Let's Base Policy on Real Facts, Not Misleading Statistics

From all those lists of best books of 2022, here's one with the potential to change public policy debate and discourse for the better. It's "The Myth of American Inequality," and the three authors are two Ph.D. economists, former Sen. Phil Gramm and his long-ago Texas A&M colleague Robert Ekelund, and former Bureau of Labor Statistics assistant commissioner John Early. Their subject is government statistics -- and how they present a misleading picture of recent economic history.

And the authors' conclusion is that long-standing complaints about the American economy -- that the rich are getting richer and the poor poorer, that we declared war on poverty and poverty won -- are wrong.

How can that be?

The first reason is that Census Bureau statistics on income, on which just about everyone relies, do not include two-thirds of government transfer payments. That made sense in 1947, when Census started reporting the number, and most transfer programs -- food stamps, Medicare, Medicaid, the Earned Income Tax Credit, the child tax credit -- didn't exist.

But today they do, and the bottom two quintiles on the income scale (each quintile is one-fifth of households) get 59% and 24% of their incomes from government transfers.

Second, Census income statistics don't account for taxes people pay. Since the United States has the most progressive national tax system of any advanced economy -- because other advanced countries rely heavily on flat rate value-added taxes -- the bottom two quintiles of Americans essentially pay no income tax, while the top quintile provides 83% of federal income tax revenue.

When we take government transfers and taxes into account, as "Myth" does, then the "government takes and redistributes enough resources to elevate the average bottom quintile household into the American middle class." The bottom three quintiles have incomes that are not that far apart, and the second-highest quintile is not all that far ahead of them.

In dollar terms, the lowest three quintiles post-transfer and -tax incomes range from (rounded off) $50,000 to $66,000, the second quintile is at $88,000, and the top quintile is at $197,000. That's far more equal than the difference in earned income between the lowest quintile ($5,000, since half don't have jobs) and the top quintile ($297,000).

So the ratio of top quintile to bottom quintile incomes from the Census Bureau's 16 to 1 decreases to Gramm, Ekelund and Early's 4 to 1.

And the poverty rate, which government statistics peg at 12%, is only 2% when you cover government transfers. Many of these are people who "lack the basic mental and physical capabilities to care for themselves and their children" and need not income but "specifically tailored programs to address their specific needs."

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