India’s finance minister this week released a budget that includes, among other things, a five per cent reduction in the corporate income tax. Narendra Modi, the Prime Minister of India, won a landslide election last May...
- The Tax Policy Blog
- Chamber's Donohue Takes Unfair Heat for Inequality S...
Chamber's Donohue Takes Unfair Heat for Inequality Skepticism
Thomas J. Donohue, CEO of the U.S. Chamber of Commerce, came under fire in this morning’s Washington Post for sounding like a skeptic on the issue of income inequality.
While the Post may find such skepticism newsworthy, so too should the inequality data recently released by the Congressional Budget Office which clearly suggests that Donohue has a case. No matter if we measure inequality on a pre-tax basis or post-tax basis, it appears that inequality today is less than it was during the last two years of the Clinton administration and only slightly greater than the average level over the past thirty years.
The chart below shows the level of inequality in America from 1979 to 2010 as measured by the Gini Index. This index measures the relative distribution of income between groups of households on a scale of 0 to 1. A measurement of zero means that income is distributed perfectly equally across all households, while a measurement of 1 would indicate that income is concentrated entirely at the top.
As we can see, while inequality has gone through peaks and valleys over the past three decades, it has tended to stay within a fairly narrow range—between 0.400 and 0.500—and has largely tracked the business cycle. In 2010, the Gini Index for pre-tax income stood at 0.474, just 5 percent above the thirty year average of 0.451. The pattern for post-tax income is the same. This is hardly the sign of a radical shift in inequality.
The peaks have typically been during times when the economy was booming or in a bubble (such as in 1986, 2000, 2007), while the valleys have come during weak economic times (such as 1979-1982, 1991, 2001-2002, and 2008-2009).
Cynically speaking, those who think inequality is a bad thing should like recessions because they reduce income inequality and hate boom times because they make us less equal. In reality, the underlying data shows that the wellbeing of all Americans improves with economic growth and sinks for everyone during the bad times.
Objectively, the data supports Donohue’s basic message that policy should be less concerned about the narrow goal of closing inequality and more focused on broader goal of promoting economic growth as a means of lifting the poor up from poverty.
|Gini Index for Household Income,
1979 to 2010
|Inequality of Before-Tax Income||Inequality of After-Tax Income|
|Average 1979 to 2010||0.451||0.416|
|Average 1980 to 2010||0.464||0.426|
|Source: Congressional Budget Office.|
Subscribe to the Tax Foundation Newsletter
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.