A dose of reality is needed on poverty numbers

Bruce Bartlett
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Posted: Aug 27, 2004 12:00 AM

 The Census Bureau released its annual income distribution report on Thursday. The good news is that the distribution of income has been essentially unchanged for the last three years. The bad news is that this is because every income group is worse off to about the same degree.
 
Between 2000 and 2003, the share of total income going to the top quintile (20 percent of households) was exactly unchanged at 49.8 percent. The middle three quintiles -- the middle class -- were slightly better off, raising their share of aggregate income from 46.7 percent to 46.9 percent. The bottom quintile was slightly worse off, falling from 3.6 percent to 3.4 percent.

 However, the real income of every group is down significantly since 2000, including those at the top. Their income is down almost $5,000 (in 2003 dollars), about the same as for the lower 80 percent of households in total.

 Needless to say, there is no reason to cry for those in the top quintile -- often characterized as the "rich." They are still doing very well, with an average income of $147,078 in 2003. However, it is doubtful that very many people view this as a rich family's income, especially when both spouses work.

 This fact is even clearer when looking at the income needed to get into the top quintile, which is a mere $86,867. Almost any couple where both spouses work full time is going to be close to this level. According to the Census Bureau, the median earnings for a male working full time last year was $40,668 and those for females was $30,724, for a combined income of $71,393.

 In short, all it takes to be relatively well-to-do in America today is to work full time and be married to someone else who also works full time.

 Of course, it is still appalling that there are so many people who must scrape by on a mere pittance -- the average income of those in the bottom quintile was just $9,996 last year. But this figure is deceptive for many reasons.

 First of all, it excludes almost everything we do as a society to help the poor. The Census data count money income only and exclude in-kind benefits, such as food stamps, Medicare, Medicaid and public housing. The poverty data also have this same limitation.

 In years past, the Census Bureau has simultaneously released estimates of how the inclusion of in-kind benefits affect income levels and the poverty rate. For some reason, these data were left out of this report.

 Another factor that is excluded is wealth. The fact is that there are many people in this country -- mainly the elderly -- who have low incomes, but in fact are well off because they may own their homes free and clear and have other assets.

 Finally, these Census data tend to imply that people are stuck in the same income group year after year, when in reality there is substantial upward mobility. Almost everyone spends some time in the bottom quintile when they are starting out in life or because they have suffered a temporary loss. But they move up the income ladder and rebound from setbacks.

 In previous years, the Census Bureau has simultaneously released income mobility data, but it has not done so this year. Earlier data have shown that a large fraction of those who were in poverty or a low income quintile one year were out of poverty or in a higher quintile within a year or two.

 Most people know this even if the Census Bureau doesn't tell them. A 2003 Gallup poll found that 31 percent of the population believes it is very likely or somewhat likely that they will become rich. No doubt, an even higher fraction believes that their children have a good shot at it.

 Indeed, almost every generation of families is better off than the earlier one. Not only have real incomes risen sharply over time, but most people are well aware that they are better off than their parents. A 1996 Reader's Digest poll found that while 18 percent of people considered themselves to be in the lower class as children, only 6 percent put themselves in that class as adults.

 These Census data will probably be grist for the campaign trail, as Democrats charge that Republican tax cuts have worsened the distribution of income. But voters should be aware that these data tell us nothing whatsoever about how taxes affect incomes because taxes are another item excluded from the calculations. All the figures are before taxes.

 Thus not only does the Census Bureau exclude most of what we do to help the poor, it also excludes everything we do to bring down the rich and equalize incomes. In truth, it tells us very little about wealth and poverty in America.