INCOME DISTRIBUTION IN THE USA-65

It is a commonplace that political and social liberals (or if they prefer “progressives”) and other incompletely informed members of hoi polloi go on and on about the disparity between the rich, the poor, and the in between. And further, how the differences in income between them is increasing to the detriment of all but the “rich”; especially the “super rich.” There is an element of truth to this, but like the rare earth minerals this truth is rather minuscule when compared to what is the real significance behind these numbers. Firstly, these income comparisons do not take into consideration the largesse of state and federal governments to the lower income cohorts. It is now estimated that the bottom 50% of income earners receive subsidies from the federal or state governments, not counting Social Security and Medicare, in the form of the income tax credit, food stamps, aid for dependent children, school lunch programs, Medicaid, and a variety of other governmental charity programs. This real income is not counted when income statistics are compiled for the different income brackets. Secondly, there is an even more striking consideration when attempting to draw conclusions about the disparate income levels. My discussion which follows, about the important aspect of these income level differences is largely, but not completely, taken from the 2011 book The Thomas Sowell Reader by Dr. Thomas Sowell, currently a scholar in residence at the Hoover Institution. It is indeed true that both the amount of income and the proportion of all income received by those in the top 20% bracket have risen over the years, widening the gap between the top and bottom quintiles (from Latin, quintilis – meaning statistically divided into fifths), however U.S Treasury Dept. data show that the income of taxpayers who were in the bottom 20% in income in 1996 rose 91% by 2005. The incomes of those in the top 5% and top 1% actually declined in that period. Those taxpayers who were initially in the lowest income bracket had their incomes nearly double in a decade that moved them up and out of the bottom quintile. While those in the top 1% had their incomes cut by about 1/4 and that may well have dropped many, if not most, of them out of the top 1%. Despite the rise in income of the top 0.1% of taxpayers as a statistical category, both absolutely and relatively to the incomes in other categories, as flesh-and blood human beings, those individuals who were in that category initially had their incomes actually fall by a whopping 50% between 1996 and 2005. It is hardly surprising when people whose income is cut in half drop out of the top 0.1%. What happens to the income of the category over time is not the same as what happens to the people who were in that category at any given time. But many of the intellectual elite are ready to seize upon any numbers that seem to fit their vision of an unjust society. It is much the same story with data on the top 400 income earners in the country. As with other sets of data, data on those who were among the top 400 income earners from 1992 to 2000 were not data on the same 400 people throughout the span of time covered. During that time span there were thousands of people in the top 400; which is to say that turnover was high. Fewer than ¼ of all the people in that category during that span of years were in that category more than one year, and fewer than 13% were in that category more than two years. There is an important point, likely deliberately overlooked and certainly unstated by liberals, concerning these income levels. Most people begin their working careers at the bottom, earning entry-level salaries. Over time, as they acquire more skills and experience, their rising productivity leads to rising pay, putting them in successively higher income brackets. These are not rare cases, but common patterns among millions of people in the United States and some other countries. More than ¾ of those working Americans whose incomes were in the bottom 20% in 1975 were also in the top 40% of income earners at some point by 1991. Only 5% of those who were initially in the bottom quintile were still there in 1991, while 29% of those who were initially in the bottom quintile had risen to the top quintile. Yet the clueless or duplicitous left has transformed a transient cohort in a given statistical category into an enduring class called “the poor.” Just over half of all Americans earning at or near the minimum wage are from 16 to 24 years of age. And of course these individuals cannot remain from 16 to 24 years of age indefinitely, though certainly this age category can continue indefinitely, providing many liberals with data to fit their preconceptions. In this debate, liberals focus on the income brackets instead of actual people moving between these brackets in an attempt to create a “problem” that desperately needs a “solution.” They envision “classes” with “disparities” and “inequities” in income caused by “barriers” created by “society.” The routine rise of millions of people out of the lowest quintile over time makes a mockery of the “barriers” assumed by the liberal elite. A related, but somewhat different, confusion between statistical categories and human beings has led to many claims in the news media and in academia that Americans’ incomes have stagnated or grown only slowly over the years. For example, over the entire period from 1967 to 2005, median real household income; that is adjusted for inflation, rose by 31%. For selected periods within that long time span, real household incomes rose even less, and those selected periods have often been cited by liberals to claim that income and living standards have stagnated. Meanwhile, real per capita income rose by 122% over the same time span, from 1967 to 2005. When a more than doubling of real income per person is called “stagnation”, that is one of the many feats of liberal verbal virtuosity. The reason for the large discrepancy between growth rate trends in household income and individual income is straightforward: The number of persons per household has been declining over the years. As early as 1966, the U.S. Bureau of the Census reported that the number of households was increasing faster than the number of people and concluded: “The main reason for the more rapid rate of household formation is the increased tendency, particularly among unrelated individuals, to maintain their own homes or apartments rather than live with relatives or move into existing households as roomers, lodgers, and so forth.” Increasing individual incomes made this possible. As late as 1970, 21% of American households contained 5 or more people, but by 2007, only 10% did. As evidence that this difference of opinion on income distribution in the USA between conservatives and liberals is ongoing I refer you to an article in the September 13, 2012 Dallas Morning News strictly focusing on income brackets over individual incomes (The article was written by a reporter from the New York Times – who could have guessed that?). The article headline was: RICH GOT RICHER, POOR STAYED THE SAME IN 2011. The article went on to say in a sub-headline: “Wider income gap reveals unevenness of recovery, expert says.” It further states: “The income gap between the wealthiest 20% [top quintile] of U.S. households and the rest of the country grew sharply in 2011, the Census Bureau reported, as the overwhelming majority of Americans saw no gains from a weak economic recovery in its second year.” “Income from the top fifth of U.S. households rose 1.6% in 2011, driven by even larger increases for the top 5% of households, said David Johnson, the Census Bureau official who presented the findings. All households in the middle of the scale saw declines, while most of those at the very bottom stagnated.” And on and on it went in the same vein. The article considers only households, not individuals in the households, nor is there any mention of individuals within the income brackets moving up or down to different brackets. This is all so predictable by the left, yet I am sure there are myriad people who will read it (at least the ones who can read) and not give a moment’s thought to the other view of income distribution as put forth in this essay – with much credit to Dr. Thomas Sowell.