The Myth of American Inequality

The federal government significantly and intentionally misreports income distribution, sparking bad policies and political divisions.

That’s the argument former senator Phil Gramm and two other economists, Robert Ekelund and John Early, lay out in their compelling and essential new book, “The Myth of American Inequality: How Government Biases Policy Debate.”

Using 2017 figures as their reference, their sprawling and statistics-heavy work (blessedly) rests on one key observation: While the U.S. Census Bureau reports that the average income of the top 20% of American households that year was 16.7 times greater than the average income of the bottom 20% of households, the real number, they argue, is 4.1 times. This massive discrepancy is explained by a straightforward accounting trick: The Bureau didn’t count two-thirds of the $2.8 trillion in transfer payments given mostly to the poor and working class or the $4.4 trillion taken  through federal, state, and local taxes, “82% of which are paid by the top 40% of household earners.”

The net result, they report, “is that, in total, the Census Bureau chooses not to count the impact of more than 40% of all income, which is gained in transfer payments or lost in taxes.”