2 Charts That May Change Your View on American Living Standards

 

Sometimes when looking at living standards, observers forget to take into account how the tax code and safety net intersect with incomes. In The Washington Post, columnist Robert Samuelson highlights Congressional Budget Office Research that does just that. (I did the same a couple weeks back.) Samuelson:

 If the bottom 99 percent experienced stagnation, their 2015 incomes would be close to those of 1979, the study’s first year. This is what most people apparently believe. The study found otherwise. The poorest fifth of Americans (a fifth is known as a “quintile”) enjoyed a roughly 80 percent post-tax income increase since 1979. The richest quintile — those just below the top 1 percent — had a similar gain of nearly 80 percent. The middle three quintiles achieved less, about a 50 percent rise in post-tax incomes.

This is a key chart showing rising, not stagnating, income gains:

All this reminds me of how the safety net also intersects with the poverty rate, a reality that is too often ignored. This from Bruce Meyer of the University of Chicago (and AEI) and Notre Dame’s James Sullivan is extraordinarily helpful in that regard:

The official, income-based poverty rate in 2016 was 12.7%, a percentage point higher than it was in 1976. This spurious conclusion can be (and has been) used as a scathing critique of existing anti-poverty programs. In fact, many policymakers have used just this evidence to conclude that our social safety net has failed. When reasonable adjustments are made to address well-known flaws in the official poverty measure, the story is quite different. In Meyer and Sullivan (2017) we show that a poverty rate based on consumption, and that is adjusted to correct for bias in the official price index, fell sharply over the past four decades. This decline is consistent with other research showing improvements in material circumstances at the bottom. The combination of the safety net and economic growth has meant that many fewer people experience material deprivation than in the past. Understanding the nature of this progress and who is in greatest need is essential when designing effective anti-poverty policy.

Published in Economics
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  1. Old Buckeye Inactive
    Old Buckeye
    @OldBuckeye

    “The combination of the safety net and economic growth has meant that many fewer people experience material deprivation than in the past.”

    It seems like everyone can afford a smart phone. And they’re constantly talking or texting on it, so they have minutes and data plans.

    • #1
  2. I Walton Member
    I Walton
    @IWalton

    What this tells me is that the top quintile has enjoyed faster income growth than everybody else and that the bottom has kept up only by becoming dependent on transfers from  middle class tax payers.  The solution  however should not  be to raise taxes on the top, that’s where the whole problem begins.  Flatten taxes and  stop taxing things we want to happen, such as income, savings and work and start taxing things we don’t need more of like consumption most of which are imported and fix our educational system so the bottom learns to earn more income.   Creating dependency was among the most destructive things we have done whether speaking of indigenous Americans on reservations of urban and rural poor living on welfare.

    • #2
  3. Chris Campion Coolidge
    Chris Campion
    @ChrisCampion

    I Walton (View Comment):

    What this tells me is that the top quintile has enjoyed faster income growth than everybody else and that the bottom has kept up only by becoming dependent on transfers from middle class tax payers. The solution however should not be to raise taxes on the top, that’s where the whole problem begins. Flatten taxes and stop taxing things we want to happen, such as income, savings and work and start taxing things we don’t need more of like consumption most of which are imported and fix our educational system so the bottom learns to earn more income. Creating dependency was among the most destructive things we have done whether speaking of indigenous Americans on reservations of urban and rural poor living on welfare.

    This is the crux of the entire problem.  Creating dependencies does not make people more free; it chains them to their provider, of anything.

    Which is how Democrats remain in office.

    • #3
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