Is "Income Inequality" Growing, Or Not?

If everyone's income doubled, the "inequality gap" would double, too--even though the poor would be twice as well off as they were before.  Only the jealous would resent the rich for also being twice as well off.

But is income inequality growing?  It depends on how you measure it:

We have shown on these pages that Census Bureau income data fail to count two-thirds of all government transfer payments—including Medicare, Medicaid, food stamps and some 100 other government transfer payments—as income to the recipients. Furthermore, census data fail to count taxes paid as income lost to the taxpayer. When official government data are used to correct these deficiencies—when income is defined the way people actually define it—“income inequality” is reduced dramatically.

We can now show that if you count all government transfers (minus administrative costs) as income to the recipient household, reduce household income by taxes paid, and correct for two major discontinuities in the time-series data on income inequality that were caused solely by changes in Census Bureau data-collection methods, the claim that income inequality is growing on a secular basis collapses. Not only is income inequality in America not growing, it is lower today than it was 50 years ago. ...

Hat tip to TaxProf Blog.