More Crap about Incomes

The United States Treasury – funded by your tax dollars – released a report (the “Report”) yesterday that is, in my opinion, a propaganda piece in the war against the middle- and lower-income classes being waged by the current administration and its allies. In my opinion the Report is crap.

That may sound like strong rhetoric to some, but it is well deserved. This report is being mischaracterized in the media with reckless abandon. For example, see this opinion piece in yesterday’s The Wall Street Journal Online Edition titled “Movin’ On Up”. Sounds cheery! Unfortunately it is the usual crap that I regularly read by those afraid of tax increases on higher incomes.

What the right is saying about the Report:

Based on the WSJ article above (the “Article”) as well as a quick search of the Internet, the Report is being referred to as proof of the success of the Bush tax policies and as evidence there is not really a growing income gap in the US. For example, the Article ends with these words of warning:

“All of this certainly helps to illuminate the current election-year debate about income ‘inequality’ in the U.S. The political left and its media echoes are promoting the inequality story as a way to justify a huge tax increase. But inequality is only a problem if it reflects stagnant opportunity and a society stratified by more or less permanent income differences. That kind of society can breed class resentments and unrest. America isn't remotely such a society, thanks in large part to the incentives that exist for risk-taking and wealth creation.

“The great irony is that, in the name of reducing inequality, some of our politicians want to raise taxes and other government obstacles to the kind of risk-taking and hard work that allow Americans to climb the income ladder so rapidly. As the Treasury data show, we shouldn't worry about inequality. We should worry about the people who use inequality as a political club to promote policies that reduce opportunity.”

Oooohhhh – better beware of the tax boogie person! He (or she) is coming to get you and will cause our economy to crash!

What the Report says:

In (my) summary, the Report says that if you look at a group of people in 1996, and then look at the same group of people in 2005, many of those people moved up in real income and many moved down. This demonstrates that there is plenty of income mobility in The United States, and is contrary to the many reports about a growing income gap. The Report points out that “Nearly 58 percent of households … in the lowest income quintile in 1996 had moved to a higher quintile by 2005” and “more than half of the top 1 percent of households in 1996 had dropped to a lower income group by 2005…Put differently, more than half of the households in the top 1 percent in 2005 were not there nine years earlier.” Sounds impressive.

What the report does not say:

I find it amazing that purportedly educated people can read the Report and come to the conclusions they do. I guess our educational system really is as bad as people say it is.

To get to the point, ask yourself a simple question. How many of the people that you know in the top 1% of income earners today will be retired in ten years? Ask yourself another question. Of all the people you know in the bottom quintile who are at least 25 years of age, how many are younger and should achieve substantial income growth over the next ten years of their careers? That’s right, these factors are NOT considered in the results. As noted in the Report, “The data also conclude that the incomes of many taxpayers at the highest income levels are very volatile.” Retirement can do that to your income. The report concludes “Economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. In addition, the real incomes of two-thirds of all taxpayers increased over this period. Further, the median incomes of those initially in the lower income groups increased more than the median incomes of those in the higher income groups.” Now I didn’t see a definition of “economic growth” but if it means the economic growth over time of individual households as they mature from young people to accomplished professionals then this makes sense. Unfortunately that is not the context in which it reads. There is a footnote, however, that says "By comparison, in the U.S. Census data (2006), median household real income increased by 5.4% from $43,967 to $46,326 over this time period in 2005 dollars." How much do you want to bet you will read the 24 percent number in the press and not the 5.4% number?

Now to be fair, the report does compare incomes within the group and to all taxpayers. Here is one line of what it says about the intra-group only comparison: "Nearly 60 percent of taxpayers in the top 1 percent in 1996 dropped out of the top 1 percent by 2005, although 87 percent of them remained in the top quitile." I wonder what percent of them retired? We don't know that from the report. It also makes one wonder what the results would look like if they were expressed in quartiles instead of quintiles.

I would have recommended that this report be used as a starting point for actual research into the movement among income categories by families in the United States. Unfortunately it is so biased it warrants nothing other than a trip to the trashcan.

I really hate it when my tax dollars are used to produce propaganda like this. It’s a disgrace, and it’s bi-partisan (both parties do it).

PS: For a good article about bipartisan reports on this topic, you can go here. Michael Gerson does the topic justice even from the conservative perspective.

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