Brief correction on income inequality data

John Nye says measured income inequality would not be reduced by the types of redistributive policies that I (and Elizabeth Anderson) have been discussing. He seems to think neither government transfers nor taxes are included in the data used to measure inequality.

It’s true that the Gini coefficients published by the Census Bureau in its annual report on income inequality are based on a measure of income that does not include the Earned Income Tax Credit or noncash transfers such as food stamps and does not subtract tax payments. But each year the Congressional Budget Office (CBO) publishes income data that address these limitations. The information about income inequality trends that I mentioned in a prior post in this exchange is based on the CBO data.

One other small point: John says I recommend raising the top marginal income tax rate, and that this might not do any good because the rich find ways to shelter their income to avoid it being subject to that top marginal rate. Actually I said I favor increasing the effective tax rate on top incomes. That can be done by increasing the marginal rate, or by reducing exemptions and deductions, or by improving enforcement of existing rules, or some combination of these.

Also from This Issue

Lead Essay

  • Economic Inequality and the Mirage of Injustice by Will Wilkinson

    In his lead essay, Will Wilkinson observes what he believes is a poor chain of reasoning: Income inequality is rising; it is also a measure of injustice. To fix this injustice, we should redistribute incomes. Wilkinson attacks this reasoning on several fronts: Income inequality is less important than consumption inequality, and consumption inequality is probably lessening. But if income inequality is a problem, it is so only as a symptom of a different problem: substandard schools, perhaps, or our high incarceration rate, or CEOs who conspire to overpay one another. Rather than redistributing income, we should identify the underlying problem and fix it directly. This may well lessen income inequality, and it will also fix an undoubtedly serious problem somewhere else in our society.

Response Essays

  • Is Consumption the Grail for Inequality Skeptics? by Lane Kenworthy

    Lane Kenworthy argues that income inequality is indeed important, and that we should not be misled by the relatively reassuring data on consumption. Unconsumed income also adds to the quality of life enjoyed by the rich, even if that increase is still hard to measure. A more egalitarian society need not entail a radical social leveling, but it should entail better public services for the poor and the middle class.

  • Why Things Will Feel Worse As They Get Better: The Downside of Growing Consumption Equality by John V. C. Nye

    John Nye adds several considerations to the mix: First, positional goods may make us feel more unequal – there are only so many “top ten” schools for our kids, only so many “best” views or neighborhoods. Yet, with rising incomes, more of us feel that we should be able to afford them, even as they slip further from our grasp. As we become more equal, we feel less equal. Second, one other effect of relative equality has been to erode the security formerly enjoyed at the very top of the economic pyramid. This security itself was a form of compensation, and executive salaries may be rising in recent years in part because executive security has fallen. And third, much of human inequality is not directly measurable in money at all. Differences in appearance, intelligence, ability, and the like are all real and may translate into economic inequality as well. Consideration of these elements is curiously absent from many discussions on inequality.

  • What Should Egalitarians Want? by Elizabeth Anderson

    Elizabeth Anderson agrees with Wilkinson that the root causes of inequality are more troubling than inequality taken alone. But economic inequality is still a problem for two reasons: First, economic inequality of the sort we have today is not making the poor better off in absolute terms, but rather it is making them worse off. And second, economic inequality translates directly into inequality of political power, which in turn reinforces economic inequality. This is an unacceptable state of affairs.

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