Growing risk of inequality and poverty as crisis hits the poor hardest

OECD, May 15, 2013

Income inequality increased by more in the first three years of the crisis to the end of 2010 than it had in the previous twelve years, before factoring in the effect of taxes and transfers on income, according to new OECD report and data.

After taxes and transfers, the richest 10 per cent of the population in OECD countries earned 9.5 times the income of the poorest 10 per cent in 2010, up from 9 times in 2007. The gap is largest in Chile, Mexico, Turkey, the United States and Israel, and lowest in Iceland, Slovenia, Norway and Denmark.

Gini Coefficient (higher = greater inequality)
0.316  OECD average (after taxes and transfers)
0.380  United States (after taxes and transfers)
0.499  United States (before taxes and transfers)
0.320  Canada (after taxes and transfers)
0.447  Canada (before taxes and transfers)

Relative Income Poverty Rates
11.1%  OECD average (after taxes and transfers)
17.4%  United States (after taxes and transfers)
28.4%  United States (before taxes and transfers)
11.9%  Canada (after taxes and transfers)
26.0%  Canada (before taxes and transfers)…

OECD report (8 pages):

Compared to the average member nation of the Organization for Economic Cooperation and Development (OECD), the United States has higher levels of poverty and a greater inequality in income.

This OECD report does demonstrate that taxes and transfers (social welfare programs) do reduce the gap, but when you compare the United States and Canada on the amount of redistribution that takes place as a result of these policies, you see that we are much less equitable than Canada.

Although our politicians claim that our taxes are too high and that we need to cut social programs, these results suggest the opposite – that we need more progressive taxes and more generous social benefit programs – maybe like Canada’s single payer Medicare program.