Census data paints an inaccurate picture of inequality in America | American Institute of Enterprise
I’ve long thought that government statistics don’t tell the whole story about poverty and inequality in America.
In my 20 years running social service programs in New York, I have seen an enormous amount of help from federal, state, and local treasuries to low-income households.
And while I’ve seen many of our programs reduce poverty in real time by combining the demands of work with the rewards of work, the official poverty rate has hovered around 13%. And as a result, our anti-poverty programs have not received the credit they deserve. And many people still believe that poverty in America is much worse than it really is.
Now, government statistics have also favored the popular portrayal of America as a very unequal country. In the words of Senator Bernie Sanders of Vermont, a handful of billionaires wield enormous wealth and power, while working families struggle in ways we haven’t seen since the Great Depression.
claims like this rely on the Census Bureau‘s official measure of household income, which is the standard for federal estimates of Americans’ wealth.
A new book offers compelling evidence that the census mismeasured income and misdirected public policy in the process.
In The Myth of American Inequality, How Government Skews Political Debate, Phil Gramm, an economist at AI, as well as a former US senator, and his co-authors, John early and Robert Eklund, analyzed 50 years of data federal to set the straight record over the last 50 years of household income in America.
They first looked at how the census measures income when the Census Bureau adopted the current measure of household income. In 1967. The Census Bureau decided not to subtract taxes and did not include all transfer payments. Graham and Early found that as a result, the census measure omitted two-thirds of all federal and local transfer payments going to households, most of which were near the bottom of the income scale. And because they ignore all of these remittances, official statistics underestimate the incomes received by households with lower labor incomes and overestimate the real incomes enjoyed by households with higher new ones.
And by examining 50 years of census data and adding, shifting and subtracting taxes, Graham and Early revealed a very different picture of income in America. First, as the title of the book suggests, their data contradict popular claims about income inequality. Instead of a 16-to-one ratio between the income of upper and lower households, which is reported by the census, the authors found a four-to-one ratio. Instead of finding a widening gap between the top and the bottom, they found that transfer payments largely equalized the income received among the bottom 60% of Americans, regardless of their level of work. From 1967 to 2017. Real public transfers to the bottom quintile of households increased by more than 269%. While the after-tax incomes of people in the middle have only increased by 154%.
According to the authors, only 36% of people in the bottom quintile worked in books in 2017, and on average their households earned more than $6,900, a paltry amount, but they received more than $48,000 in after-tax and transfer income. . Those earning in the second-lowest quintile brought in $31,000 in labor income, but ended up with $50,000 in income after taxes and transfers, leaving them with only 3.5%. above those below.
The amount of government transfers available without work conditions has made non-work a viable alternative for Americans. This is likely to be behind declining labor force participation rates, which AI economist Michael calls a slow-burning disaster as more Americans disconnect from work. and the dignity and satisfaction that comes from earning your own success.
In a recent Wall Street Journal op ed Graham a first report what they say
is their hit finding on a per capita basis, the average household in the bottom quintile receives 14% more income than the average household in the second quintile and 3.3% more than the average middle-income household.
Now many middle-class Americans feel like they’ve been left behind in these results, suggesting that they have been, many of them working a lot more and ending up bringing home the same income as those who work very little or not at all. But their struggles have been excluded from political debate, largely because they are not evident in official government statistics. And that may be the main cause of the middle and working class discontent that has fueled so much political anger these days.
We can begin to address their concerns by accurately collecting and reporting revenue information. In their book, Graham Early and Eklund argue that Congress should require the Census Bureau to include taxes and transfers in its measures of income. And I think that makes sense. We can also restructure our government assistance programs so that they always promote work as the essential route out of poverty.