The Truth About the Income Gap

Back to the It's The Economy Stupid! Page

The number of people living in poverty in this country has been reduced. That is a cause for celebration in most circles, but not in the circle around the Washington beltway. You see, many people who live there have jobs that are tied to programs for the nation's poor. These statistics mean their empire is in danger of shrinking, and, in order to justify their high salaries, they are working overtime to see that this doesn't happen. The poverty police have latched on to a new U.S. Census Bureau report on income inequality.

Welfare reform has forced many people to go to work. As a result, these people now are moving up the economic ladder. "That's fine, as far as it goes," the poverty patrol tells, "but the gap between the rich and the poor in increasing, not decreasing, and we have to do something about this terrible inequity."

The statisticians at the Census Bureau divide our population into quintiles. Now you would think that each of these quintiles would represent 20 percent or one-fifth of the population, but that's not how it works. No, the folks at the Census Bureau tinker with the numbers, and the end result of this tinkering exaggerates the income gap.

According to the Bureau, those in the top quintile, the richest Americans, earn nearly $13.86 for every $1 earned by those in the bottom fifth. However, Robert Rector and Rea Hederman at the Heritage Foundation have equalized the numbers in "Income Inequality: How Census Data Misrepresent Income Distribution." Their report shows that the richest Americans earn only $3.18 for every $1 of income received by the poor.

Can it be that the folks in the top quintile, which includes people like Donald Trump and Bill Gates and Oprah Winfrey, who are worth millions, are earning, on average, just a little more than three times the amount of money received by folks in the poorest quintile, which includes welfare mothers and those hamburger flippers down at McDonald's?

The first thing that should jump out at you in the Census Bureau study is that the top quintile contains, not 20 percent of the population, but 24.3 percent, while the bottom quintile contains only 14.8 percent of the population. In other words, the top quintile has 65 percent more persons in it than the bottom quintile. That's because the Census Bureau counts households, not persons, which exaggerate the data.

The bottom quintile contains more single adults, single parents and single retired persons. Many single retired adults are not poor because, despite the fact that they have little income, they own their homes and automobiles and the government pays for most of their health care. However, the Census Bureau does not consider the assets one has accumulated, nor does it count many types of cash and non-cash income, such as food stamps, public housing, the earned income tax credit and the insurance values of Medicaid and Medicare benefits.

Rector and Hederman point out that that one frequently overlooked dimension of the gap between the rich and the poor is how much it is affected by marital status. Only about 30 percent of all persons in the Census Bureau's bottom quintile live in married-couple families, while 90 percent of the households in the top quintile contain married-couple families. Many families in the top quintile contain not only two full-time wage earners, but also several older children who have part-time jobs.

Marriage is the greatest predictor of success in America today.

Married men in all age groups make more, on average, than do single men. Children raised in intact married families are more likely to become successful adults than children raised by single adults.

Research produced by Robert Lerman at the Urban Institute has shown that half the increase inequality in recent years is due to the rise of single parenthood.

The Census Bureau also fails to reflect the leveling effect of taxation. While the Bureau fails to count most government subsidies that go to the poor, the Bureau attributes pretax income to those of us it deems as "rich," when, in reality, one-third to one-half the money earned by working Americans goes to pay their federal, state and local taxes.

After Rector and Hederman made all these corrections and factored in capital gains and losses, which are not reflected by the Census Bureau, the ratio of the incomes of the top to the bottom quintile drops to $4.23 to $1.00.

The remaining difference largely was due to the fact that working age adults in the top quintile work almost twice as many hours, on average, as those in the bottom quintile. As a result of the Rector Hederman study, you can see that much of the so-called "inequity" is a result of lifestyle and choice, both important elements of a free society.

A free society does not guarantee that everyone will be equal. It guarantees that everyone will have an equal opportunity. Our country is far from perfect but Rector and Hederman point out that today. "The standard of living for the average American is nearly seven times higher than it was 100 years ago, after adjusting for inflation."

Furthermore, the large gains in prosperity have affected all Americans, including low-income groups. Presently, workers earning the minimum wage, which is a training wage, represent only 2 percent of all employees. Also, Rector and Hederman remind us, "Today's minimum wage worker earns more, in real terms, in a single day than a low-skilled worker earned in 70 or more hours a century ago."

If we are to continue to provide more opportunities for those on the lowest end of the economic ladder, we are going to have to do something about shrinking the size of this country's No. 1 growth industry, the federal government.

That includes many of those people now soaking up large salaries as part of the poverty infrastructure.

This article was written by Jane Chastain who is now hosting "What Washington Doesn't Want You to Know" on KLTX in Los Angeles, 3-6 p.m. daily. The program can be heard at www.klight1390.com. This article was published and copyrighted by WorldNetDaily.com. It was on the website Monday, October 11, 1999.