Because pre-tax inequality is the inequality stat most commonly cited in the press, in politics, in…
Lyman Stone
11

You’re changing terms here, switching from “pre-tax” to “market-allocated”. However, in the article you argue that specialized workers negotiate for higher income when taxes increase. In those cases, the post-tax income is similarly market-allocated and perhaps even more deserving of the phrase. I’m considering an interstate move myself and carefully researching what expectation I have for post-tax purchasing power in various cities.

Taxes are tricky to measure, especially when considering consumption taxes like sales or ad-valorem. I suspect most folks discuss pre-tax rather than post-tax inequality out of data collection difficulties rather than analytical merit.

There’s a host of literature that argues progressive taxation perversely causes wealth inequality. I’ve never found it convincing. The typical flaw is assuming a stable growth path and modeling only a short time horizon. Even if we use pre-tax income as a proxy for actual wealth, you might find that the effect reverses over a longer time horizon. Regardless of the initial effect on pre-tax income, you agree that low-income individuals will find a post-tax wealth increase. For the poorest, this can be quite significant, and the benefit may compound over the years if it enables investment in human capital (or any capital), resulting in an eventual pre-tax boost as well.

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