RSF Research Spotlight: How Government Redistribution Affects Inequality

November 17, 2017

Source: New York Times

In 2016 economists Emmanuel Saez and Gabriel Zucman (University of California, Berkeley) received an award from RSF to create Distributional National Accounts combining tax, survey, and national accounts data in a comprehensive and consistent manner for the U.S. since 1913.

In a working paper coauthored with Thomas Piketty (Paris School of Economics), they provide a comprehensive estimate of how government redistribution affects inequality. They find that average pre-tax national income per adult has increased 60% since 1980, but it has stagnated for the bottom 50% of the distribution. The pre-tax income of the middle class has grown 40% since 1980, faster than what tax and survey data suggest, due in particular to the rise of tax-exempt fringe benefits. Income has boomed at the top: in 1980, the top 1% of adults earned on average 27 times more than the bottom 50% of adults; they earn 81 times more today. The upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000. The reduction of the gender gap in earnings has somewhat mitigated the increase in inequality among adults, but the share of women falls steeply as one moves up the labor income distribution, and is only 11% in the top 0.1% today.

The authors have posted the findings, data, and methodological results on a dedicated website. David Leonhardt of the New York Times presented their findings in a widely viewed interactive chart, and their findings have been widely cited in print, broadcast, and online media.

Saez and Zucman have also recently published an analysis of the GOP tax plan, which was passed by the House on November 15. "Presented as a tax cut for workers and job-creating entrepreneurs, it is instead a giant tax cut for the rich and inherited wealth," they write. They argue that the legislation—which includes eliminating the estate tax and cutting corporate income taxes—would further exacerbate economic inequality. "There has been no growth at all in the average pretax income of the bottom half of the population over the past 40 years," they conclude, although "trickle-down enthusiasts promised just the opposite."

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