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Posted at 2:29 PM ET, 02/22/2011

What Americans think about income inequality in one graph

By Ezra Klein

inequality-page25_actualdistribwithlegend.png

More here.

By Ezra Klein  | February 22, 2011; 2:29 PM ET
Categories:  Charts and Graphs, Inequality  
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Comments

We need bars for liberals and conservatives to really make use of this kind of data.

Posted by: lauren2010 | February 22, 2011 2:48 PM | Report abuse

Ezra:

Could you please inlcude a graph of the share of total income tax revenue received by the federal government from each group?

Please just paste it alongside the first graph above. That will help put your misleading 'income inequality' graph in perspective when people see that those who make the most income also pay the most taxes, and those whom your graph purports to show getting the shaft in income are also the ones getting a free ride when it comes to paying federal income taxes.

Posted by: dbw1 | February 22, 2011 3:01 PM | Report abuse

"Income" by definition includes income from federal government, no?

Posted by: harold3 | February 22, 2011 3:11 PM | Report abuse

Exactly right dbw1. Someone making $30k probably pays almost no taxes, while someone making $100,000,000 probably pays millions in taxes. I mean at the end of the day, they can both afford yachts, right?

Posted by: horacemann | February 22, 2011 3:13 PM | Report abuse

@dbw1: ever hear of Warren Buffet's challenge?

http://m.cnbc.com/id/21708265/Warren_Buffett_s_Fellow_Billionaires_Don_t_Bite_on_Million_Dollar_Tax_Challenge

Posted by: DavidCEisen | February 22, 2011 4:15 PM | Report abuse

the post is titled 'income inequality'

the graph describes 'wealth inequality'

these are very, very, very different things.

Posted by: eggnogfool | February 22, 2011 4:44 PM | Report abuse

Ezra:
I am not an economist, so clarify some things for me.
As I understand it, Adam Smith, in his Wealth of Nations, argues that economies do better if more people have more disposable income to chase goods and services.

Conversely, economies do worse if there are large accumulations of money is any part of the cycle.

So, redistribution of wealth is good for the economy and the society.

Is this right?
Has the modern view of economics changed this?

Is it not more difficult to recover a robust economy and society when wealth is distributed as the graph shows?

Posted by: grat_is | February 22, 2011 5:20 PM | Report abuse

dbw1:

My view of the use of statistics, is that when one limits the parameters so very narrowly, as you do when you only talk about Fed Income Taxes, one is trying to hide something.

Why do payroll taxes not count?
Why do sales and gas taxes not count?
Perhaps not you, but I live in a state, a county, a city, and I pay taxes in all of those.
As a measure, I like to talk about total tax burden.

I also like to talk about taxes as a percentage of income. To me, that is fair. Obviously to you, a dollar for a poor man has exactly the same marginal utility as a dollar for Warren Buffett. That is your choice.

Which brings me to these articles about total tax burden:

Klein: Total tax burden
http://www.prospect.org/csnc/blogs/ezraklein_archive?month=04&year=2009&base_name=why_do_state_and_local_taxes_h

http://www.ctj.org/pdf/taxday2009.pdf

Posted by: grat_is | February 22, 2011 5:27 PM | Report abuse

Exactly right dbw1. Someone making $30k probably pays almost no taxes, while someone making $100,000,000 probably pays millions in taxes. I mean at the end of the day, they can both afford yachts, right?

Posted by: horacemann

Very Good..

Posted by: newagent99 | February 22, 2011 5:40 PM | Report abuse

Wealth and income inequality are both pretty large in this country and getting larger, which warrants all manner of discussion about causes, effects, equity, etc.

But there is an implied premise in this chart: that Americans are reasonably good at understanding percentiles and relating them to real-life. I don't believe this premise is true, so I don't assign much meaning to a chart showing what Americans think wealth distribution is or should be. It's IMO a non sequitur.

Posted by: sanjait | February 22, 2011 5:52 PM | Report abuse

What I find odd isn't that American's are overall ignorant of the actual distribution of wealth; its the fact that even with their incorrect views of they still want wealth to become more equally split, yet they vote for Republicans whom want/do cut taxes for the very rich while simultaneously raising taxes on the poor and cutting services/funding for the poor.

Posted by: blueman3 | February 22, 2011 5:52 PM | Report abuse

"Why do payroll taxes not count?"

