We live in a dense fog of numbers in an age of mass quantification.
Name any current “crisis,” either real or (more likely) manufactured for the peasants in the peanut-gallery, and you’ll encounter swarms of quantification, statistics, projections, surveys, sampling, polls, arbitrary triggers for government bennies…you name it, we get floods of numbers that will prove…
There’s a huge and growing gap between rich and poor…
The rich don’t pay their fair share…
Poverty is growing…
Racism has mired POCs in poverty…
Jobs have dried up for the poor…
All of which are flat-out porkies. Wrong. Misinformation.
One can make this statement by reading a book that came and went this year with scant notice*—but that should be on every taxpayer’s reading list.
Not to mention required reading before every progressive utters the word, “equity.” Or screams about “inequality.”
Here it is…
We’ll let Amazon.com do the elevator version…
…a former United States senator, eminent economist, and a former senior leader at the Bureau of Labor Statistics challenge the prevailing consensus that income inequality is a growing threat to American society.
By taking readers on a deep dive into the way government measures economic well-being, they demonstrate that our official statistics dramatically overstate inequality. Getting the facts straight reveals that the key measures of well-being are greater than the official statistics of the country would lead us to believe.
As Dan McLaughlin said in National Review…
It’s a battering ram of data, with 183 single-spaced pages full of statistics, charts, and graphs, plus six appendices and 50 pages of endnotes.
…although, let me note: if your correspondent could understand the math, anyone can.
The senator is Phil Gramm—yup, a Republican—who represented Texas for 18 years and was chairman of the Banking Committee. His collaborators are Robert Ekelund, the economist; and John Early, number-cruncher. Their detailed pedigrees fill pages. May we stipulate that these people might know what they’re talking about?
Here’s the core of their case…
According to the Census Bureau, the average income of the top 20 percent of households in America in 2017 was 16.7 times higher than the average income of the bottom 20 percent of households, and income inequality has grown more or less consistently since World War II. The Census Bureau also finds that the percentage of Americans living in poverty has been largely unchanged since the War on Poverty was implemented in the mid-1960s.
…but there’s a fundamental problem with that…
The official measure of the poverty rate, which uses the Census Bureau definition of income, does not count two-thirds of all transfer payments as income to the recipients….
Excluded from the [official] measurement of household income are some $1.9 trillion of government transfers—programs like refundable tax credits, where beneficiaries get checks from the Treasury; food stamps, where beneficiaries buy food with government-issued debit cards; and numerous other programs such as Medicare and Medicaid, where government directly pays the bills of the beneficiaries.
At the other end of the equality see-saw…
Americans pay $4.4 trillion a year in federal, state, and local taxes, 82 percent of which are paid by the top 40 percent of household earners. Even though most households never see this money, because it is withheld from their paychecks, the Census Bureau does not reduce household income by the amount of taxes paid when it measures income inequality.
That might seem initially like first-rate wonkery, but let that sink in for a mad moment…and then start pondering how those Magic Numbers float through all levels of government. Particularly here in equity-crazed Portland, where almost every government dispensation of $-millions to legions of non-profits, subsidies to the politically-connected, bonds (tax-free, of course), “success” taxes, and go-to-head-of-line racial preferences—are based on not-to-be questioned government poverty measurements.
As GuvTina has said, even back in her days ruling the state House…
I hope you’ll join the conversation about the problem of income inequality. We have to try to solve it….because it impacts every corner of our state and our way of life….
…although “conversations” with GuvTina are rumored to be rather one-sided. In her budget message, the governor doubled-down by promising to (somehow) fight…
…wealth inequality, which has widened during the pandemic and recovery…
This isn’t surprising, considering that the message from Progressive Central, aka Sen. Bernie Sanders, is…
The United States has more income and wealth inequality than any other major country on earth.
Lies.
Here are some local examples of how the pernicious US Census Magic Number…
Median Family Income
… plays out in the real world.
The wholly useless government entity known as Metro uses MFI to justify its apartment-building binge…
According to the most recent data from the Low-Income Housing Coalition, we are almost 90,000 homes short for households making 50% or less of the Area Median Income ($53,250 for a household of four).
Over at City Hall, the Portland Housing Bureau uses the Magic MFI Number to determine eligibility for assisted housing programs.
