Except that, as Ben Spielberg and I show in a new working paper on the CBO’s latest update of this very useful series, income inequality has gone up almost as much on a post-tax and transfer basis as it has on a pretax basis. Equally importantly, these data, which run through the first two years of the recovery that began in 2009, show just how unequal income gains—again, including taxes and transfers—have been. The growth has gone almost exclusively to households at the top of the income scale, leaving the poor and middle-class behind.
Our paper has the details, but here are the highlights:
–The increase in income inequality since the late 1970s has occurred both before and after taxes and transfers. Thus, according to these data, claims that adding taxes and transfers erase the trend toward higher inequality are incorrect.
–The income of the poorest fifth of households grows much more quickly in the CBO data than in other data sets but this is largely due to assigning the market value of health benefits to their income. We argue that based on unique inefficiencies that raise costs in the U.S. health care system in ways that do not increase the living standards of the poor, this method creates an upward bias. A more realistic valuation of health benefits, one that still captures their important value to recipient households, cuts the income growth of the bottom fifth by half.
–The CBO data now run through 2011 and thus provide two years of comprehensive income data over the recovery that began in 2009. The figures below shows just how unequal the recovery has been, with income gains even after taxes and transfers largely eluding the poor and middle class, while disproportionately accruing to the top 1 percent.
–Since the late 1970s, earnings growth has been slow and unequal. Remarkably, for middle-income households with children, the increase in transfer income has been larger than the increase in earnings.
There’s no question that our system of taxes and government transfers is still progressive in that the gap between the wealthy and rest is smaller when we account for these post-tax income components. But the trend is similar, meaning that we can’t count on redistribution through the tax code to offset the depth of market-driven inequalities.
Instead, achieving that goal will require nothing less than reconnecting the growth of the overall economy to that of the prosperity of middle and lower income households.
As far as I’m concerned, if you’re talking economic policy, and that goal is not at the heart of your agenda, I’m not sure what you’re talking about.