Sure, we can count them. However, if payroll taxes are so burdensome on the lower and middle classes, by all means lets just get rid of them and the associated programs that they fund.

"Why do sales and gas taxes not count?"

I'm okay with getting rid of these too.

"Obviously to you, a dollar for a poor man has exactly the same marginal utility as a dollar for Warren Buffett."

How about we steal from neither the poor man nor Mr. Buffett? And if Mr. Buffett is troubled by the poor man's economic conditions, he is free to use as much of his own money as he likes to remedy them. The man's already quite generous, so I'm sure he'll come through.

Of course, if we're going to rely on utility calculus to justify government intervention, then by all means let's go around, find older people with healthy organs, and then harvest and distribute these organs to younger people who need a transplant.

We could probably save the lives of six or seven young people with just one old person's organs. He's already lived his life, and the rest of them have their whole lives ahead of them. I'm sure that would increase utility.

Posted by: justin84 | February 22, 2011 6:31 PM | Report abuse

the share of the income the bottom receives is shrinking, so of course their share of taxes they pay is also shrinking. if the bottom's share of income were higher (and thus the tax base wider) they would pay more income taxes as well.

we don't have to steal from rich people or from poor people. we need to put economic incentives in place to make it less appealing for rich people to pay themselves so much while paying their workers so little. the system we have in place now makes it possible for them to pay themselves 500+ times that of their workers. we need a tax system that encourages them to limit how much they make compared to their workers. like say, maybe "only" 40-100 times what their workers make.

Posted by: mingpicket | February 22, 2011 7:22 PM | Report abuse

-----------
"Why do sales and gas taxes not count?"------
I'm okay with getting rid of these too.------------

ROTFL your response to a question asking why we shouldn't cherry pick statistics and ignore statistics 101 is to get rid of one of the parameters that right-wingers have left out in order to meet the reality denying ideologies.
----------"Obviously to you, a dollar for a poor man has exactly the same marginal utility as a dollar for Warren Buffett."--------
How about we steal from neither the poor man nor Mr. Buffett? ------------

Considering were doing neither now, or doing neither if taxes increased on the rich to reflect the same percentage of wealth they own, sure why not?

But on a side not I totally get what you're saying. I understand that to you it isn't stealing when society arbitrarily distributes wealth in a way were people are billionaires while others who work for the billionaires starve to death.
No no, to you it's only stealing if it benefits someone, or if it feeds the starving.


--------And if Mr. Buffett is troubled by the poor man's economic conditions, he is free to use as much of his own money------

Except Mr. Buffett has a problem. You see he'd love to donate to charity and expand access to energy, water and health care but he is inhibited by the inefficiency of the private market. You see charity is 3 times as inefficiency at helping the poor then government programs. Also non-regulated energy and water utilities result in costs being 30% higher.

Posted by: blueman3 | February 22, 2011 7:25 PM | Report abuse

If you want to get into the top 20%, get off your a$$ and work hard. It is really that simple! The nanny state is killing America.

www.eclecticramblings.wordpress.com

Posted by: my4653 | February 22, 2011 9:28 PM | Report abuse

dbw - The fact is that those higher up the income ladder pay less in % terms than those at the bottom or in the middle through artificial tax minimisation vehicles not available to those on lower incomes. As someone else mentioned, an economy works best when the greatest number prosper. $1,000 each extra for those at the bottom would do more for the economy than $100,000 each for those on the top. The bottom graph above would see a much better America, and ultimately solve the fiscal problem facing the nation.

Posted by: dcr_au | February 22, 2011 10:08 PM | Report abuse

Hey, I remember this graph. Last time I saw it there were more bars.

http://www.good.is/post/americans-are-horribly-misinformed-about-who-has-money/

@lauren2010:

The differences between conservatives/liberals are very minor considering how uniformly wrong *everyone* is. Liberals are a bit closer than conservatives, but both are still way off.

Posted by: bsphil | February 22, 2011 10:34 PM | Report abuse

"ROTFL your response to a question asking why we shouldn't cherry pick statistics and ignore statistics 101 is to get rid of one of the parameters that right-wingers have left out in order to meet the reality denying ideologies."

Maybe my position is too radical - if those taxes are too regressive, then eliminate the taxes (not simply the consideration of those taxes when calculating one's tax burden).

So, if these regressive taxes and social spending programs which are funded by them are in fact too burdensome on lower income members of society, why aren't you in favor of getting rid of them? Or is the burden not as bad as you suggest?

