2Center or American Progress | The Federal Tax Code and Income Inequality
Measuring income inequality
In order o measure he impac o he ax code on income inequaliy, i is imporan oundersand how income inequaliy isel is measured. Tere are a variey o dieren wayso measure income inequaliy, each wih is own srenghs and weaknesses. Each meric,however, ells essenially he same sory abou income equaliy in he Unied Saes: Wehave relaively high levels o income inequaliy, income inequaliy has goten worse overime, and he ederal ax code can make a signican dierence in income inequaliy. Sole’s look briey a hree dieren merics or measuring income inequaliy.
The Gini index
Te mos comprehensive and widely used measure o income inequaliy is he Giniindex. Tis index (also known as he Gini coefcien, Gini raio, or Gini score) essen-ially measures he dierence beween acual income disribuion and a perecly equiable disribuion in which everyone makes he same amoun. A perecly equiabledisribuion o income scores a 0 on he Gini index, whereas he mos unequal disribu-ion, in which a single person makes all he income, scores a 1. According ohe U.S. CensusBureau , he Gini index orhe Unied Saes in 2010 was 0.469—a score ha highindicaes we have a ar moreunequal sociey hanmosoher advanced, developedcounries.
Te Scandinaviancounries are he mos equal wih Gini scores o around 0.25.Bu even compared o counriesha are ar more similar o ushan Sweden or Norway, heUnied Saes is sill an oulier.Canada, or example, has a Giniindex o 0.321, and he UniedKingdom’s Gini index is 0.34.In ac, our Gini index is muchcloser o counries like Malaysia(0.462) and Uganda (0.443).
(see Figure 1)
The United States has far more income inequalitythan other developed countries
Inequality, as measured by the Gini index, among select countries
Source: CIA World Factbook
S w e d e n ( 2 0 0 5 ) N o r w a y ( 2 0 0 8 ) G e r m a n y ( 2 0 0 6 ) A u s t r a l i a ( 2 0 0 6 ) C a n a d a ( 2 0 0 5 ) U n i t e d K i n g d o m ( 2 0 0 5 ) J a p a n ( 2 0 0 8 ) R u s s i a ( 2 0 1 0 ) U g a n d a ( 2 0 0 9 ) M a l a y s i a ( 2 0 0 9 ) U n i t e d S t a t e s ( 2 0 1 0 ) P e r u ( 2 0 0 9 ) M e x i c o ( 2 0 0 8 ) B r a z i l ( 2 0 0 9 ) S o u t h A f r i c a ( 2 0 0 5 )