Tuesday, August 7, 2012

More Income Equality, Less Inequality, When Value Of Employer And Public Health Benefits Included In Income

From Brookings, "With Health Care Costs, the U.S. Is a Huge Outlier" by Gary Burtless:
Nearly all the widely reported estimates of the trend in median income, for example, omit the additions in health care consumption that are paid through employer and public health plans. The omission tends to produce an overstatement in common estimates of the growth in U.S. income inequality.
The Congressional Budget Office (CBO) recently published income distribution statistics that include the value of health benefits. Those statistics show faster income gains and a smaller increase in inequality than earlier estimates. For example, the Census Bureau's estimates of cash incomes show that average incomes in the bottom one-fifth of households only increased 7% between 1979 and 2009 compared with an increase of 13% in the middle one-fifth of households. In contrast, the CBO's estimates imply that the gross incomes (including health benefits) of these households increased much faster. In the bottom one-fifth of households, the CBO estimates show real income gains of 35%; in the middle one-fifth of households, estimated gross incomes climbed 21%. If we focus on after-tax income gains, the percentage increases in income were even larger.
the inclusion of health benefits makes a big difference. For the average U.S. household, gross income excluding health benefits increased 35% between 1979 and 2009. In comparison, estimated health benefits per person increased 205%. Counting health benefits has a bigger impact on estimated income gains in the middle and at the bottom of the income distribution than it does at the top. That's because health benefits are a bigger proportion of total income for households in the middle and at the bottom of the distribution than they are for households at the top.
the new estimates suggest that income gains in the bottom 80% of the distribution have been more egalitarian than widely believed. [Emphasis added.]

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