NCPA - National Center for Policy Analysis

INCOME CONFUSION

November 21, 2007

Anyone who follows the media has probably heard many times that the rich are getting richer, the poor are getting poorer and incomes of the population in general are stagnating.  Moreover, those who say such things can produce many statistics, including data from the Census Bureau, which seem to indicate that, says Thomas Sowell, senior fellow at the Hoover Institute.

However, income tax data recently released by the Internal Revenue Service (IRS) seem to show the exact opposite:

  • The top one percent -- "the rich" who are supposed to be monopolizing the money -- saw their incomes decline by a whopping 26 percent.
  • Meanwhile, the average taxpayers' real income increased by 24 percent between 1996 and 2005.
  • People in the bottom fifth of income-tax filers in 1996 had their incomes increase by 91 percent by 2005.

The reason for the discrepancy is that there are a number of factors that need to be kept in mind when discussing incomes, says Sowell.  For instance:

  • Most Americans do not stay in the same income brackets throughout their lives; millions of people move from one bracket to another in just a few years.
  • Many statistics only involve households or families -- whose sizes vary over time, vary between one racial or ethnic group and another, and vary between one income bracket and another.
  • That is why household or family income can remain virtually unchanged for decades while per capita income is going up by very large amounts.

What this means statistically is that comparing the top income bracket with the bottom income bracket over a period of years tells you nothing about what is happening to the actual flesh-and-blood human beings who are moving between brackets during those years, says Sowell.

Source: Thomas Sowell, "Income Confusion," Townhall.com, November 21, 2007.

For text:

http://townhall.com/columnists/ThomasSowell/2007/11/21/income_confusion

 

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