Mapping Income Inequality in the US Using IRS SOI Data

https://www.dolthub.com/blog/2020-02-03-mapping-income-inequality-using-irs-soi-data/

by bheni • 6 years ago

61 52 6 years ago

samspenc• 6 years ago

My takeaway from the graph is that overall, most states are "green" or are more or less evenly distributed. However these states stand out as "red" (more inequality), which seems to me due to the following industry outliers:

  CA: tech industry
  NY: financial industry
  CT: financial industry
  TX: energy industry?
  FL: wealthy retirees?

starpilot2• 6 years ago

CA TX FL NY are also the most populous states, in that order. I never knew FL was that big.

firebird84• 6 years ago

Behold, our 29 electoral votes (and counting, yay reapportionment!) and DESPAIR.

JackFr3• 6 years ago

TX, FL (& NV) no state income tax.

starpilot2• 6 years ago

Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

subsubzero• 6 years ago

Florida has been a popular destination for multiple large hedge fund owners from Connecticut, (Paul Tudor Jones, Eddie Lampert), and many ultra rich NYers are moving there as well. I wonder if CT and NY would get less inequal in the next few years as they have both increased taxes (CT in 2015), (NY in 2019) and the Trump limitation for property taxes write offs have made living there more expensive.

nugget• 6 years ago

Texas also has the country's best medical center in Houston with many thousands of medical specialists.

blakesterz• 6 years ago

Maybe seeing a breakdown by county for these states would be an interesting map. I bet it would show some big differences for those states.

timsehn2• 6 years ago

With this dataset, you can do Zip, not county :-)

wolfspider• 6 years ago

FL inequality is due to the tourism industry and the super low wages they get away with paying. Construction is similar in FL this way too.

https://news.fsu.edu/news/business-law-policy/2019/08/08/fsu...

d1zzy• 6 years ago

The difference of income between top 1% and bottom 1% in an area is as useful/relevant as talking about the _average_ income in said area. If some area has some very rich people (or very poor people) this difference is likely going to be higher but that's the wrong thing to focus on. What matters is what is the 50% income and the quality of life you can locally afford with it.

austincheney• 6 years ago

https://en.m.wikipedia.org/wiki/Economy_of_Texas

In 2017, Texas grossed more than $264.5 billion a year in exports—more than the exports of California ($172 billion) and New York ($77.9 billion) combined.
In 2002, the Port of Houston was 6th among the top sea ports in the world in terms of total cargo volume;[21] Air Cargo World rated Dallas-Fort Worth International Airport as "the best air cargo airport in the world".[22] The ship channel at the Port of Houston—the largest in the U.S. in international commerce and the sixth-largest port in the world.
Texas has the most farms of all United States both in terms of number and acreage. Texas leads the nation in number of cattle, usually exceeding 16 million head.

Considering only trade revenue and export volume it would appear Texas is perhaps almost as wealthy as the rest of the country, comparatively speaking.

sokoloff2• 6 years ago

It seems like no control or adjustment is made for individual vs joint returns (and therefore none for household size). I’d expect a state with greater makeup of joint returns to have a lower reported percentage.

What I don’t have a good sense for is how different the splits are by state, but it seems like “per capita income inequality” is a lot more interesting than “per return income inequality”.

dragonwriter• 6 years ago

It seems like no control or adjustment is made for individual vs joint returns (and therefore none for household size).

Adjusting for the latter doesn't require consideration of the former at all, and consideration of the former doesn't much help with the latter, so the “and therefore” makes no sense.

What you need for the latter is just consideration of the number of personal exemptions, not filing status.

danans• 6 years ago

Presumably the GP is referring to the "marriage penalty/bonus" phenomenon that can happen due to filing status for certain people, especially dual income joint filing households vs. single income joint filing households [1].

States with a higher proportion of dual similar-income joint filers with fewer children might hit the penalty more often (like a 2 doctor or lawyer household), and states with higher proportions of single or highly disparate income joint filing households (with a stay-at-home or marginally employed spouse) with more children would hit the bonus more often.

But as you mention that effect is usually dominated by the effect of personal exemptions, and not by the fact that tax bracket thresholds between individual and joint filers don't line up perfectly while normalizing for number of filers.

Correction: the marriage penalty/bonus has more to do with the disparity in spousal income than magnitude.

1. https://www.investopedia.com/terms/m/marriage-penalty.asp

sokoloff2• 6 years ago

I'm much less interested in whether someone has 2 or 3 kids than in whether they have 1 or 2 income earners in the household. That's not arrived at from exemptions but is rather more closely approximated by filing status.

Concretely, if my wife and I decide to file "married filing separately", we become two returns and income inequality is reduced in the analysis (but not at all in the real world).

(I now see how “per capita income” led you to the conclusion you reached. That’s my bad.)

StLCylone• 6 years ago

Iowa and West Virginia are bright green in all years. I guess no rich people live there.

JackFr3• 6 years ago

Or they're all rich.

komali2• 6 years ago

Well, West Virginia has the lowest average income in the entire United States https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ...

jariel• 6 years ago

Or they're all poor, the data doesn't say either way and it's kind of the problem.

