November 19, 2018
Yes, there is an insatiable market for writings claiming there has been no rise in inequality in the United States, with Robert Samuelson being one of the main actors in this group. His latest column reports on new data on income distribution from the Congressional Budget Office (CBO).
Samuelson gives us the good news:
“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. …”
He then gives us a table showing a rise in income between 2000 and 2015 of 32 percent for the bottom quintile, and 17, 15, and 16 percent for the next three quintiles respectively. Should we all be happy?
Let’s take a look at another table in the CBO report (Supplemental data, Table 5). This table gives market income before tax and transfers.
Here’s what I get:
|
|
|
|
|
|
||
|
Quintile |
|
Income in thousands |
Percent change |
|||
|
|
(2015 dollars) |
’79–’15 |
’00–’15 |
|||
|
Bottom |
|
9.9 |
14.2 |
15.7 |
58.6% |
10.6% |
|
Second |
|
30.5 |
34.5 |
32.2 |
5.6% |
-6.7% |
|
Third |
|
52.1 |
58.4 |
58.5 |
12.3% |
0.2% |
|
Fourth |
|
73 |
90.5 |
95.5 |
30.8% |
5.5% |
|
Fifth |
|
141.7 |
250.7 |
281.2 |
98.4% |
12.2% |
|
Top 1% |
|
551.7 |
1669.4 |
1844.7 |
234.4% |
10.5% |
Source: Congressional Budget Office.
Before noting the difference between the income gains that Samuelson presents and this table, it is worth making a couple of points on the income gains shown here.
First, much of the income gain reported for the longer period is due to more work per household, primarily due to more women working. Some of the deniers jump on those of us who make this point by saying that we don’t think women should work. In fact, what we think is that when women work, they should get paid. If a household has two earners rather than one, it should have a higher income to reflect this fact. The gains for the second and third quintiles don’t show much. It is of course also the case that a household with two earners has higher work-related expenses, like transportation and child care.
The other point is that the bulk of the income gain is prior to 2000. From 2000 to 2015, income for the fourth quintile rose by just 5.5 percent, for the third quintile 0.2 percent, and for the second quintile, it fell by 6.7 percent. This is the bad story of stagnating income that the non-Samuelson world has been talking about.
So how can Samuelson show a much better picture for both the longer period and the period since 2000? The answer is that the value of transfers from the government has risen, most importantly from the increased availability and cost of health care provided through Medicaid, subsidies on the health care exchanges, and CHIP.
The government’s increased responsibility for health care is a good thing in my book, but people can be forgiven for not recognizing this as an increase in their income. First, much of the increased expenditure is due to the higher fees charged by providers. Most people probably don’t feel richer because Medicaid is now paying more money to drug companies and surgeons.
The other point is that most people actually don’t have high health care expenses. The government’s payments are mostly for the 5–10 percent of the population that does have large health care expenses. The rest of us now have better insurance that our expenses will be covered if we fall into this group, which is good and valuable, but if we are reasonably healthy, then we are not seeing a direct benefit from this government expenditure.
So, if we want to accurately describe the story for the last fifteen years, we can say incomes have stagnated and the government has substantially increased its share of health care spending. That’s the reality, but the Washington Post probably is not interested in running that story.
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