NCPA - National Center for Policy Analysis

Beware of Rich/Poor Study, Analysts Warn

September 7, 1999

A new study from the liberal-leaning Center on Budget and Policy Priorities reports that the income gap between the richest and poorest households has widened to a modern record. But some analysts complain that the study skewed reality by ignoring substantial income gains made since the economy heated up following the 1990-91 recession.

  • The study claims that since 1977 the after-tax income of America's wealthiest 1 percent of the population has shot up 115 percent -- while the income of the richest 20 percent of Americans has grown by 43 percent.
  • Meanwhile, the study says, the poorest fifth of the American population is getting 9 percent less income than in 1977 -- and middle-class households have experienced a gain of less than 8 percent over the past 22 years.
  • Critics point out that the study's own internal numbers show the income gap was much narrower from 1993 through 1999, when the after-tax income of the poorest fifth of Americans rose nearly 13 percent -- close to the 14 percent increase for the top fifth and within sight of the nearly 19 percent rise for the top 1 percent.
  • The Heritage Foundation's William Beach criticized the study for ignoring key demographic changes that help explain the income gap.

"This report needs to come with a warning label on it -- 'Readers Beware: There is a demographic story far more important than the income story,'" Beach comments.

Demographic factors, he says, include the fact that the huge baby-boom generation is now at its peak earning years -- thus accelerating income growth at the top of the scale. Meanwhile, baby-boomers' parents are retiring, pushing them down the income scale.

The study's co-author, Isaac Shapiro, acknowledges that demographics are "part of the explanation," but he says they were "not the main driver" of the trend.

Source: George Hager, "Study Reports Record U.S. Income Gap," Washington Post, September 5, 1999: Isaac Shapiro and Robert Greenstein, "The Widening Income Gulf," September 4, 1999, Center on Budget and Policy Priorities, 820 First Street, N.E., Suite 510, Washington, D.C. 20002, (202) 408-1080.

 

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