Suppose you have a well run society with good safety nets, high standard of living and 'investment in innovation' which leads to some great startups and a host of wealthy people. Well, you have 'inequality' ... but is that bad? Some might argue that, but I'm not so sure.

Now you have another state with bad social conditions, and the wealth generated is mostly through aggressive anti-union tactics, low wages, and power leveraging etc.. This is generally the kind of 'inequality' that nobody likes.

So in the former case, we want to see surpluses from such innovation 'help everyone' and they usually do: for example Netflix for $10/month is one of the most massive consumer surpluses imaginable, it's such a great deal for consumers. Innovators usually only capture a small chunk of the surpluses they create.

So while we can still argue that 'asset/income inequality' is a problem in the former case, it becomes more difficult.

But it gets worse. I hinted at 'consumer surpluses' which are the 'profits' individuals make when the exchange money for something more valuable than that money i.e. the thing they buy. For most people, Netflix is worth vastly more than $10/month. The delta between 'that upper range value' and $10, is called the 'consumer surplus' and it's never measured! Essentially, societies can get really rich, without any monetary measure of such wealth at all!

Suppose the founders of Netflix, and employees weren't making that much money ergo you maintain basic asset/income equality with the rest of the population. But regions that have access to Netflix are materially wealthier than regions that don't have access to Netflix - because they can watch 100's of movies on demand for dirt cheap - but again, that differential in surplus is not measured at all, it's nowhere to be seen in the GDP or on our books! (Caveat: we 'kind of measure' the increase in real value of a product with inflation. If tomatoes one year are 'riper, fresher, redder' than the previous year, they try to account for that. But for most products it's just impossible).

A more extreme case is vaccines. A nation with strong vaccination stays healthy, a nation without gets sick and that direct measure isn't really part of the GDP. In fact the sicker nation might require more healthcare spending ... which increases the GDP in a really perverse way. Due to the odd artefact that vaccines are priced irregularly (people will only pay a few dollars for a vaccine which could save their lives, over $100's of thousands for a cure once they have the disease), they don't work well on the free market: it makes more sense to make expensive cures than cheap preventative vaccines, even though in the later case the surpluses are much, much more vast.

Raw measures of inequality are only rough data points and they really don't say a whole lot.

We need to understand more qualitatively how that wealth is distributed, how fairly, and the kinds of surpluses being generated by those in higher income brackets: are they just capturing rent on labour, or are they really 'growing the pie'.

rayiner2• 6 years ago

Which is actually great. Median household income in Iowa is 22% lower than California. But the median house is less than 1/3 the price.

war1025• 6 years ago

As an Iowan, I felt a tinge of pride when I noticed that.

Perhaps why I've never really understood all the uproar about income inequality. Maybe it's just less of a problem here.

plopz• 6 years ago

What's the significance for using 50% as the break point?

bheni• 6 years ago

There is no particular significance to that number, it was chosen because I had seen similar metrics before but always for the whole country, or the entire world, and it usually was a measure of wealth not income. Example:

https://www.cnbc.com/2017/11/14/richest-1-percent-now-own-ha...

jimbob45• 6 years ago

To anyone else frustrated by the lack of year-by-year images, you can click on the animation and pause it on whichever year you wish to more closely analyze.

OrgNet• 6 years ago

a table with data would make it easier to visualize the difference between the years

microcolonel2• 6 years ago

Is there a good source anywhere of median or percentile-bracketed individual post-tax income in the U.S.? I can get the aggregate number for the whole country in a couple places, but can't seem to find it by state.

timsehn2• 6 years ago

The dataset used to create this map:

https://www.dolthub.com/repositories/Liquidata/irs-soi/

Has tax data aggregated by zip. You can get the median zip code in a state from it because it only has totals so you can only calculate averages otherwise.

smegma22• 6 years ago

How do we go about deciding what an appropriate percentage to make up 50% of AGI is? How much inequality is acceptable?

WalterBright5• 6 years ago

How much inequality is acceptable?

Without inequality you'd also have to give up Teslas, SpaceX, and all those initiatives Bill Gates is investing in. Keep in mind that something like 37% of Federal Income taxes come from the 1%. Eliminate the 1%, and who is going to make up that money?

claudeganon4• 6 years ago

Without inequality you'd also have to give up Teslas, SpaceX, and all those initiatives Bill Gates is investing in.

Sounds great. I’d rather have Nordic-style social democracy.

Rury3• 6 years ago

Eliminate the 1%, and who is going to make up that money?

If by eliminate, you mean equalize the inequality - then the remaining 99% will contribute more as they'll be making more money...

symplee• 6 years ago

The spectrum of color only represents percentages between 7.8 and 17.6%.

I imagine it would look a lot less dramatic if the scale was from 0% (bright red), to 100% (bright green).

It would also be interesting to have a slider to adjust the threshold point (it's currently fixed at 50%).

gnicholas• 6 years ago

Does this account for cost of living? It seems that the states with higher incomes also happen to be the states with higher costs of living.

analyst74• 6 years ago

Not sure what color scheme it's using, but it is very color-blind unfriendly.

rconti• 6 years ago

best describe as "green and red", so, yeah, I imagine it would not be remotely colorblind-friendly.

Mapping Income Inequality in the US Using IRS SOI Data

Related Stories