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Income data is a poor measure of inequality

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Income data is a poor measure of inequality

Analysis by the Tax Foundation resists rising chorus of complaints about income inequality in America.

French economist Thomas Piketty recently made a huge splash with the publication of his book Capital in the Twenty-First Century, which purports to unveil the sources of large and rising (and to his mind harmful) income inequality in the Western world.  As one might expect, Piketty’s proposed solution to this “crisis” involves heavy government involvement and redistribution – which suits the intellectual Left just fine.

"In short, the Tax Foundation says “not so fast.”

But the Tax Foundation, a non-partisan research think tank, based in Washington, DC., recently issued analysis that significantly undermines the basis of Piketty’s extensive research, which relied heavily on assessing income data over long periods of time in 20 countries.  In short, the Tax Foundation says “not so fast.”

A summary of the report’s findings indicates the following:

  • IRS income data is collected in order to raise revenue as directed by Congress, which means it is not necessarily well-suited for other purposes, like measuring equality in our society.
  • The average taxpayer’s income changes dramatically throughout his lifetime; the average tax return for an 18- to 25-year-old shows about $15,000 in adjusted gross income where an average tax return for someone between ages 55 and 64 shows above $80,000.
  • College students, particularly, comprise a very large number of low-income taxpayers.
  • Incomes go considerably farther in some places than in others. Much of the narrative about rural states being poorer is mistaken.
  • Much capital income—especially capital income in tax-free middle-class retirement accounts—goes uncounted in income data, heavily distorting the measurement and making people appear poorer than they are.
  • Thomas Piketty’s income inequality data leaves out $19 trillion of pension assets, which are yet to be attributed to any individual. 

For anyone interested in engaging the increasingly vociferous debate about the scope, causes and even the importance of income and wealth inequality, I would recommend both the book – and this analysis.

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Angus DuBois
Angus DuBois
Angus DuBois is the nom de plume of an entrepreneur of 20 years who, in cowardly fashion, prefers to keep his/her business identity a secret. Comments can be forwarded to angus@nexxuspublishing.com.

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