On September 30, the Census Bureau released data on poverty and income distribution in the United States for 1998. Once again, they show a high degree of inequality. However, there are serious problems with the data that are severely distorting perceptions about rising inequality.

The Census shows the share of total income going to the lowest 20 percent of households has fallen to 3.6 percent from 4 percent in 1985, and the share going to the top quintile has risen to 49.2 percent from 45.3 percent.

A new Heritage Foundation report says the most important flaw is the failure to account for taxes paid to or benefits received from government.

• The official Census income data are based on before-tax money income and exclude in-kind government benefits, such as public housing and food stamps.

• Hence, much of what we as a society do to equalize incomes -- imposing high tax rates on the rich and welfare spending -- is excluded from the Census figures.

• The Census publishes supplementary data that take account of benefits and taxes; however, the official definition remains unchanged and it is only with some effort that the supplementary data can be found.

An equally serious problem is the Census Bureau's failure to adjust for family size. Although each quintile has the same number of households, those in the lower quintiles tend to have far fewer people than those in the upper quintiles. Indeed, the top quintile has 65 percent more people than the bottom quintile: 24.3 percent of the total population versus 14.8 percent.

Adjusting the 1997 Census data for taxes, benefits and population almost triples the share of income going to the bottom quintile, while cutting the top quintile's share by 20 percent (see figure).

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 4, 1999.

For Bartlett text http://www.ncpa.org/oped/bartlett/bartlett99.html