President Obama’s new fiscal year 2013 budget, with its proposed tax-rate hikes, reflects the misguided assumption that income inequality in the U.S. has increased in recent years. Populist cries for redistribution as a means to remedy this purported inequality have gained currency in both the press and in the public imagination. This paper, based on an original analysis of U.S. Labor Department data, concludes that inequality as measured by per capita spending is no greater today than in it was in the 1980s.
Below, I examine in more detail the following topics:
- Problems with current measures of inequality
- Accounting for changes in demographic patterns over time
- Using spending to measure inequality
I conclude that the increase in income has been exaggerated. Published government spending data by income quintile show that the ratio of per person spending between the top and bottom 20 percent has essentially not changed between 1985 and 2010. In terms of total spending, inequality has diminished slightly, rather than increased.