The Truth About Income Inequality

Many studies of inequality and claims about it consider only income and sometimes only taxable income. The Wall Street Journal has an article also including taxes and welfare benefits, which yields quite different statistical results. The article is behind a paywall, so I give a key quote. “In all, leaving out taxes and most transfers overstates inequality by more than 300%, as measured by the ratio of the top quintile’s income to the bottom quintile’s.” A graph neatly illustrates the difference.

I don't have the data to verify the numbers, but at least the authors were on the right track. One of the big problems with Thomas Piketty's Capital in the Twenty-First Century is that Piketty ignored taxes and transfer payments. My review of Piketty's popular book on Amazon is here.