Krueger links progressive taxation, income inequality, and economic mobility

At a Center for American Progress (CAP) event yesterday, Alan Krueger, chair of the president’s Council of Economic Advisers,  gave a presentation on the rise and consequences of inequality. As mentioned in a post by Ross Eisenbrey, Krueger dove into a lot of interesting statistics, many of which were compiled into a PowerPoint presentation, and many of which are also documented on our website.

One point in particular that merits highlighting is that the U.S. tax code isn’t terribly progressive compared to other OECD countries. This chart (Figure 10 in Krueger’s slideshow) shows the Gini coefficient – a measure of inequality – for OECD countries both before and after taxes and transfers. Contrary to conservative fears of the consequences of policies that promote any sort of redistribution, the U.S. tax code is actually uniquely modest in its attempt to reduce income inequality. As shown below, each of the tax codes of every OECD country save Turkey, Mexico, and Chile do a better job of promoting broadly shared prosperity than the U.S.

Krueger links this to the issue of income mobility—that is, the ability of people to move between income classes—which has been eroding over time. The graph he presents (below) shows the strong link between these two issues, showing that higher income inequality is associated with lower intergenerational mobility.

One of the fundamental tenets of the American Dream is opportunity and economic mobility, which have been moving in the wrong direction. As Krueger points out, one way to arrest this disturbing trend is by making the tax code more progressive. And as the first graph shows, we have a lot of room to improve.