Tangentially related to an earlier post questioning the Biden administration and Washington Post in their shared belief that still more government spending will finally reduce childhood poverty, this post commends an op-ed in today’s Wall Street Journal. Former chairman of the Senate Banking Committee, Phil Gramm, and former assistant commissioner at the Bureau of Labor Statistics, John Early, show how a data-collection choice by the U.S. Census Bureau yields erroneously inflated assessments of “income inequality.”
You’ll never read an op-ed like this, questioning progressive economics orthodoxy, in the Washington Post and New York Times. The only major daily willing to publish limited-government, free-market thinkers regularly is the Wall Street Journal. In “Incredible Shrinking Income Inequality,” Messrs. Gramm and Early rebut the familiar leftist refrain: “Widening income inequality is a fatal flaw in capitalism and an ‘existential’ threat to democracy.”
But such claims about rising income inequality are based on “profoundly flawed” data, they say.
“We have shown on these pages that Census Bureau income data fail to count two-thirds of all government transfer payments—including Medicare, Medicaid, food stamps and some 100 other government transfer payments—as income to the recipients.” The data also “fail to count taxes paid as income lost to the taxpayer.” When official government data are used to correct these deficiencies—when income is defined the way people actually define it—“income inequality” is reduced dramatically.
Using government data and performing corrective calculations, the authors show that “[n]ot only is income inequality in America not growing, it is lower today than it was 50 years ago.” The black line in the nearby chart shows what the authors deem to be the true Gini coefficient for the U.S. A Gini coefficient of zero theoretically represents “perfect equality,” whereas a coefficent of one represents “perfect inequality.”
The piece offers many additional details, noting that federal, state and local governments in 2017 redistributed $2.8 trillion, or 22% of the nation’s earned household income, but government statisticians counted only $900 billion of that as income for the recipients, two-thirds of whom comprised “households in the bottom two income quintiles.” Also contrary to what you might read in the Post and Times and on Sen. Elizabeth Warren’s Twitter feed, households comprising the top two earned-income quintiles pay 82% of federal, state and local taxes, “although they never see most of this money because it is deducted directly from their paychecks.”
The authors close with a folksy Will Rogers adage: “It ain’t what you don’t know that gets you into trouble. It is what you do know that ain’t so.” (Millennials and Gen Y’ers are invited to google Will Rogers.)