U.S. Income Gap Has Stopped Growing: Reason Roundup

There’s good news on income inequality that nobody’s talking about. The income gap between America’s wealthiest and poorest people has generated a lot of attention and fueled a resurgence in left-wing activism and interest. But what hasn’t grown in recent years is income inequality itself.

A recent report from the Congressional Budget Office (CBO) looked at U.S. income data from 1979 through 2014. For most of this period—between 1979 and 2007—the gap between the country’s lowest and highest earners widened at a steady and relatively rapid pace.

This held true whether CBO looked at “market income” (employment and other earnings before taxes are taken out or public-assistance funds added in), income after taxes, or income plus government benefits (including social insurance programs like Social Security and means-tested programs like “food stamps”).

In 2007, however, this trend came to a halt. After that, income inequality either grew much more slowly or even decreased, depending on how you slice the data. Measuring market income, the income gap was 3 percent higher in 2014 than in 2007 (compared to an average 1.3 percent increase per year over the larger period). With public benefits included in the calculation, income inequality actually shrank.

Income inequality after government transfers is down since 2007, according to CBO’s measure. pic.twitter.com/mqm1MO9Jsl

— Michael R. Strain (@MichaelRStrain) June 2, 2018

“Though few seem to care or have noticed, this trend has important implications for economic policy,” writes Bloomberg columnist and American Enterprise Institute scholar Michael R. Strain. He suggests that this lack of attention may arise from the fact that income inequality per se isn’t a very telling or important measure.

It’s critical to remember that inequality — the income gap between higher- and lower-income households — is conceptually different from income and earnings growth among non-rich households. Inequality can be slowing while non-rich Americans are doing better, worse or the same.

But by Strain’s calculations, income inequality is waning, whether we use the CBO methodology or another estimate.

Another measure of inequality is more straightforward than the “Gini coefficient” used by the CBO, and considers only labor-market earnings. It begins by ranking workers by how much they usually earn each week. Take the worker who earns more than 90 percent of all workers. Now take the worker who only earns more than 10 percent of workers. Compare their earnings.

If the rich are getting richer, then “ninth decile” workers will earn increasingly more than “tenth decile” workers. This is exactly what was happening until recently. In the late 1990s, the ninth-decile workers earned about 4.5 times as much as the tenth-decile workers. This shot up to 5.2 times as much by 2012. But over the past six years, inequality has stabilized, echoing the findings in the CBO report.

Looking at household income data from 2014 alone, the CBO found that average yearly income among the lowest-earning quintile was around $19,000. Among the highest earners, it was $281,000. “Means-tested transfers and federal taxes cause household incomes to be more evenly distributed,” the office reports.

In 2014, those transfers and taxes:

• Increased income among households in the lowest quintile by $12,000 (or more than 60 percent), on average, to $31,000.
• Decreased income among households in the highest quintile by $74,000 (or more than 25 percent), on average, to $207,000.

FREE MINDS

Google drops politics ads in Washington. Google has announced that it will no longer run political ads for Washington-state users because the company can’t comply with Washington’s onerous disclosure laws. The move is good news for incumbent political candidates and not so good for independents and newcomers.

FOLLOW UP

Alice Marie Johnson freed. Kim Kardashian’s meeting with President Trump got results: Alice Marie Johnson, the 63-year-old woman in federal prison for having a small amount of marijuana, was released yesterday following Trump’s commutation of her sentence.

I also urge @POTUS to do the same for the 2,600 other federal prisoners who are serving similar draconian sentences for nonviolent drug offenses. He should also support the #SAFEJusticeAct, which focuses mandatory minimum sentences on drug kingpins, instead of people like Alice.

— Rep. Bobby Scott (@BobbyScott) June 6, 2018

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