Oct 17, 2008

Income Inequality: How To Lie With Statistics

I know it doesn't come as a surprise to anyone, but a new article by Alan Reynolds, Cato Senior Fellow, shows just how simple it is to "prove" income inequality has been growing in recent years. (You can read the full article here) Obama routinely uses this canard to dupe his worshipers, er, I mean followers. As Barry is reputed to have an above average IQ (130), one would doubt that he, too, has been taken in. Maybe he is too busy trying to dig up the paperwork a Federal Judge in Pennsylvania has ordered him to produce which proves he applied to have his American Citizenship restored? I know that would distract me if I had spent years seeking a position which has citizenship as a legal prerequisite.
Anyway, back to 'income inequality'.
Every collectivist progressive loves to tout how 'due to the Bush Tax Cuts, the top 1 percent got filthier rich and the poor just got poorer.' They often cite studies from this or that progressive organization such as the Brookings Institute or the Pew Charitable Trust. As Dr Reynold's article is rather short, there is no need to recreate it here, but suffices to say that it is a simple as choosing what year the comparison begins or ends with. Another simple method is to use before tax numbers to justify increasing taxes. Finally, what components of a group's income are included as income for the various brackets compared is used. The differences can be dramatic.
What Reynolds demonstrates is that the only real way to compare is via actual tax rates, per group over the same time-frame using the same data-set--in other words, comparing apples to apples. Here is a concise breakdown using a single Congressional Budget Office set of data (Dr Reynolds does not actually put this in a table, so I did) This table actually included one of the two years (1979 and 2002) that are routinely used to demonstrate income equality:

Percent Income Paid as Taxes by Bracket
Year/Bracket Top 1% Middle 20% Bottom 20%
1979 21.8 7.5 --
1989 19.9 -- (-1.6)
2000 -- 5.0 (-4.6)
2005 19.4 3.0 (-6.5)

That is right, folks. Those minus signs are payments to the bottom 20% through things like the Earned Income Tax Credit and other giveaways. Of other people's money. If you were constrained by money in choosing your child's college, for example, now you know where that money went. And yes, everyone has received a tax break. But by far those in the bottom quintile have 'benefited' much more (1.4, vs 4.5 vs at least 4.9).
Although I probably shouldn't stray too far from the point, one perspective that I can't get away from is: In light of the above, just how is Obama planning to give a 'tax cut' to 95% of working Americans?