Analyzing the Evidence Exercises

A significant amount of political discourse in recent years has focused on rising income inequality in the United States — the notion that the rich are getting richer while the poor are getting poorer. As this chapter’s Analyzing the Evidence unit describes, the picture is a bit more complicated than the rhetoric indicates. The figure below presents inflation-adjusted income among various groups.

1a. Which group’s income has risen most sharply, and by how much?
1b. How have the other groups fared?
2. Your textbook also points out that more than 50 percent of the country’s income goes to the top 20 percent. How does this relate to the figure above? Is it true that “the poor are getting poorer”?
One of the proposals for addressing income inequality is to “tax the rich.” Of course, this would require deciding on a threshold or definition of what it means to be “rich.” The results of this Gallup Poll are revealing.i Perhaps not surprisingly, the definition of wealth is not something about which Americans agree, although you might be surprised at just how generous a definition many people are willing to offer.
3. According to the Gallup Poll, what is the median definition of being rich? Into which quintile (or group of five) from the figure above would this place the respondent?
Now let’s look at the other side of the equation: who pays taxes and whether the wealthy pay their “fair share.” A recent survey by the Pew Research Center asked respondents what bothers them most about the tax system. The responses by income group for those mentioning this issue are listed in the table below.ii

Feel wealthy people
don’t pay fair share
Income <\$30,000 67%
\$30-75,000 58%
75,000+ 44%
Total 57%

Of course, the U.S. income tax is progressive — meaning that the marginal rate of taxation (prior to deductions and adjustments) is higher for those with more income. This figure shows the shares of both pre-tax income and total federal taxes by quintiles (with the range for each group indicated in the box on the right).iii
4. How does the share of taxes paid by the upper income groups relate to Americans’ definition of wealth?
5. Would you say that the rich pay their “fair share”? Why or why not?iv

i Jones, Jeffrey M. “Americans Set â€˜Rich’ Threshold at \$150,000 in Annual Income,” Gallup, December 8, 2011, www.gallup.com/poll/151427/Americans-Set-Rich-Threshold-150-000-Annual-Income.aspx (accessed 2/22/12).

ii “Tax System Seen as Unfair, in Need of Overhaul,” Pew Research Center, December 20, 2011, www.people-press.org/2011/12/20/tax-system-seen-as-unfair-in-need-of-overhaul/1/ (accessed 2/22/12).

iii Peter G. Peterson Foundation, www.pgpf.org/Chart-Archive/~/~/link.aspx?_id=83A9317E1F3546DE9012B20E738EA18D&_z=z (accessed 2/22/12).

iv Another way to think about this question is by looking at the effective tax rate by income group, also from the Peterson Foundation: www.pgpf.org/Chart-Archive/~/~/~/media/261A675565B9494CBAC8DEDEC821D168.gif (accessed 2/22/12).