Inequality is on the rise in most developed countries (and a number of developing ones, too), but the income distribution in the US still stands out as particularly uneven. And there's one big reason why: we don't redistribute as much money.
The government is the only reason the US has more inequality than Sweden
Dylan Matthews was a senior correspondent and head writer for Vox’s Future Perfect section. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.
The US actually isn’t especially unequal if you look at income before taxes or government transfers like Social Security and food stamps. According to data compiled by Janet Gornick at the Luxembourg Income Study, a number of wealthy countries — Israel, the UK, Greece, Poland, Germany, Finland, and Ireland — have more pre-tax/transfer inequality than we do, measured in Gini terms. Spain, Norway, the Netherlands, and Sweden all have exactly the same level as the US.
The entire difference comes after taxes and transfer spending. As the chart above shows, Germany and Ireland both have significantly more pre-tax/transfer inequality than the US, but significantly less post-tax/transfer inequality. In other words, their tax and welfare systems are much, much more progressive. Meanwhile, the Netherlands and Sweden, which have famously egalitarian economies with generous welfare states, have the exact same level of pre-tax/transfer inequality as the US. It’s not that their societies naturally produce more equitable distributions. Their governments simply do more redistribution.
Note that the pre-tax/transfer number doesn’t take out the effects of government policy entirely; there’s a lot the government can do to alter the pre-tax/transfer distribution, including promoting or hampering labor unions or increasing the minimum wage. A number of countries including Japan, Korea, and Switzerland boast significantly lower pre-tax/transfer inequality than the US.
And while it may be tempting to view the above chart as a vindication of progressive tax policies, the countries that do the most to cut inequality through taxes and spending actually have less-progressive taxes, on average. They use regressive revenue-raisers like value-added taxes (VATs) to finance extremely progressive social spending.
Many thanks to Ana Swanson for the pointer.
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