Why Income Inequality in the US Is Way Worse Than in Europe

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The 2018 World Inequality Report highlights just how much worse inequality is in the US compared to in Western Europe. One statistic is particularly shocking—how income share is divided between the top 1 percent and everyone else in Europe versus in the States.

The charts show the divergence over the last 40 years between the bottom 50 percent and top 1 percent of Europeans and Americans when it comes to share of income. In 1980, the top 1 percent took in about 10 percent of income in both Western Europe and the US. In 2016, that number was 12 percent in Europe and 20 percent in the US. Americans in the bottom 50 percent also saw their share of income drop from over 20 percent in 1980 to 13 percent in 2016. And this is only income—it doesn’t count assets like real estate or inherited wealth, where the rich hold much of their money.


The report, by economists Facundo Alvaredo, Lucas Chancel, Thomas Piketty (author of the popular book Capital in the Twenty-First Century), Emmanuel Saez, and Gabriel Zucman, explains why this stark difference has appeared:

The income-inequality trajectory observed in the United States is largely due to massive educational inequalities, combined with a tax system that grew less progressive despite a surge in top labor compensation since the 1980s, and in top capital incomes in the 2000s. Continental Europe meanwhile saw a lesser decline in its tax progressivity, while wage inequality was also moderated by educational and wage-setting policies that were relatively more favorable to low and middle-income groups. In both regions, income inequality between men and women has declined but remains particularly strong at the top of the distribution.

Basically, tax cuts for the rich combined with lack of access to higher education for low income people are the main culprits of this staggering divide. Trump’s tax cuts will only worsen this dynamic, according to Vox:

According to estimates from the Center on Budget and Policy Priorities, the top fifth of earners get 70 percent of the bill’s benefits, and the top 1 percent get 34 percent. The new tax treatment for “pass-through” entities — companies organized as sole proprietorships, partnerships, LLCs, or S corporations — will mean an estimated $17 billion in tax savings for millionaires in 2018. American corporations are showering their shareholders with stock buybacks, thanks in part to their tax savings, and have returned nearly $700 billion to investors this year.


Perhaps this is why young people in the US are drawn to social democratic programs in European countries. Just a thought.

CORRECTION: A previous version of this article stated that the US public school system was partially to blame for inequality. The study actually references the difficulty of accessing higher education for all but the wealthy. We regret the error.

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