Monday, May 9, 2011

Taxes and Opportunity Hoarding

Just wanted to clarify something: DC has the highest level of income inequality nationwide. DC has levels of income inequality on par with the most unequal nations worldwide, like Brazil and Papua New Guinea.
  • According to the Census, DC now has the highest Gini index in the US and thus the highest level of income inequality nationwide (.532). The standard measure of income inequality is the Gini index, which varies from 0 to 1, 0 indicating perfect equality where there is a proportional distribution of income; 1 indicates perfect inequality where one person has all the income and no one else has any.
  • DC also has the most households in the nation making over $200,000 (8.4% of households or 21,194 households).
  • According to the Census, in DC at least in 2006, the share of income going to the poorest 20% of the population was by far the lowest in the country (1.9% as opposed to the national 3.4%) and by far the highest for the wealthiest 20% (56.3% as opposed to 49.9%).
  • For DC, the Gini index increased from 1979 (.450), to 1989 (.492), to 1999 (.549), which meant more inequality. We see a slight decrease from 1999, but the current Gini index of .532 is still well above its pre-1990 level.
  • From the UN data, it seems that this Gini index level is on par with Brazil, Honduras, and Papua New Guinea, countries with the highest levels of inequality in the world.
  • The majority of countries in the world have lower levels than DC.
Why does DC have the worst income inequality in the nation? We do know that taxes can redistribute income. Taxes to fund public schools, emergency rental assistance, housing vouchers, scholarships, and other forms of income assistance help to diminish income inequality and the effects of income inequality. DC tax rates remain the lowest in the region (see DC FPI chart to the right). Now, those making less than $10,000 are taxed 4% (more than other states). The top tax bracket is $40,001, which is at 8.5% (much lower than it was in the 1970s and 1980s). How might this tax structure be a form of opportunity hoarding? What can be done?


  1. The level of inequality I suspect has little to do with our tax code and everything to do with the educational attainment split of our residents.

    When it comes to the percentage of residents with college degrees, DC is either number 1 or 2 in the nation. We also have a large class of residents with weak literacy skills and presumably poor educational attainment.

    This means that the former group enjoys a very high income-earning potential, especially those in law and in managerial Federal positions. Those in the latter group have few opportunities.

    Yes, New York and London have classes of super-rich, especially people in finance. However, those classes of super-rich are small in number, whereas DC's upper-income class is actually quite large.

    It's pretty common in upper Northwest to encounter families where one spouse is a six-figure lawyer and the other is a six-figure GS-15. That will easily push the household income over $200k. They certainly aren't as wealthy as investment bankers, but they're upper-middle class by DC standards.

    Also, when I read the post, I thought it would be worth explaining why this undeniable level of inequality needs fixing. And why does it need to be fixed through the tax code?

    I know people think inequality is a bad thing, and I'm inclined to think so, too. But the more I think about, I can't see why it's *necessarily* a bad thing if everyone's basic life needs are satisfied.

  2. This is a silly comparison. DC is a city, and not comparable to states and countries. Compare it to other cities and we will see where we fall. (Or, lets get more silly, and find the Ward, community, or even block that has the most income disparity). Come to think of it, usually wide differences in residents earns a city the title of "diverse."

    Also, why compare income? If you are talking about how people live, a valid comparison would compare either quality of life measures, or would account for various wellfare transfer payments (food stamps etc).

  3. @Anonymous: Gee, you sound a little defensive.... Does it make you uncomfortable that some might see your privilege as immoral and antidemocratic?

  4. Anon has a point, 6% of DC residents should not be paying 60% of the taxes. It's time to count and tax subsidies such as section 8 housing vouchers, food stamps and other benefits as income.


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