In Case You Missed Yesterday’s Post on Last Week’s NYT Income Growth Article ….

….. This one will paint the picture (yesterday’s post is here):

Here are the “Adjusted Gross Income” (AGI) numbers that form the basis for what David Cay Johnston of the New York Times reported on August 21 (the article is now entitled “2005 Incomes, on Average, Still Below 2000 Peak”):

Those numbers really are technically not Adjusted Gross Income. Instead, they are what the IRS calls “Adjusted Gross Income Less Deficit.” See the previous posts listed below for a discussion of the terms. See the Update below for a link to an IRS publication containing much more detail.

Now here is a year-by-year record of average incomes after subtracting Federal Income Tax (FIT) and the Alternative Minimum Tax (AMT):

Yesterday’s post specifically shows how “‘Average AGI Less Deficit’ Minus FIT & AMT” were calculated for 2000, 2004 and 2005. The calculations were done the same way for other years shown. I did not subtract the Earned Income Tax Credit, though I defensibly could have.

The bottom line is this: The core contention that leads Johnston’s report, namely that “Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion….” is false. The second chart deals more closely with what “they had to make ends meet,” and shows “Disposable Income” (*) as $1,116 (about 2.4%) higher in 2005 than it was in 2000 — $48,163 vs. $47,047. The first chart, based as it is on “Adjusted Gross Income before Deficit,” reaches a false conclusion that Americans’ disposable incomes (what Americans “had to make ends meet) were $477 lower in real terms in 2005 than they were in 2000, because it did not deal with the vast differences in income taxes paid in the various years, and thus does not directly relate to “what (Americans) …. had to make ends meet.”

******

(*) – “Disposable income” is in quotes because Social Security and state/local income taxes should also be subtracted. Because these taxes have not gone up that much in real terms (certainly not by enough to wipe out the $1,116 “disposable income” difference above between 2005 and 2000), doing so would not affect the overall conclusion.

******

The false conclusion, and the use of “AGI Less Deficit” instead of a measure more closely approximating after-tax (i.e., disposable) income, are just two of six errors in Mr. Johnston’s report I noted yesterday. There are other substantive errors that I didn’t have time to detail.

There is much more at these previous posts:

• August 26 — Top Six Errors Committed by David Cay Johnston and/or the New York Times in Their Income Growth Report
• August 25 — Update: New David Cay Johnston Comment at Tuesday’s Post on His NYT Report
• August 21 — New York Times Twists Data to Make Great Personal Income News Appear Awful
• August 21 — Source Data Update Post

______________________________________

UPDATE: For those wondering about some (but by no means all) of the other “substantive errors” in Johnston’s report, the IRS publication apparently entitled “Individual Returns 2005″ (a very large PDF that I have uploaded to my host for convenient reader access) contains a rundown of and a great deal of explanation behind what the IRS includes in “Adjusted Gross Income Less Deficit” at pages 14-20. My cursory review of this info indicates that there are at least several very significant not-included income items that should be added in if one really intends to report, as Johnston’s Times story did, on year-over-year changes in comprehensive incomes earned or received by Americans.