I have a friend, Steve, I see at the gym many mornings. As everyone should be, Steve is worried about income being redistributed from lower earners to higher earners going on since 1980. He suggested I write about that. Steve’s intuition is spot on.
The Gini index measures income inequality and has been tracked by the St. Louis Fed’s FRED data tool since 1963. FRED tracks pre-tax (market income) indexes which don’t account for taxes and transfers (disposable income) which reduce inequality. Gini values range from 0, equally distributed income, to 100, one person having all income. From 1963 to 1980 the index fell from 36.7 to 34.7, meaning two percent of income had been redistributed toward those with lower incomes.
Beginning in 1980 the index turned upward and has continued that path almost uninterrupted to the present. From 1980 to 2024 a total of 7.1 percent of income had been redistributed upward. Some analysts predict by the end of 2026 another 6.2 percent of income will have been redistributed upward, making the Gini index about 48. If so, in only two years nearly as much income will have been redistributed from lower earners to higher earners as occurred over the previous 44 years.
Rising income inequality begs two questions. Why? And why does it matter? For a large, complex economy like ours there is no single reason why. However, there are two major suspects, tax and spending cuts and technological advances. The 1980 and 2025 upward redistributions correspond to large cuts in taxes for high income individuals and corporations and cuts to several social programs, both favoring higher earners. The computer revolution beginning about 1980 and the AI revolution also contribute by favoring those with access to higher quality and STEAM-heavy educations, generally the wealthier.
It matters because many social scientists, including Nobel Prize winning economists Thomas Piketty, Emmanuel Saez and Joseph Stiglitz, worry that a high Gini index (40 or more) may lead to social unrest, even poorer health outcomes. Effects such as more crime and violence, erosion of trust in government, affordability issues and underfunding of public goods such as education, infrastructure and health care which fall disproportionately on lower income earners.
There are tax structures and income transfer programs that reduce inequality. According to the OECD, at least six Northern European countries and Japan have market income Ginis similar to ours. Those countries’ tax structures and social programs reduce disposable income Ginis by an average of 34.3 percent. Ours? By 21.2 percent.
So, it is possible to reduce income inequality. Doing so will take political will and courage, traits in very short supply, especially in Mississippi, the state that would benefit most by reducing income inequality.
Patrick Taylor lives in Ridgeland.
