Recently, my local newspaper
(Connecticut Post) ran an article with a large bold headline that read, “ Top 1
percent takes rising share of 2012 U.S. income.” The article was based on
figures from the Census Bureau that compared incomes among various statistical
groups from the year 2000 to 2010. The headline and the findings in the article
were supported by huge chart that took up most of the front page of the
Business section.
The Connecticut Post likes to run
stories like these since they seem to provide hard statistical evidence for its
pet issue of inequality in Connecticut, whether it be racial, gender or
economic. Hearst Connecticut Newspapers, the parent company of the newspaper,
even went so far as to commission a study of the census figures by a University
of Connecticut economist. Nevertheless, a review of the chart once again
illustrates the old adage that “statistics don’t lie, but liars use
statistics.”
At the top of the chart was the
astonishing figure that the top 1% of the population in Fairfield county showed
an increase in income in 2010 that was 14.5% larger than its comparable income
in the year 2000. At the same time, income in every single other income bracket
decreased during the same period. For example, the bottom 5% of Fairfield
county’s population saw a 16.7% drop in income from 2000 to 2010.
What are we to make of these figures?
The paper’s own chart belied the obvious conclusion it drew. In the same period
the top 5%, which we also include the top 1%) actually saw their income drop by
9.8% in the same period. The Connecticut Post did admit that top earners
suffered most in the “Great Recession” of 2007-2009. So what explains the
figures?
Let’s look at the top 1% first.
Fairfield County has a population of about 900000 so the top 1% would include
about 5000 households. You would have had to read very deeply into the article
to see that the income figures include not just salaries but also dividends and
capital gains. The paper even explained that the more recent figures might be
skewed by the fact that stockholders might have been taking capital gains from
the sale of real estate and stock in anticipation of federal increases in tax
rates. In other words, the wealthy were selling already owned assets and the
gains inflated their incomes.
Other social and economic factors
might have been at work. I would guess that during the decade that began with
the attack on the World Trade Center, some wealthy New Yorkers decided to move
our of Manhattan to Connecticut. Also, Greenwich, Connecticut lies just over
the border from New York’s posh Westchester County. Not only are New York State’s
income taxes higher than Connecticut’s (New York is not called the Empire State
for nothing), but also real estate taxes in Westchester are substantially
higher than those in Greenwich. Rather than a bad thing, the influx of wealthy
people into Connecticut is a good thing for Connecticut. The top income
households in the state pay much more than their fair share of taxes, and
receive far less than their share of benefits from the state.
Speaking about benefits, what
about the low-income households at the bottom of the chart? The bottom 10% had
an income drop of 16.7% during the decade while the bottom 5% showed an income
drop of 16.7%. Buried inside the paper the last sentence of the article
admitted that the income figures did not include “so-called transfer payments
from government programs such as unemployment benefits and Social Security.”
Since everyone knows that such government benefit programs have increased
dramatically in recent years, it is not hard to conclude that the bottom
percentiles did not actually show a decrease in actual income.
Of course, benefits like food
stamps and Medicaid only come from the taxes paid by those in the higher
percentiles. I don’t know what the figures in Connecticut are but in this
country the top 1% pay about 40% of all Federal income taxes. It would be
better and more accurate if the paper’s chart had shown the actual after tax
income of the various groups.
I don't deny the existence of income inequality but I do not believe that the Census figures show that it is growing. Moreover, unlike the Connecticut Post I do not believe that income inequality is necessarily a bad thing. No one ever suggests that athletes or entertainers should all work for the same pay. Even the most liberal Hollywood stars would be shocked at the idea. What then is so bad about an executive making a bonus if he does a great job?
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I don't deny the existence of income inequality but I do not believe that the Census figures show that it is growing. Moreover, unlike the Connecticut Post I do not believe that income inequality is necessarily a bad thing. No one ever suggests that athletes or entertainers should all work for the same pay. Even the most liberal Hollywood stars would be shocked at the idea. What then is so bad about an executive making a bonus if he does a great job?
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