Data on Economic Inequality

Wealth and income inequality have been getting a lot of attention in the wake of the Occupy Wall Street movement, and for good reason. The following article from Business Insider nicely aggregates a large amount of the data surrounding the current and historical state of inequality within the United States as well as data across countries.

Charts on Inequality

I would be remiss not to mention that top marginal tax rates are not necessarily the best measure in this scenario as few actually pay those statutory rates. A much better indicator of taxation would be effective tax rates by income distribution which can be found here, on page 10 of Saez and Piketty’s analysis of US tax progressivity over time. As you can see the US still does employ a fundamentally progressive tax structure though it is significantly less progressive than it was back in the 1960s.

Also, I do not believe that their analysis accounts for capital gains taxation which which would make our system look even less progressive given the relatively low statutory tax rates on long-term capital gains (currently only 15%) see here.

Another chart that may be a bit misleading at first is the rather dramatic one which graphs economic productivity and hourly compensation. The data does not lie; however, keep in mind that productivity represents overall economic productivity per person which not only increases when labor works harder but also when firms invest in capital and machinery that boosts output per worker. As such, it can be argued that some of that gap should be remunerated to the owners of capital for their investment. The amount of that remuneration is up for debate and my belief is that workers are not capturing enough of their own contributions to productivity largely due to the decline in national unionization over the past 40 years.

 

Additionally, here is a video detailing the divide between most American’s understanding of the degree of inequality which exists and the amount that actually exists according to the data.

Wealth Inequality in America

Now, I would argue that inequality is not necessarily bad in and of itself especially provided that there exists sufficient inter-generational socio-economic mobility and a moderate degree of equality of opportunity. Inequality of outcomes provides ample incentive to work hard and be productive. However, I believe that the degree of inequality which our country is currently experiencing does pose a threat not only to the health of our economy but also our supposedly democratic political process in the wake of numerous Supreme Court decisions that have greatly exacerbated the power of money in politics (Citizens United & McCutcheon).

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