"Considering were doing neither now"

That's exactly what the government is doing. The government is nothing more than a group of individuals demanding money, and will kidnap you or worse if you don't pay it. The government should only have funds contributed on a voluntary basis.

"I understand that to you it isn't stealing when society arbitrarily distributes wealth in a way were people are billionaires while others who work for the billionaires starve to death."

You mean when property rights aren't violated? No, it wouldn't be stealing. And property rights aren't arbitrary.

Of course, working people wouldn't starve to death anyway, but I understand it's all about getting people emotionally worked up about poor starving people rather than rational analysis.

"You see charity is 3 times as inefficiency at helping the poor then government programs."

Except the government safety net programs also create poverty traps, increasing the population of the underclass, and those same programs also create significant amounts of deadweight loss via coercive taxation. So no, the government is not more efficient. The government is easily down a trillion or two in costs imposed before we can start counting even a penny of benefits for the poor. Note that this doesn't include the economic costs of government programs which directly attack the underclass, especially the Drug War and all the destruction that has wrought.

I will give you that the government has some advantage of scale, but government spending is also over 40% of the economy, crowding out the vast majority of private charity which would otherwise take place.

"Also non-regulated energy and water utilities result in costs being 30% higher."

Regulations almost always force total costs higher, they just aren't always directly visible in the final price of the good.

Posted by: justin84 | February 22, 2011 11:45 PM | Report abuse

Actually, the charts show U.S. wealth inequality rather than income inequality, contrary to the headline in the blog post. The U.S. distribution of wealth is considerably more unequal than the distribution of income. That is, the share of financial wealth owned by the top 20% of U.S. wealth holders is considerably larger than the share of U.S. income received by the top 20% of income recipients. The gap between wealth and income inequality would be especially wide if income were measured with a comprehensive definiton of income, one that subtracted income and payroll tax payments and added in the value of all nonmoney income sources, such as housing assistance, the rental value of owner-occupied homes to occupants, and the health insurance financed by employers or the goverment rather than out of the household budgets of people who are covered by insurance policies.

The chart in the blog post shows that the top one-fifth of wealth holders owned about 82% or 83% of all U.S. wealth. Census Bureau estimates for 2005, approximately the same year covered by information in the chart, show that the top one-fifth of households received 47% of U.S. disposable income. [URL: http://www.census.gov/prod/2007pubs/p60-232.pdf , Figure 1] Note that this Census Bureau income definition is not all that comprehensive, since it excludes the value of free or generously subsidized health insurance provided by the government (through Medicare and Medicaid) and by employers (through employer-sponsored health insurance). Since these income items are much more equally distributed across households than other components of income, it is likely that that the percentage of total income received by the top one-fifth of income recipients was in fact less than 47% in 2005.

The main point to remember is that financial wealth is much more unequally distributed than income.

Posted by: gburtless1 | February 23, 2011 9:19 AM | Report abuse

Graphs like this are meaningless. There is none so blind as those who cannot see and none so dumb as those who cannot think. The USA is done. The rich have money in quantities far far far beyond what they can ever consume. They control the political parties, the media, the government. The people are left fighting each other for scraps.
These nuts believe an individual worker can bargain with a multinational corporation for a basic living salary and benefits and walk away and get another job if he's not satisfied.
The truth is the corporations do not need Americans either as workers or consumers anymore.

Posted by: JTinAlex | February 23, 2011 9:50 AM | Report abuse

The headline speaks of INCOME. The graphs report WEALTH distributions. Income is something that is (usually) earned in a given period. Wealth, however, is something that is accumulated over time (and, despite Hollywood’s view of reality, is overwhelmingly accumulated by people making good decisions about their money and life-style, not by inheritance, luck, or theft). Therefore, it is likely to be older people – people who have been living and working long enough and making good decisions to have accumulated substantial wealth – who hold the wealth. Being older, there are also likely to be fewer of them than there are of younger people who have not had sufficient time (or have not been making good decisions) to accumulate substantial wealth. Hence, there APPEARS to be a suspicious skewing of the distribution - but there isn't.

Also, neither income nor wealth distributions indicate who the individuals are, and the casual observer usually assumes those in each percentile are the same people year after year. However, IRS data consistently show that the individuals in the various percentiles - including those in the upper percentiles and those in the lower percentiles - change from year to year. That individuals continually move from one percentile to another – in both directions – is indication of a healthy economy and of a truly fair system that offers equal opportunity (and incentive) for all to achieve (or to fail). If it were the same people decade after decade in the same percentiles (as it is in other, so-called “fairer” systems), that would be cause for concern.

