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What Inequality?

by | Jun 6, 2024

According to research conducted by Phil Gramm, the late Robert Ekelund, and John Early, documented in The Myth of American Inequality: How Government Biases Policy Debate and summarized in this video:

  • The bottom 20 percent of households have an average annual income of $13,000, according to the Census Bureau. However, according to the Bureau of Labor Statistics, those households consume an average of $26,000 worth of goods each year. How can that be?
  • In the standard computations of inequality that are used to justify more government spending, the incomes of the rich include taxes paid while the incomes of the poor exclude two-thirds of government benefits, including the Earned Income Tax Credit, food stamps, and Medicaid. (There are more than a hundred transfer programs.) The rich artificially appear richer, and the poor artificially appear poorer. It’s a statistical illusion.
  • When inequality is adjusted to count taxes paid by the rich and cash and noncash benefits received by the poor (net of government admin costs), measured income inequality between the top and bottom quintiles drops from 16.7:1 to 4:1. Real income inequality is a quarter of what it is said to be.
  • Compared to 1967 and using inflation-adjusted dollars, two-thirds of Americans are in the top income quintile.
  • People in the middle quintile have about the same income as the people in the bottom quintile, though only about a third in the bottom work.

That shines a different light on things, doesn’t it?

Sheldon Richman

Sheldon Richman

Sheldon Richman is the executive editor of The Libertarian Institute and a contributing editor at Antiwar.com. He is the former senior editor at the Cato Institute and Institute for Humane Studies; former editor of The Freeman, published by the Foundation for Economic Education; and former vice president at the Future of Freedom Foundation. His latest books are Coming to Palestine and What Social Animals Owe to Each Other.

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