Trends and Myths in U.S. Income Inequality: A Review Essay

Is income inequality in the U.S. increasing or decreasing? In a provocative book, Phil Gramm, Robert Ekelund, and John Early (2022) claim that over the last 40 years, U.S. income inequality has decreased, contrary to Census reports and popular perception. I examine their claim, focusing on challenges of defining income and overcoming data deficiencies in the CPS ASEC. I then compare their estimates of inequality with estimates by the Congressional Budget Office and by developers of so-called distributional national accounts. The authors’ inequality estimates for market income are similar to others, but their inequality estimates for income after transfers and taxes are lower than others and, unlike others, show a decrease in inequality since 1979. The most likely reason is the authors’ inclusion of many small transfer programs not covered by household surveys and thus requiring imputation. Sensitivity analysis would allow better understanding of the effects of imputation assumptions.