Regardless, Mr. Klein’s mixing of very different metrics is either an indication of his own ignorance (making him unqualified to write stories about such topics), or is an attempt to fuel a politically motivated wealth-envy conflict by preying on the ignorance of his readers – or both.

Posted by: techgm | February 23, 2011 11:08 AM | Report abuse

"$1,000 each extra for those at the bottom would do more for the economy than $100,000 each for those on the top."

What a load of horse squeeze! Give those bottom feeders $1000 and they will spend $1000.00... give me $100,000 and I will create at least 2, maybe 3 jobs that will pay very well in the instructional systems design area! Oh, wait, maybe not - that will put me into the MANDATORY insurance bracket of OBAMBICARE requiring me to provide insurance for those employees... SO, I would only add ONE MORE EMPLOYEE... sorry you other two - Blame Barrack!

Posted by: kidcounselor | February 23, 2011 11:55 AM | Report abuse

Justin84, I invite you to read "The Logic of Collective Action".

Our nation tried government with contributions made on a voluntary basis. That was the Articles of Confederation. It didn't work, and so now we have the Constitution that conservatives seem to venerate so much.

The position you take points to economies and societies like those we see in India, China, or some of the nations in Africa. I don't want that for us.

Posted by: arm3 | February 23, 2011 4:02 PM | Report abuse

I agree with lauren (somewhat). Liberals should be barred from using this kind of data.

Posted by: thestalkinghorse | February 23, 2011 10:12 PM | Report abuse

Here is the problem with our country. We are capitolists. Capitolism has been described as the unequal distribution of wealth. And socialism has been described as the equal distribution of misery. Personally I'll take the former over the latter.

Posted by: rextonk | February 24, 2011 12:53 AM | Report abuse

Here is the problem with our country. We are capitalists. Capitalism has been described as the unequal distribution of wealth. And socialism has been described as the equal distribution of misery. Personally I'll take the former over the latter.

Posted by: rextonk | February 24, 2011 12:54 AM | Report abuse

grat_is:

In answer to your queries:
Redistribution of wealth is never good for society or economies.
Transfers of wealth for goods and services is.
I'll elaborate thusly.

Redistribution is the taking of wealth from one person and giving it to another. In this exchange, no service or product is provided to the first person.
The first person is left with less while the second is provided with more, without earning it.
This leads to the first person either increasing the price of goods/services, provided to those who pay for it, to meet the mandated redistribution, or finding a way to reduce the liability of wealth taken. Eventually the first person reaches a point where they cannot provide the wealth to the second and both are left with nothing. (research Ponzi, or pyramid scheme for a good analysis of this concept)

Transfers of wealth, for services/products, on the other side enhance both parties.
In this type of exchange the first person purchases a product from the second.
As such both parties are enhanced, the first person gets the service/product, and the second gets wealth. If transfers of this type continue the second party can increase production(generally decreasing cost), hire more employees, and provide better benefits(if they so choose).
And as is demonstrated in legitimate economics, persons that have more wealth have the tendency to donate more to charities. Please note that this is the general case with conservatives(people who earn/make wealth) vs. liberals(those who tout saving us all from ourselves by taking from those who earn/make wealth, and giving it to those who don't).

Now don't get me wrong here I do believe it is the responsibility of people to help those less successful(not to be confused with the "less fortunate"), but this should be left to the choice of the person earning the wealth, and not to any other person/organization.
In essence i believe in individual responsibility, but not in government hand outs.


TO the question of difficulty of recovery. No actually the recover of an economy(the recovery of a society is a different subject) is not tied to any distribution of wealth.
The recovery is tied to many factors, taxes, which markets are going down in sales, which jobs are being eliminated, how a company chooses to get through lean times(lay offs, reduced pay, elimination of benefits, etc.). All of these factors come into play, as well as many more.
Simply put, redistribution of wealth, really has nothing to do with it, and can actually harm the economy.

Posted by: refsocrd1 | February 24, 2011 4:17 AM | Report abuse

Yeah, rextonk, everyone seems so miserable in France and Germany oh wai

Posted by: arm3 | February 24, 2011 10:12 AM | Report abuse

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