Fun fact of the day: between 1979 and 2007, economic inequality rose more quickly including taxes and transfers than excluding them

The best op-ed I’ve read today is this one, which appeared in the Newark Star Ledger. It’s by economist Jared Bernstein, responding to mendacious claims about economic inequality in a recent op-ed by Robert Grady, Chris Christie’s economic adviser.

There’s lots of great stuff packed into this one short op-ed, but I’ll start with this: according to data from the nonpartisan Congressional Budget Office, between 1979 and 2007, income inequality rose even faster if you include taxes and transfers in the analysis:

According to the CBO comprehensive income data, inequality rose 23 percent before taxes and transfers and 30 percent after. While our tax and safety-net system is still progressive, it has grown less so over time. (emphasis mine)

This doesn’t mean that taxes and transfers don’t make things more equal than they would have been absent taxes and transfers — they do. What it does mean is that they’re not as effective at ameliorating inequality as they were in 1979. In plain English, we’re doing a far worse job at redistributing wealth than we used to.

That disturbing fact is just one of the points Bernstein makes that powerfully undermine Grady’s case. Grady is the director of a private equity firm and his piece appeared in the Wall Street Journal, so you hardly need to be a mind-reader to guess the flavor of it. Grady had claimed that some measures show economic inequality going down, not up, and that especially if you include taxes and transfers, you’ll see that the real problem facing American families is lack of economic growth, not inequality.

In response, Bernstein pulled together some data from the nonpartisan Congressional Budget Office (which do account for the impact of taxes and transfers) and created this nifty, if hella depressing, little chart:


THE RICH GET FAR RICHER: The top 1 percent earners in the United States have overall increased their wealth by a far greater percentage than everyone else. This chart illustrates the percent change in real income, after taxes and transfers.

Sources: U.S. Congressional Budget Office, Center on Budget and Policy Priorities

The y axis represents percent change in real income. Looking at the one percent income group, you can see that, although their income growth has had some ups and downs, overall the trend is in a dramatic upward direction.

Here are the exact figures for the most recent year for which we have data:

In 2010, the most recent year with available CBO data, the real income of middle-income families (those in the middle fifth of the income scale) was unchanged over the previous year, sticking at about $58,000. The income of the top 1 percent, on the other hand, went up 15 percent, or $133,000, to about $1 million.

In other words, between 2009 and 2010, and including taxes and transfers, as Grady says we must, the increase in the income of the top 1 percent was more than twice that of the whole income of the middle class.

Grady argues that economic growth is the only solution to economic inequality. Bernstein, like any reasonable person, counters that of course course we need economic growth, but that growth alone won’t do it.

Indeed, for decades now, we’ve suffered from an economy where the wealthy reaped a wildly disproportionate share of productivity gains. Over the last 40 years, productivity has increased by 80 percent but median hourly wages have increased by only 11 percent. We need not just economic growth, but programs that that specifically address inequality.

Yet as Bernstein points out, Grady’s boss, Chris Christie, has opposed a number of important inequality-busting policies: an increased minimum wage, a more progressive tax system, an expanded Earned Income Tax Credit, and funding for affordable housing.

Right now, I’d say the odds strongly favor Chris Christie winning the Republican presidential nomination. (I explained my reasoning last month in this post). Given the frustration many Americans are expressing over the economy these days, he’ll be sure to come on strong with his Jersey-style populism. But the policies will clearly be same old warmed over Milton Friedman. Can you smell the magic?

Kathleen Geier

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee