look at a chart is to see where the primary axis starts. If it doesn't start at zero then where and why. Then you look at where it ends. Here we have a range of 0.2 to 0.6. Why was this range selected? Don't know, not in the article.

The range starts 0.2 because 0 is perfect equality, meaning no difference in income between the lowest 10% and the highest 10%; since that doesn't exist, it starts at 0.2, the most equal society.

The opposite end of the range is 1, which means perfect inequality in which all national income is made by 1 person.

Likewise that does not exist, so the max is 0.6

Further explanation is provided here:

https://www.investopedia.com/terms/g/gini-index.asp

The complete set of equations is here:

https://en.wikipedia.org/wiki/Gini_c...nt#Calculation

Anywhoo, we see that, after taxes, the difference between the US and the next country down is 0.01. The difference between the US and the UK is 0.03. The difference between the US and Iceland is 0.14.

So, what does that mean?

Roughly, and I do mean roughly, the the U.S. is 10% more unequal than the U.K. Unequal meaning the disparity between those at the top, and those at the bottom is greater in the United States by about 10%

I guess you could argue that taxing the heck out of people will increase the standard of living, ala Iceland, however the next few entries are Slovenia and the Czech Republic, countries not exactly known for their fantastic standards of living. Turkey has a higher GINI index than the US, but it's standard of living is decent for the part of the world it's in.
So....

The Gini Coefficient doesn't measure standard of living, its not a measure of the wealth or income of a country; at least in this context.

Its a measure of how whatever wealth there is in a country is divided among its citizens.

You can have more inequality and greater wealth or the opposite.

What changes is where the proportion of the benefit is located.

In the aggregate, wealthier nations tend to have lower gini coefficients; and this often correlates with a higher standard of living.

But that isn't universally true and can't be looked at in isolation.

[rb336]

A must read - incredibly well-source, and well-documented - Kate Pickett & Richard Wilkinson's "The Spirit Level".
https://www.amazon.com/Spirit-Level-...dp/1608193411/