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Tax Inequality In America: Lego Edition!

It’s tax time! Here’s an explainer on how taxes are (and are not) helping to bridge the income gap, using everyone’s favorite toy blocks.

Tax Inequality In America: Lego Edition!
[Photo: Flickr user Chi King]

In 2013, upon accepting his Nobel Prize for Economics, Yale professor Robert Schiller said: “The most important problem that we are facing now today, I think, is rising inequality in the United States and elsewhere in the world.” He was talking about income inequality, and Schiller advocates–as many economists do–progressive taxation to help reduce the gap between the rich, the not-rich, and the poor, by increasing the former at a higher percentage than the latter.

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How’s America’s current tax system doing at reducing the income gap? Using Lego as a visual aid, David Wessel of the Brookings Institution, one of America’s oldest think tanks, shows exactly how good a job taxes do at leveling the income playfield in America. Spoiler: it doesn’t.

In the video, Wessel splits up all tax-paying Americans into five separate Lego piles, with each Lego representing $10,000. Each pile represents how much income each quintile of Americans earns, on average: the lowest-earning 20% averages just $14,248, compared to $306,320 for the highest-earning 20%. But these are just averages: if the 1% of highest earning Americans was broken out into its own pile, Wessel says, their average $2 million-plus income per year would equal a pile over 200 Lego high.

To show how incomes are adjusted after taxes, Wessel then builds smaller Lego piles in blue. The piles are all smaller, sure, but even so, the average after-tax income of the top quintile is $229,360, 17 times that of the bottom. And that gulf is even worse compared to the 1%, where the average after-tax income is $1.34 million in taxes, which means the top 1% earn approximately 97 times as much as the lowest quintile.

Obviously, the goal here isn’t to eliminate income inequality through taxation, just reduce it to sane levels. Whether or not these levels are sane is up for debate, although let me point something out: in 1963, the income tax rate of the richest Americans was 91%. It’s now 39.6%. True, that’s still more than anyone else in America pays, but if income inequality is at an all-time high, and taxes on the rich are at a historic low, is the government really taking enough Legos away from the rich kids’ toy boxes?

[via: FlowingData]