Higher inequality any way you cut it: a review of CBOs updated comprehensive income series.

November 24th, 2014 at 8:40 am

My CBPP colleague Ben Spielberg and I poured through the update of the CBO’s invaluable comprehensive income series. Here’s are the key findings but please be sure to see our full report here.

The Congressional Budget Office (CBO) recently updated their series on the distribution of household income and federal taxes, providing important new information about the evolution of income inequality, comprehensively measured. We find:

–The increase in income inequality since the late 1970s has occurred both before and after taxes and transfers. Thus, according to these data, claims that adding taxes and transfers erase the trend toward higher inequality are incorrect.

–The income of the poorest fifth of households grows much more quickly in the CBO data than in other data sets but this is largely due to assigning the market value of health benefits to their income. We argue that based on unique inefficiencies that raise costs in the US health care system in ways that do not increase the living standards of the poor, this method creates an upward bias. A more realistic valuation of health benefits, one that still captures their important value to recipient households, cuts the income growth of the bottom fifth by half.

–The CBO data now run through 2011 and thus provide two years of comprehensive income data over the recovery that began in 2009. These data show just how unequal the recovery has been, with income gains even after taxes and transfers largely eluding the poor and middle class, while disproportionately accruing to the top 1%.

–Since the late 1970s, earnings growth has been slow and unequal. Remarkably, for middle-income households with children, the increase in transfer income has been larger than the increase in earnings.

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One comment in reply to "Higher inequality any way you cut it: a review of CBOs updated comprehensive income series."

  1. george kaplan says:

    Shows greed and the power uf money to create the rule of their law regarding taxation.