There is a widespread perception that the US fiscal system—composed of taxes and transfers—has become less progressive and less redistributive over the past 50 years and that pretax inequality has increased. Many believe that the system has not only failed to address rising inequality but has exacerbated it through lower top tax rates and evasion by the rich and by corporations.

Many of these views are based on prior research arguing that tax rates on the top 1 percent and top 0.1 percent of the income distribution have decreased while income shares for these groups (both before and after taxes and transfers) have increased. Although there are notable dissenters, the view that progressivity and redistribution have decreased seems to be widely accepted.

Our study reviews and reassesses this research. To do so, we examined the results of all existing research on the topic in the past decade, looking broadly across different methods and measures of redistribution. We examined the underlying data where available and the overall results of studies that did not make their data available. Our findings reveal that contrary to widespread belief, the consensus of existing research is that the tax and transfer system redistributes substantially more now than it did in the past 40–60 years—regardless of the research method or measure of redistribution used. While there are robust debates about the effect of the tax and transfer system on the top 1 percent of the income distribution, there is broad agreement that there have been large increases in the net transfer rate to the bottom, and the size of these increases swamps changes at the top.

Before we looked at the results of individual studies, we addressed problems with measuring tax and transfer progressivity and redistribution. A key problem is the choice between using a narrow- or broad-based measure of income. A narrow base, such as fiscal income reported on tax returns, can be misleading because the base changes differently over time for different income groups. A broad base, such as national income, can solve this problem but generates uncertainty because there is no evidence-based method for allocating the many components of national income to individuals.

Related problems include deciding the most appropriate unit of analysis (e.g., households, adults, or individuals) and the set of policies to evaluate (e.g., only taxes or taxes and transfers). As with income measures, units change differently for different income groups over time, and the mix of taxes and transfers changes over time, making any one approach possibly inaccurate. Furthermore, no single measure of progressivity or redistribution captures the full effects of complex policies. For example, a focus on the top 1 percent may miss important changes at the bottom of the income distribution.

Rather than attempting to assess individual issues to devise the single best measure of income and redistribution, our study addresses these problems by looking for results that do not depend on the research method, data, or measure used. Specifically, we compared data from three different studies: two influential academic studies and a report from the Congressional Budget Office. We chose these studies because they make most of their data available over a relatively long period, allowing us to compare them. In addition, these studies are recent and use current methodologies, and one of the academic studies has been central to framing the public debate on inequality.

All three studies show consistent findings. Regardless of how income is measured, how it is allocated to individuals, or what units are chosen for measurement, the findings demonstrate that the dominant change in the tax and transfer system over the past 50 years has been a substantial increase in transfers to the lowest income groups. The result is a substantial increase in redistribution, not a reduction.

To ensure that these studies are not outliers, we reviewed all other studies since 2012 that measure the progressivity or redistribution of the tax system or tax and transfer system. These studies did not make detailed data available, so we could only compare their overall results. Nevertheless, except for a few outliers (most of which can be readily explained), our analysis of these studies also finds that the tax and transfer system redistributes more than it did in the recent past.

Our study takes no view on whether the tax and transfer system should redistribute more than it currently does. There may be good reasons to increase or reduce tax rates on high earners, for example, or to increase or reduce transfers to low earners. It is crucial, however, to base reform proposals on an accurate assessment of the facts. Our study helps with that assessment.

NOTE
This research brief is based on Thomas Coleman and David Weisbach, “How Much Does US Fiscal System Redistribute?,” Becker Friedman Institute for Economics Working Paper no. 2024-147, November 2024.