Misrepresenting Inequality - Gary Galles - Mises Daily

Misrepresenting Inequality - Gary Galles - Mises Daily: 'Several huge sources of wealth are omitted from the financial measures used by those fixated on inequality. These include pension-fund assets, which largely represent the retirement funds of the nonrich; Social Security wealth (the present value of benefits qualified for but not yet received); and human capital — the knowledge, energy, and abilities embodied in working people but not yet turned into financial wealth. These represent trillions of dollars of wealth, spread far more evenly through the population than financial-wealth measures imply. The same is true of our tremendous wealth in the form of consumer durable goods, from cars to refrigerators to computers. Such omissions guarantee misunderstanding.

Wealth-inequality complaints, in their rush to justify more government redistribution, also ignore many important determinants of financial-wealth differences. A key one is demographics. Disparities in measured wealth in large part reflect age differences in the population.'

'in-kind welfare programs go uncounted in the official data, so that they do not improve the measured situations of the poor. This is a very large error. Of the over $500 billion given annually in government means-tested assistance (not including another quarter trillion or so dollars Medicare spends on the elderly), roughly three-quarters is now given in kind.

The official data further omits taxes, disguising the disproportionate burdens borne by higher-income families. It also hides the impact of the Earned Income Tax Credit. Even though the EITC is refundable, putting dollars directly into recipients' pockets, it is ignored as a "negative tax," making its $40 billion plus in annual transfers to lower-income families disappear from view.

Income studies also fail to incorporate nonsalary benefits and payments to workers, which have increased most among those not at the top of income measures. Mark Warshawsky of the Social Security Advisory Board found that recent expansions in measured earnings inequality were almost completely attributable to rising benefits costs.'

'dramatically smaller inequalities in measures of consumption — far better indicators of well-being — than of current income'

'Many people have shifted from filing as businesses under the corporate tax to filing as individuals as a result of decreasing individual tax rates, dramatically exaggerating increases in their incomes. Top managers have also moved from receiving income as stock options taxed as capital gains to nonqualified stock options, making them countable as taxable personal income.'