Nathan J. Kelly The Politics of Income Inequality in the United States (2009)

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transfer distribution of income measured as a ratio of the aggregate
income of the top 20 percent of households to the bottom 40 per-
cent (T20/B40 ratio).6 Specifically, this measure examines inequality
in income (adjusted for underreporting) from the following sources
as measured by the U.S. Census Bureau: earnings, private retire-
ment income, private pensions, interest, dividends, rents, royalties,
estates, trusts, alimony, child support, and outside assistance. Post-
government inequality is inequality in posttax post-transfer income
and is measured on the same scale as pre-redistribution inequal-
ity. Posttax post-transfer income includes pretax pre-transfer income,
plus government cash and noncash benefits (unemployment compen-
sation, state workers compensation, Social Security, Supplemental
Security Income, public assistance, veterans benefits, government
6
This measure is selected over other alternatives such as the Gini coefficient for two
main reasons. First, most explicit redistribution is from the top quintile to the bottom
two quintiles. Thus, it is important to focus on the top and bottom of the income
distribution when examining explicit redistribution. The Gini coefficient and other
similar summary measures place a great deal of emphasis on the middle of the income
distribution when calculating income inequality rather than focusing on the areas of
the distribution in which redistribution actually occurs. Secondly, the Census micro-
data necessary to calculate Gini and other summary inequality statistics is too crude
prior to the late 1970s to calculate pre- and post-government income.
Party Dynamics and Income Inequality 95
survivor benefits, government disability benefits, government pensions,
government educational assistance, Medicare, Medicaid, and food
stamps), minus federal taxes paid. Finally, redistribution is the per-
cent reduction in inequality between pre-redistribution inequality and
post-government inequality:
Pre - Post
100 = % Redistribution (4.1)
Pre
More complete details on the creation of these measures are available
in Appendix B.
The paths of pre-redistribution inequality, redistribution, and post-
government inequality over time are charted in Figures 4.1, 4.2,
and 4.3. The pre-redistribution inequality series charted in Figure 4.1
shows relatively steady levels of inequality from the late 1940s to the
early 1970s, at which point a strong trend toward greater inequality is
observed.7 The year 1951 marked the low point of pre-redistribution
inequality. In this year, the top income quintile had just 2.92 times
as much aggregate income as the bottom two quintiles combined.
7
6.5
6
5.5
5
4.5
4
3.5
3
2.5
1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999
figure 4.1. Pre-Redistribution Inequality: 1947 2000
7
Inequality of money income actually declined between 1947 and the early 1970s, while
we see that pre-redistribution inequality was stagnant. In both measures the late 1960s
or early 1970s marked a turning point in the path of inequality.
T20/B40 Ratio
96 The Politics of Income Inequality in the United States
72.5
67.5
62.5
57.5
52.5
47.5
42.5
37.5
32.5
27.5
22.5
1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999
figure 4.2. Redistribution: 1947 2000
2.4
2.3
2.2
2.1
2
1.9
1.8
1.7
1.6
1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999
figure 4.3. Post-Government Inequality: 1947 2000
By 1993, the T20/B40 ratio increased by more than twofold the
top quintile in that year had nearly seven times as much income as the
bottom two quintiles combined.
That increase in inequality, however, was accompanied by an
increase in the redistributive impact of government. Figure 4.2 shows
almost a straight line toward greater redistribution since 1947. In1947,
Reduction in inequality %
T20/B40 Ratio
Party Dynamics and Income Inequality 97
government taxes and benefits reduced the ratio of the aggregate
income of the top income quintile to the bottom two income quintiles
by around 25 percent. In 1993 the percentage reduction in inequality
due to explicit redistribution approached 70 percent.8 Redistribution,
however, did not move in lock-step with pre-redistribution inequal-
ity. The upward trend in redistribution is present even prior to the
increases in inequality in the 1970s. This suggests that redistribution is
not merely an automatic response to increased market inequality but
can also occur in the context of steady levels of inequality.
The recent history of redistribution in the United States is instruc-
tive and appears to be connected with macro political change. After
increasing steadily for four decades, redistribution leveled off during
the Reagan administration. The steady increase in redistribution was
even reversed for a time during Reagan s second term and George H.W.
Bush s time in the White House. Redistribution then reached its high-
est point under Bill Clinton and was essentially maintained while he
remained president.
Figure 4.3 charts the level of inequality in the United States after
accounting for the combined impact of market and redistributive mech-
anisms. This chart shows that while pre-redistribution inequality was
remaining steady between 1947 and the early 1970s, increased redistri-
bution pushed post-government levels of inequality markedly lower. In
fact, the decline in post-government inequality continued for several
years after pre-redistribution inequality began increasing. Even into
the late 1970s, post-government inequality was moving lower. Post-
government inequality only began to increase during the Reagan era
in which explicit redistribution came under attack. During the Reagan
and H.W. Bush era, post-government inequality increased and then
essentially stagnated at a new higher level during Clinton s presidency.
These pictures provide an interesting story in themselves. The visual
evidence seems to argue in favor of the hypotheses of power resources
theory regarding the link between politics and income inequality, but
8
Note that the reduction in the T20/B40 ratio is much higher than the reduction in the
Gini coefficient discussed in Chapter 2. This is the case because the Gini emphasizes [ Pobierz całość w formacie PDF ]

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