U.S. Inequality, Fiscal Progressivity, and Work Disincentives: An Intragenerational Accounting

Source: Alan J. Auerbach, Laurence J. Kotlikoff, Darryl R. Koehler, NBER Working Paper No. 22032, February 2016

From the blog post:
….In a just-released study, we provide the first picture of actual U.S. inequality. We account for inequality in labor earnings and wealth, as Thomas Piketty and many others do. And we get to the bottom line: what does inequality in spending look like after accounting for government taxes and benefits? Our findings dramatically alter the standard view of inequality and inform the debate on whether and how best to reduce it. ….The facts revealed in our study should change views. Inequality, properly measured, is extremely high, but is far lower than generally believed. The reason is that our fiscal system, properly measured, is highly progressive. And, via our high marginal taxes, we are providing significant incentives to Americans to work less and earn less than they might otherwise. Finally, traditional static measures of inequality, fiscal progressivity and work disincentives that a) focus on immediate incomes and net taxes rather than lifetime spending and lifetime net taxes and b) lump the old together with the young create highly distorted pictures of all three issues. ….