July 15, 2007

The Meme That Won’t Die: ‘Growing Income Inequality’

The meme: Income inequality during the Bush Administration has widened, as the rich have gotten ever richer.

A sub-meme: Income inequality during the previous administration lessened, or at least didn’t get any worse.

But facts are stubborn things, as this information easily obtained from the Census Bureau shows (scroll down at the link to get to inflation-adjusted data):

From Table H-3. Mean Household Income Received by Each
Fifth and Top 5 Percent — All Races: 1967 to 2005

CensusInc19962000and20012005

The highest quintile (fifth) and 5% of households had double-digit real income increases from 1996-2000, while those same groups experienced declines from 2001-2005.

It is likely that the 2001 and 2003 Bush tax cuts caused the higher-income groups to have a slight increases in real after-tax income. But don’t forget that the tax cuts benefited every income group, thanks to the expansion of the Earned Income Credit and the reduction of the lowest tax bracket from 15% to 10%.

Other than the New York Times, which has been obsessed with income inequality since at least the early 1980s, Old Media rarely focused on the growth in income disparities that occurred the 1990s. In the runup to the 2000 election and ever since, that has all changed. Even Wall Street Journal writers who should know better like Arthur Brooks (requires subscription) take it as an article of faith. Democratic presidential candidates, especially John Edwards (noted near the end), have made income inequality a central theme of their campaigns, and reporters like NPR’s Mara Liasson simply assume it’s true. Apparently the best defense the Bush Administration can mount is that it has been happening for decades (second paragraph at link).

Why?

Cross-posted at NewsBusters.org.

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Related Post:
- Sept. 29, 2005 — Income Inequality + Economic Mobility = Long-Term Prosperity

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8 Comments

  1. If it helps, I recently did a series on how the distribution of income shifted (primarily by age group) from 1995 to 2005. Here’s a link with graphs of the big picture of what changed for individual income earners aged 15-74:

    http://politicalcalculations.blogspot.com/2007/06/big-picture-shifting-incomes-from-1995.html

    Conclusion: income inequality decreased.

    Comment by Ironman — July 15, 2007 @ 10:37 am

  2. #1, methinks I see a middle-class bulge instead of a shrink.

    Comment by TBlumer — July 15, 2007 @ 11:18 am

  3. Tom:

    There’s an interesting article/column in today’s NYT business section that is aimed at debunking the idea of tax inequality — the the rich pay less. It points out that Warren Buffett, who says the rich don’t pay enough, is wrong. Have you seen it? The economics look pretty compelling, but I’m not expert. You might want to check it out because it is topical and important.

    Comment by bill sloat — July 15, 2007 @ 12:08 pm

  4. There were actually three somewhat related pieces: Ben Stein\’s, one called the Richest of the Rich about Sandy Weill and others, and then the \”Fair Taxes?\” one you referred to.

    Anyone who wants a tax increase should have to say exactly what they think the highest marginal rate should be. Most Americans think that rates should be no more that 20%-25% of income (average, not marginal) when polled.

    Added later: Forgot to say thanks. Thanks!

    Comment by TBlumer — July 15, 2007 @ 7:03 pm

  5. #2: I think you just created the perfect description of what happened between 1995 and 2005. When I get around to filling in the years in the middle, and then animating the chart, I hope you don’t mind my borrowing the phrase!

    P.S. Thanks for deleting the double post!

    Comment by Ironman — July 15, 2007 @ 10:39 pm

  6. Feel free to use the term. It is pretty ironic given the “conventional wisdom.”

    One of these days I’m going to get around to learning Flash Animation or whatever it is that enables animation.

    Comment by TBlumer — July 15, 2007 @ 10:45 pm

  7. The most common measure of income inequality – the Gini Index (the higher, the more income inequality) – shows the following (U.S. Census Bureau):

    1967: 0.397 (first year reported)
    1968: 0.386 (lowest coefficient reported)
    1970: 0.394
    1980: 0.403
    1990: 0.428
    2000: 0.462
    2002: 0.466
    2003: 0.466
    2004: 0.466
    2005: 0.469 (no statistical difference)

    Another myth… BUSTED!

    Comment by Joe C. — July 16, 2007 @ 9:43 am

  8. #7, I referred to Gini in the related post. What’s interesting from your numbers is that inequality went up FAR MORE during the 1990s than it did during the eeeeevil Reagan-era 1980s (.034 during the 1990s vs .025 during the 1980s — a 36% difference), or (so far) since the turn of the century.

    Comment by TBlumer — July 16, 2007 @ 9:53 am

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