September 29, 1999
WASHINGTON, SEPT. 29, 1999-The U.S. Census Bureau's annual report on income and poverty in the United States-due to be released Sept. 30-exaggerates the income gap between rich and poor, a new study by The Heritage Foundation says.
Last year's Census Bureau report shows those in the top "quintile" earning $13.86 for every $1 earned by those in the bottom fifth. But correcting for the report's methodological flaws, the ratio falls to $3.18 for every $1, according to Senior Policy Analyst Robert Rector and Research Analyst Rea Hederman. Among the flaws:
The Bureau fails to include equal numbers of people in each quintile. The top quintile contains 24.3 percent, or 64.2 million people, while the bottom contains 14.8 percent, or 39.2 million. Why the disparity? Because the Bureau counts households and not individuals. High-income households tend to be married couples with many family members and earners, while low-income households are usually single people with little or no earnings, the analysts say. The bottom quintile has little income in large part because it contains relatively few people to earn or receive income.
The Bureau uses income figures that fail to account for taxes and omit many types of cash and non-cash income such as employer-provided health insurance, welfare benefits and the earned income tax credit. It also excludes capital gains, distorting the income figures for many high-income households. When these forms of income are counted-and income, property and payroll taxes are subtracted-the bottom quintile's share of total income rises from 3.6 percent to 5.6 percent, while the top quintile's share drops from 49.4 percent to 45.3 percent, Rector and Hederman say.
The Bureau ignores the fact that those in the top quintile tend to work longer and more consistently than those in the bottom quintile. Those in the top quintile work an average of 34.6 hours per week, while those in the bottom quintile work an average of 14.4 hours per week. "This imbalance in work certainly can be expected to contribute to an imbalance in income," the analysts write.
These same flaws show up when comparing the top and bottom halves of the population in last year's Census report, which finds the top half of society receiving $4.1 trillion, or 81 percent of the total income, and the bottom half receiving $973 billion, or 19 percent. Corrected, the annual income for the top half drops to $3.2 trillion and the income for the bottom half rises to $1.4 trillion.
Fixing the Bureau's report is important, Rector and Hederman say, because politicians often use the income gap between rich and poor to advocate increased spending on federal programs that redistribute income. Taxpayers have already spent $7.9 trillion since the mid-1960s on such programs, with little to show other than "lamentable social side effects," they write.
"Those concerned with improving the material well-being of less affluent Americans, without punishing the most productive, should focus on raising the productivity in the overall economy by increasing savings and investment and by increasing work effort within the lower quintiles," the analysts say. "They should also encourage more marriage and less illegitimacy among low-income groups, which studies show tend to reduce household earnings."