If you make less than 60-percent of the MFI you will be rewarded with a cheap (in more ways than the rent, although the builders get top-dollar) apartment with a 60- to 99-year lease; no evictions if you make more later. (Players of the state lottery take note.)
The irony is that the MFI itself doesn’t include the value of the rent subsidy, HUD vouchers, or other housing transfers in calculating the Magic Number. Go figure…
As Gramm & Co observe…
Obviously, when a computation excludes 59-percent of the income from the bottom quintile and only 1-percent of the income from the top quintile, the result will be a dramatically skewed measure of income inequality.
To be fair, federal law defines “annual income” to include some non-payroll sums, but they’re limited to a couple of tightly-defined education and family-assistance programs. Meanwhile, Gramm points out that…
There are now at least one hundred federal programs that each spend more than $100 million annually providing transfer payments to households, as well as an uncounted number of smaller programs.
Of that total number, Census counts only eight in its measure of income and chooses not to count the others as income to the recipients.
…and…
…when all transfer payments, not counting government’s administrative costs in making the transfers, are counted as income of the recipients…. the measurement of income inequality in America is profoundly altered.
In Gramm & Co’s view, actual poverty has largely been abolished in the bottom “quintile,” or 20-percent—of the American population. Which has created a major unintended consequence—a favorite product of progressive policymakers…
The explosion in transfer payments to low-income Americans since 1967 has induced twice as many prime work-age adults among the poor to stop working and accept government subsidies, exchanging development and use of their capabilities for idleness.
…and…
… 45 percent of bottom-quintile households had a prime work-age person, and only 36 percent of the prime work-age persons in the bottom quintile actually worked.
In the bottom two income quintiles today, eighteen million prime work-age adults live in whole or in significant measure on government transfer payments.
…which is really at the heart of the progressive game: we’ll all wind up working for the government.
Which brings us to the presumed “gap” between men and women in the workplace...
…if one compares the median annual earnings for women who worked full-time year-round in 2020 with those for men, women [officially] earned 17 cents less per dollar earned by men.
Again, number-crunching is a culprit…
Hours worked, experience, selection of occupations, and educational choices explain all but 1.5 cents of the 17-cent gender pay gap.
…which is duplicated in the supposed black/white pay gap…
,,,[comparing] the official poverty rates from the Census Bureau with rates using a complete accounting of all earning and transfer payments, the Black poverty rate falls to 3.5 percent, and the White poverty rate falls to 2.3 percent in 2017, leaving a gap of only 1.2 percent.
…and…
On average, Black households received $2,212 more in transfer payments than White households, and White households paid $14,482 more in taxes than Black households.
As for oher races…
When all transfer payments are accounted for and the most accurate estimates of consumer price change are applied, the poverty rate for Asians falls from 10-percent to 1.0 percent. The poverty rate for Hispanics drops from 18.3-percent to only 1.7-percent, cutting the gap with the White rate from 7.6 percentage points to 0.6 percentage points.
What about the other character in our little drama…
The taxpayer.
As Gramm & Co. observe…
The top quintile on average paid $80,828 of federal taxes, more than eighty-three times as much as the bottom quintile. The federal personal income tax was the largest tax payment, with top-quintile households paying an average of $54,006, while the bottom two quintiles paid no federal income tax at all…
Of special interest to Oregonians…
State and local personal income taxes were very progressive, with the average household in the top income quintile paying 1,345 times as much as the average household in the bottom quintile…
…and let us remind ourselves: Portland, according to Eric Fruits, of the Cascade Institute…
…now has the second highest tax burden of any major city in the U.S. Only New York City has higher taxes.
…which begs the question: how many more golden eggs can the progressive machine wring out of “the rich” here in not-very-rich Oregon. Where the “Let’s move to Clark County” movement has popped up in the latest Census numbers.
The chumps, it turns out, are the lower middle-class (the “second quintile”) that works enough to pay taxes, but…
The average second- and middle-quintile households worked more and earned more than those in the bottom quintile, and yet, extraordinarily, the bottom 60 percent of American households all received essentially the same income when we count all transfer payments received and taxes paid.
It might be fair that Bill Gates is rich, but it seems unjust that 60 percent of Americans have virtually the same standard of living despite dramatic differences in their work effort and levels of earned income.
