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The Census Bureau collects a great deal of demographic data on U.S. residents.
Governmental and private entities use this data as a basis for public debate and policy decisions on economic and social issues.
For example, the bureau provides data on income distribution in the U.S.
Unfortunately, if the data is not properly adjusted, it can lead to inaccurate and misleading conclusions about the degree of income inequality in the U.S.
Demagogues can then use these conclusions to stir class envy and promote bad policy.
The bureau data recognizes only cash income received by each household. Households are then ranked from highest to lowest and then separated into various percentiles.
Using data from 2017 and comparing the average earnings of the top and bottom 20%, the data appears to show a significant degree of income inequality.
Specifically, the top 20% of households earn an average of $295,904 and the bottom 20% earn an average of $4,908. This ratio of 60 to 1 is cited as prima facie evidence of egregious income inequality in America.
Most of us have heard this claim many times.
This claim, however, is based on unadjusted data. Making two common sense adjustments changes the picture significantly.
First, the unadjusted data does not subtract taxes paid.
Since we spend our income after taxes, it is only appropriate to subtract taxes paid.
Specifically, the top 20% pay an average tax rate of 35.2% and the bottom 20% pays an average of 8%. Second, the bureau data only includes cash income and excludes all "in kind" payments that benefit households.
These in-kind services represent purchases that households do not pay for separately.
There are over 101 federal programs (with budgets in excess of $100 million) that provide in-kind services including: Medicare, Medicaid, food stamps (SNAP) and 16 other supplemental nutrition programs, earned income and additional child tax credits (refundable portion), children's health insurance (CHIP), national school lunches, school breakfasts, Section 8 and public housing, among others.
Specifically, the top 20% households receive on average $7,282 and the bottom 20% receive an average of $45,389 of these in-kind payments.
By not including in-kind income for all households in the data, results in an understatement of income received -- especially by the bottom 20%.
Taking these adjustments into account completely changes the income inequality debate.
Specifically, the top 20% keeps an average of $197,034 after subtracting taxes paid and adding in-kind income, while the bottom 20% keeps an average of $49,613. Instead of a 60 to 1 disparity, the ratio is 4 to 1 -- an easily justifiable difference.
Egregious income inequality in America is a myth.
Contrary to the demagogues' rhetoric, we should be proud of the social safety net we provide, and the progressiveness of our federal income tax rates which finance that safety net.
We are our brother's keeper after all.
(Editor's note: The source for information in this commentary is "The Myth of American Income Inequality" by Phillip Gramm. Gable resides in Altoona and is a periodic contributor to the Mirror's Opinion page.)