This is a
powerful political message even though, if true, it is an indictment of his own
five years in office. However, is increasing income inequality based on fact or
is it based on flawed and misleading government statistics? How does anyone
know what are the incomes of 300 million Americans? It would appear that there
are two sources. First, there are figures compiled by the Census Bureau that
appear in the annual Current Population Survey, or CPS. These figures represent
estimates based on census questions. The second source would come from the
Internal Revenue Service (IRS) and are based on the total of all individual
income tax returns.
Not
surprisingly, these sources can yield very different results and be subject to
much interpretation or spin depending on one’s point of view. Just last week
the Wall St. Journal published an article by two former high officials in the
Social Security System. The opinion page article, “Retirees Aren’t Headed for
the Poor House”, showed an incredible difference in the CPS and IRS figures on
retirement income.
For example,
in the year 2008 the CPS reported that retirees took $5.6 billion dollars out of their IRAs. Yet, in that same
year retirees reported to the IRS that they took $111 billion dollars out of
their IRAs. In that same year
retirees showed $222 billion in pension and annuity income according to the CPS
but actually reported $457 billion to the IRS. That is a huge disparity.
What explains
the difference? The CPS only considers retirement income received on a regular
periodic basis but fails to include as-needed, lump sum withdrawals from IRAs
and 401ks. The IRS figures are much more accurate but inevitably politicians
and pundits will choose to rely on the Census Bureau figures. Already Democrat
Senators Tom Harkin of Iowa and Elizabeth Warren of Massachusetts are proposing
legislation to increase Social Security payments across the board for all seniors.
Both senators
are also pushing the need for a new government run retirement savings plan
based on CPS under-reporting of American participation in retirement plans. CPS
figures claim that only half of Americans are offered retirement plans by their
employers but the authors of the WSJ article cite a 2011 Social Security study
that indicated that 72% of all workers were offered retirement plans by their
employer, and that the number increased to 84% for firms with more than 100
employees.
I am afraid
that the President’s claim of increasing income inequality in this country will
be based on equally flawed figures that he and others will use to advance their
own political agenda. What could be more popular issue in this year’s
congressional elections than an increase in Social Security benefits? Below
here are some figures that measure the median incomes of various income groups.
In the year
2000 the median income for the bottom 10% was $13398. By the year 2008 it had
dropped to $12315 and in 2010, two years into the President’s first
administration, it dropped to $11904. The median income for the whole country
in 2000 was $53164. Median means that half the taxpayers in the country
reported less and half reported more. By 2008, the income of those in the 50%
percentile had dropped to $50939 and by 2010 it had dropped again to $49495.
Finally, for those in the top 10% the median income in 2000 was $141805. By
2008 it had dropped to $140050, and then in 2010 it had dropped again to
$138923. Even the top 5% has experienced a similar decline.
These figures
do not tell the whole story and will require further discussion in future posts
but it would appear that while there is income inequality in this country, it
is not increasing at an alarming rate. There are problems in the country today
but if the President and his advisors do not understand the problem, and base
their solutions on false statistics, they will not be part of the solution.
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