The Government's Favorite Statistic Is Lying to You
Updated: Sep 6
The Census Bureau says U.S. income inequality is 16:1. Accounting for taxes and transfers, it's actually 5:1. That changes everything.
I'd say we're being gaslit, but I don't think the Census Bureau is doing it on purpose. Income inequality is 3x lower than they tell us¹, and it changes everything.
Inequality defines a country and the difference between 16:1 and 5:1 is huge. Our deal is that we're 5:1 but think we're 16:1.
The definition is the problem.
Quick thought experiment: what do you consider "income"? Are taxes income? What about non-cash benefits, like food stamps and Medicaid, we give people?
Drum roll please… If you answered "No" to taxes and "Yes" to transfer payments, congratulations–you’re smarter than the U.S. government. In 2026, our government defines income as pre-tax, earned income².
Two things are wrong with it:
1. We have a progressive tax system. Including taxes under a flat tax rate wouldn't change the ratio of inequality. But we have a progressive tax rate. The more you make, the more you pay. Pre-tax accounting upwardly biases the ratio of income inequality.
2. It ignores over $1.9 trillion in transfer payments. Medicare, Medicaid, SNAP, and other programs aren’t counted in the very measure they’re designed to improve.³
The world sees the bigger number. The Census Bureau gives its data to the IMF, meaning we're needlessly embarrassed on the world stage too. The IMF shows us as the most unequal G8 country.⁴ Accounting for taxes and transfer payments, we're middle of the pack. In fact, we're the biggest Robin Hood of all G8 countries. Our top 10% earn 42% of all income but pay 62% of all federal income tax. That ratio of 1.4 is the biggest among our peers.⁵
Taking from the rich and giving to the poor cut income inequality from 16:1 to 5:1, but its not the path forward. We need to get lower-income people earning more. The bottom quintiles only earned $15k. The people right above them earn $40k.⁶ This is the single largest quintile to quintile earnings jump. Luckily, we're going to close that gap by giving people more freedom to do it themselves.
In some cases, people want to work, we just don't make it easy for them.⁷
This is why we should decrease occupational licensing. If people are going to be on welfare, it has been proven that work requirement or educational attainment are the price on entry. A generational policy will be improving school choice. More schools. Give the tuition money to the parents. Let them decided.
You can read about the author's policy proposals here:
I've linked the Census data and my code in my GitHub repo so you can look at it yourself.
1 Bureau, US Census. “Historical Income Tables: Households.” Census.Gov, 25 Aug. 2025, www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-households.html.
2 Gramm, Phil, et al. The Myth of American Inequality How Government Biases Policy Debate. Rowman & Littlefield Publishers, Incorporated, 2024.
Scherer, Melissa Kollar and Zach. “Income in the United States: 2024.” Census.Gov, 9 Sept. 2025, www.census.gov/library/publications/2025/demo/p60-286.html.
3 Gramm, Phil, et al. The Myth of American Inequality How Government Biases Policy Debate. Rowman & Littlefield Publishers, Incorporated, 2024.
4 The Census Bureau: Income in the United States 2024
5 Gramm, Phil, et al. The Myth of American Inequality How Government Biases Policy Debate. Rowman & Littlefield Publishers, Incorporated, 2024.
6 IMF: Gini Index
7 Kleiner, Morris M., and Alan B. Krueger. “The Prevalence and Effects of Occupational Licensing.” NBER, 5 Sept. 2008, www.nber.org/papers/w14308.
