October 5 2012

Apparently it’s Not as Lonely at the Top as Some Say

Vicki E. Alger

A recent study by the Cato Institute’s Alan Reynolds says a leading measure of economic inequality is flawed—and with it the redistributionist government “solutions.”

“It has become commonplace to use top 1 percent shares of market income as a shorthand measure of inequality,” says Reynolds. But here are just two of the problems.

First, the 23 percent income growth figure applied to the top 1 percent from 1979 to 2010 includes transfer payments and employer-financed benefits. Second, income share estimates of the top 1 percent are based on pre-tax earnings, and then those estimates are used to show that the 1 percent don’t pay enough taxes.

As Reynolds concludes, “After reviewing numerous data sources, I find no compelling evidence of any large and sustained increase in the inequality of disposable income over the past two decades.”

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