“It turns out that the belief that income inequality has risen sharply in the U.S. may be wrong.”
For decades, the share of national income held by the top 1% in the United States has soared. Income inequality, which former U.S. President Barack Obama declared “the defining challenge of our time,” has become a major issue in U.S. politics, with both Republicans and Democrats proposing higher taxes on the rich.
The idea, peddled by nationalists and progressives, that the economic system is rigged against ordinary workers and households has also fanned the flames of populism. Some even argue that economic inequality threatens democracy.
And yet, the belief that income inequality has risen sharply may be wrong. New research by Gerald Auten of the U.S. Treasury Department and David Splinter of the congressional Joint Committee on Taxation finds that the after-tax income share of the top 1% has barely changed since 1962. This stands in stark contrast to the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, which has shaped policy and political debate in recent years: the trio conclude that the income share of the top 1% increased by roughly 55% over the same period.
Rather than answer the question of who is right (although I believe that Auten and Splinter are closer to the truth), it is more useful to consider whether the top 1% should be our focus. Seen from a broader perspective, the debate over income equality does little for those who need help the most.
The discussion has mostly centered on how much of the economic pie each group gets. But the size of the pie is not fixed. Since 1962, real economic output in the U.S. has increased by 499%, leading to significant improvements in living standards and human welfare. The percentage of Americans in poverty has decreased substantially, new medicines and therapies have greatly enhanced people’s quality of life, and more women have entered the workforce.
This considerable improvement in Americans’ well-being is more striking than the share of income accruing to the country’s highest earners. Compare a median-income U.S. household to one in the top 1%. Each has access to high-quality medical care and pharmaceuticals, each can take nice vacations, each can eat in the same restaurants, read the same books and watch the same television shows, and each has warm clothes and a comfortable home.
To be sure, there are disparities — the wealthier family has better health care, flies first-class to the Caribbean on holiday, occasionally eats at Michelin-starred restaurants, and has a bigger house. But this does not negate that inequality in quality of life has shrunk dramatically in recent decades. The quality-of-life gap between a median-income household and one in the top 1% a century ago, and even a century before that,
