Income Inequality in the U.S. I. How Bad Is It?

Income inequality is a hot political issue in the U.S.  The 400 wealthiest Americans are each worth more than $2 billion.  The top 1% of American families have an annual household income of $422,000 or more.

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But let’s look at income inequality from a different perspective (see chart):

  • The average bottom quintile household earns only $4,908 while the average top quintile household earns $295,904 or 60 times as much. This is a huge difference but it is before taxes and government transfers.
  • The bottom quintile receives $45,389 in government transfers and $3,313 in private and charitable sources. They also pay an average of $2709 in taxes, mostly sales, property and excise, for a net household income of $50, 901.
  • The average top quintile household pays an average of $109,125 in taxes and is left, after taxes and transfer payments, with an income of $194,106.
  • This works out to a net income ratio of 3.8 as opposed to the above gross income ratio of 60. This is, of course, an enormous difference.
  • More generally, there is an annual $1.9 trillion in transfer payments to American households coming from 95 different federal programs such as Medicare, Medicaid and food stamps and dozens of state and local programs.
  • Government transfers make up 89% of resources available to the bottom quintile of households and more than 50% of resources available to the second quintile.
  • More than 80% of all taxes are paid by the top two quintiles. More than 70% of all government transfers go to the bottom two quintiles.

Conclusion.  “Antipoverty spending in the past 50 years has raised most of the households in the bottom quintile into the middle class.  … Any debate about further redistribution of resources needs to be tethered to these facts.”  Next: what more should we do to lessen income inequality?

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