The author of the world’s most popular economics textbook, Gregory Mankiw, shares with us an interesting statistical piece from the Congressional Budget Office (CBO). It’s an old snapshot, dates back to 2011, but the general picture is still relevant. I am pasting the JPEG below just for visual convenience.
Note: Columns represent the income quintiles in the United States. The highest quintile includes those Americans who are in the “Top 25% Richest” category. Same logic applies to other columns. Rows indicate simple taxation mechanics on income: base income, transfers, taxes paid, etc. Hopefully this is straightforward enough for any average reader.
Two points worth mentioning:
23.4% is the tax rate on market income + transfers for the rich (top 25%). This amounts to $57,500 (last column, 4th row). Let’s subtract from this the government transfers paid to the top quintile: 57500-11000=46500. And divide this number by the average market income: 46500/234700=19.8%. This number is different from 18.9% that the picture shows (last column, row 7). Am I doing something wrong here?
More importantly, the rich-to-poor income ratio (dividing the highest quintile average market income by the lowest quintile) is = 234,700/15,500=15.1. Roughly speaking, the rich earn 15 times more money, on average, than the bottom 25%. I am OK with that. The rich-to-poor government transfers = 11000/9100=1.2. This means that the richest 25% of Americans receive on average 20% more government transfers than the poor. And they also earn 15 times more money in total income. Now this is very unsettling.