Its rise is an illusion created by the Census Bureau’s failure to account for taxes and welfare.
The refrain is all too familiar: Widening income inequality is a fatal flaw in capitalism and an “existential” threat to democracy. From 1967 to 2017, income inequality in the U.S. spiked 21.4%, and everyone from U.S. senators to the pope says it’s an urgent problem. Yet the data upon which claims about income inequality are based are profoundly flawed.
We have shown on these pages that Census Bureau income data fail to count two-thirds of all government transfer payments—including Medicare, Medicaid, food stamps and some 100 other government transfer payments—as income to the recipients. Furthermore, census data fail to count taxes paid as income lost to the taxpayer. When official government data are used to correct these deficiencies—when income is defined the way people actually define it—“income inequality” is reduced dramatically.