Wage increases, transfers, and the socially determined income distribution in the USA

Abstract

This paper is based on a social accounting matrix (SAM) which incorporates the size distribution of income based on data from the BEA national accounts, the widely discussed 2012 CBO distribution study, and BLS consumer surveys. Sources and uses of incomes are disaggregated by household groups including the top 1 percent. Their importance (including saving rates) differs markedly across households. The SAM reveals two transfer flows exceeding 10 percent of GDP via fiscal (broadly progressive) and financial (regressive) channels. A third major flow over time has been a ten percentage point increase in the GDP share of the top 1 percent. A simulation model is used to illustrate how ‘feasible’ modifications to tax/transfer programs and increasing low wages cannot offset the historical redistribution toward the well-to-do.