* Income & Economic Mobility

Overview


Political demagogues commonly assert that in the United States, the rich are getting richer, the poor are getting poorer, and the incomes of the population at large are stagnating. But income-tax data released by the Internal Revenue Service show the exact opposite. For example, tax-filers in the bottom fifth of all earners in 1996 saw their incomes increase by 91 percent over the next nine years (in constant 2005 dollars). Meanwhile, the incomes of median-level taxpayers rose by 24 percent during the same period. But the top one percent — “the rich” who, according to the left, were monopolizing a disproportionate share of America’s money — saw their incomes decline by 26 percent.

It should also be noted that income is not the same as earnings, and that neither income nor earnings is the same as the economic resources on which people’s standard of living is based. For example, the average net worth of people aged 65 and older is several times that of people under the age of 45. With regard to income, only 24 percent of the income received by senior citizens is counted statistically as earnings. Most of their income is derived from pensions or investments, and thus is classified as “unearned income.” The actual incomes of the elderly are more than four times what their earnings statistics might suggest; they have lower average earnings than middle-aged people, but far more wealth. Yet this fact does not prevent many politicians and demagogues from depicting the elderly as a demographic beset by economic deprivation.

The “poor” are another demographic whose standard of living is grossly understated by those who cite statistics on earnings or income. Those statistics do not include income in the form of transfer payments from the government, such as welfare checks, much less various in-kind transfers, such as subsidized housing and subsidized medical care. As of 2001, about 78 percent of the economic resources used by people in the bottom 20 percent of income recipients were in the form of either cash transfers or in-kind transfers. To judge the standard of living of low-income people by income statistics is to leave out more than three-quarters of the economic resources they use.

* Adapted from: “Income Confusion: Part I,” and “Income Confusion: Part II,” by Thomas Sowell (November 20, 2007).


Additional Resources

United States Household Income Brackets and Percentiles in 2018
By DQYDJ.com

Income
By Census.gov

Income and Poverty in the United States: 2017
By Census.gov
September 12, 2018

Income Confusion: Part I
By Thomas Sowell
November 20, 2007

Income Confusion: Part II
By Thomas Sowell
November 20, 2007

Analyzing Economic Mobility: Measuring Inequality and Economic Mobility
By Paul Winfree (Heritage Foundation)
May 31, 2007

A Guide to Understanding International Comparisons of Economic Mobility
By Donald Schneider
July 29, 2013

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