Spreading the Wealth

November 03, 2008

The current debate has been marked by calls to “improve” the distribution of incomes in the U.S. by “spreading the wealth.” Policies proposed to do so include: (1) raising taxes on “the rich,” and (2) increasing benefits (including “tax relief for non-taxpayers”) for lower-income households. Often lost is a detailed understanding of who is at the top and the bottom of the income ladder. Better understanding that will tell us who will win and who will lose if the Federal government “spreads the wealth.”

According to the U.S. Census Bureau, there are 117 millionhouseholds (in 2007, the most recent year available). When broken down into 20% slices (or “quintiles”) by income, there are about 23 million households in each slice. According to the Census Bureau, here is who is in the bottom 20% (income below $20,000) and top 20% (above $100,000), and the top 5% (above $177,000):

	Bottom 20%	Top 20%	Top 5%
1. Share that are families	39%	87%	90%
2. Share with children	23%	42%	42%
3. Share with married head	17%	79%	84%
4. Share with “no earners”	59%	3%	2%
5. Share with 1 earner	36%	21%	21%
6. Share with 2 or more earners	5%	76%	76%
7. Total earners in all households	11 million	49 million	12 million
8. Share with full time, full year worker	14%	73%	73%

Source:Census Bureau http://pubdb3.census.gov/macro/032008/hhinc/new05_000.htm

Those facing higher taxes so that government can “spread their wealth around” have some important similarities. According to Census Bureau data, they are:

· overwhelmingly married couple families, often currently raising children, and

· mostly include two or more earners, at least one of whom works full time, full year.

By contrast, those in the bottom 20% are:

· mostly single individuals not raising children, and

· often in households with “no earners,” or whose workers work less than full time, year round.

In fact, there are more workers in the top 5% (12 million workers in 6 million households) than in the bottom 20% (11 million workers in 23 million households). Comparing apples to apples, there are almost 5 times as many workers in the top 20% as there are in the bottom 20% (23 million households in each quintile). And there are more children in the top 20% than in any of other income quintile.

The question for policy makers is simple and stark. We know when government subsidizes something we get more of it, and when government raises taxes on something, we get less of it. So what will we get more of by “spreading the wealth”?