Putting Obama's proposed tax hike on the rich in an international context

buffett sep19 mf.jpg

Billionaire investor Warren Buffett has argued the U.S. must raise taxes on the rich / Reuters

Perhaps the most politically contentious aspect of President Barack Obama's new proposed legislation, aimed to revive the still-struggling U.S. economy, is $1.5 trillion in tax increases, much of it aimed at wealthy Americans. The White House is calling this "the Buffett rule." Named for super-investor Warren Buffett's complaint that he pays a lower tax rate than some of his most menial wage employees, the legislation would be designed to ensure that anyone making more than $1 million per year will pay at least the same rate as middle-income taxpayers.

Obama's "Buffett rule" is a response to a number of U.S. economic issues (as well as some relevant political openings) related to the recession. One of the most severe is income inequality -- the gaps between wealthy, super-wealthy, and everyone else -- a serious, long-worsening problem that makes the recession more painful and recovery more difficult. To get a sense of just how bad our income inequality has become, it's worth taking a look at how we stack up to the rest of the world.

Viewed comparatively, U.S. income inequality is even worse than you might expect. Perfect comparisons across the world's hundred-plus economies would be impossible -- standards of living, the price of staples, social services, and other variables all mean that relative poverty feels very different from one country to another. But, in absolute terms, the gulf between rich and poor is still telling. Income inequality can be measured and compared using something called the Gini coefficient, a century-old formula that measures national economies on a scale from 0.00 to 0.50, with 0.50 being the most unequal. The Gini coefficient is reliable enough that the CIA world factbook uses it. Here's a map of their data, with the most unequal countries in red and the most equal in green.

gini map large.jpg

The U.S., in purple with a Gini coefficient of 0.450, ranks near the extreme end of the inequality scale. Looking for the other countries marked in purple gives you a quick sense of countries with comparable income inequality, and it's an unflattering list: Cameroon, Madagascar, Rwanda, Uganda, Ecuador. A number are currently embroiled in or just emerging from deeply destabilizing conflicts, some of them linked to income inequality: Mexico, Côte d'Ivoire, Sri Lanka, Nepal, Serbia.

Perhaps most damning is China, significantly more equal than the U.S. with a Gini coefficient of 0.415, where the severe income gap has been a source of worsening political instability for almost 20 years. Leagues ahead of the U.S. on income inequality is India, Gini coefficient 0.368, where outrage over corruption and income inequality recently inspired a protest movement that shook the world's largest democracy. (The data for India is from 2004, however; income inequality has likely worsened since then.) Russia, which has seen three popular revolutions in the last century against the caviar-shoveling oligarchs who still run everything, is also less unequal than the U.S., at 0.422 Gini.

Here's another map, also based on the CIA data, that shows countries by whether they are more or less equal than the U.S. The red countries have greater income inequality, the blue countries less; the U.S. is again purple.

gini map twotonefull pos.jpg

Income inequality is more severe in the U.S. than it is in nearly all of West Africa, North Africa, Europe, and Asia. We're on par with some of the world's most troubled countries, and not far from the perpetual conflict zones of Latin American and Sub-Saharan Africa. Our income gap is also getting worse, having widened both in absolute and relative terms since the 1980s. It's not a problem that the "Buffett rule" would solve on its own, but at least the U.S. political system is starting to acknowledge how serious things have become.