There’s a lot more for taxpayers—and pols— to consider in this remarkable book.
As Real Clear Politics observed…
“The Myth of American Inequality” provides far more detail about these trends – including the impact of education, the decline in manufacturing jobs, the rise of two-income households and the role of the billionaire class.
To summarize the rest of the book would burn up bandwidth, but suffice to say, other jaw-droppers abound…
The more accurate measures show that only 1.3 percent of children and less than 0.4 percent of seniors live in poverty. For children living with married relatives, the poverty rate is a mere 0.2 percent.
For children reared by parents in the bottom income quintile, 93 percent grew up to have more real income than their parents. Fewer than 7 percent did not.
To put the economic significance of the tiny group of super-rich households in perspective, if government seized all of their after-tax income, it would fund the federal government for less than six days.
The top 10 percent of households in the United States earn about 33.5-percent of all income, but they pay 45.1 percent of income-related taxes…
Today, incredibly, our government uses five different price indexes to adjust for changes in consumer prices when it measures economic well-being, when it adjusts government transfer-payment benefit levels for inflation, and when it adjusts the tax brackets in the tax code for inflation.
Individual households are constantly moving among the income quintiles based on where they are in their economic life cycles, the decisions they make, and many other factors. In fact, one study found that between the ages of twenty-five and sixty, more than 75-percent of Americans had incomes that put them in the top quintile for at least one year.
The Social Security system grants disproportionately higher benefits to low-income workers for every dollar they paid in taxes. The net result is that Social Security retirement benefits, relative to Social Security taxes paid, are five times greater for low earners than for high earners.
The average poor American family lived in a home that was larger than the average for a middle-income French, German, or British family.
In 1967, college graduates made, on average, 55.9-percent more than those with only a high school diploma. By 2017, that pay premium had nearly doubled to 96.2-percent.
When political activists denounce the rise in earned-income inequality, they are neglecting the fact that a significant portion of the phenomenon they decry has arisen from the individual efforts of women and their greater participation in the economy.
The four hundred highest-income households in America hold that status for an average of only two years before falling back to more prosaic income levels.
Natural upward mobility in earnings from experience, of course, makes earnings more unequal across the population at a single point in time because new entrants to the labor market with less human capital are being compared to those who have acquired considerably more capability as they have gained experience.
So, what does this leave us? Here’s the authors’ coda…
The concept of labor and capital as private property, protected from leeching by communal “stakeholders,” was the fundamental economic contribution of the Enlightenment upon which the modern world was built.
An increase in one person’s income and wealth did not require a decrease in another’s, as new wealth could be continually created.
This fundamental change, conveniently neglected by collectivists of various stripes throughout the ages, created a new world—a world where wealth can be created instead of redistributed.
…in Portland? Ya gotta be kidding!.
*…although the Wall St Journal nominated it on its list of the best books of 2020, The New York Times pretended it didn’t exist. To view a discussion with Gramm and Early, check out this on YouTube.
I admit my first reaction upon reading that the book was co-authored by former Sen. Graham was that it must be political agitprop (the book). But as I read I realized that if one actually ignores what are becoming massive "transfer payments" then the working middle class starts looking very different than the "government-subsidized working class."
Rent subsidies from housing from which it is virtually impossible to be evicted.
SNAP.
SSI - which is draining Social Security at a rate that will likely not affect me, but may condemn a hard working 35 year old any any future confidence of collecting their fair share of regular Social Security when they retire (at the new, full retirement age of 85).
Thanks, Richard.
Boy oh boy this brings back many memories of feisty discussions on next-door when trying to educate my fellow neighbors on an apples to apples comparison of income - meaning a simple re-calculation with those darn "transfer payments." Add to that the glaring stats on just how much the top 10% pay in taxes relative to the bottom 40% - or is it 60% - no matter, it becomes exceedingly difficult to defend "the rich need to pay their fair share" statement.....which was the exact sentiment echoed repeatedly which finally prompted me to step in knowing I'd get a thorough verbal lashing by the Progressive mob of Irvington and Grant neighborhoods - which I did! But wait - it gets worse! I finally threw in the towel when a scary number of people liked a comment by one astute resident that the issues of affordable housing in Portland should not be burdened on the backs of taxpayers - but paid for by the government instead! God help us...