The Manhattan Institute's Diana Furchtgott-Roth has a really dynamite column up at RealClearMarkets.com on income inequality:
levelers exaggerate economic inequality, eagerly, because they rely on pretax income, which omits the 97% of federal income taxes paid by the top half of income earners and the many "transfer payments," such as food stamps, housing assistance, Medicaid and Medicare. This exaggerated portrait of inequality undergirds the present effort by the Democrats to raise income tax rates ...
A more meaningful measure of inequality comes from an examination of spending. On Wednesday the Labor Department presented 2009 data on consumer spending, based on income quintiles, or fifths. This analysis shows that economic inequality has not increased, contrary to what the levelers contend. ...
Calculating spending on a per-person basis (these are my calculations, from the official data) produces comparable measures. The average annual spending for a household in the lowest quintile was $21,611, or $12,712 per person. In contrast, the average spending for a household in the top quintile was $94,244, or $30,401 per person.
On a per person basis, the new Labor Department numbers show that in 2009 households in the top fifth of the income distribution spent 2.4 times the amount spent by the bottom quintile. That... was about the same as 20 years ago.
...compared with 1989, the big winners are the lowest-income group, which spent 9.1% more per person in constant dollars. In contrast, the highest group spent 2.6% more, and the middle group increased its spending by 1.1%. Income and spending do not tell the whole story about how well Americans are doing. A higher percentage of low-income Americans own their homes free of mortgage debt than do upper-income Americans....
