Monday, June 11, 2007

Oops they did it again!

The NY Times is nothing if not consistently humorous. Consider this passage from David Leonhart's article on Larry Summers:

since 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It’s as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent.

as we pro-immigration types like to say, vamos por partes.

1. The quote considers pretax incomes and the top 1% pay a lot of taxes. For example, in 2004, the top 1 percent of taxpayers (AGI over $328,049) paid 36.9 percent of all federal income taxes (see link). So there is a fair amount of redistribution to consider.

2. The quote deals in shares, not levels. This is not a zero sum game. It it possible for everyone to increase their incomes at the same time, and indeed this is the case. The rich are getting relatively richer but the "poor" (the bottom 80% is pretty broad) are getting richer too. In no way does the cited statistic make a case that the gains of the rich come at the expense of the poor.

3. The $7,000 a year check thing makes absolutely no sense. Where does the number come from? top 1% share rises 7% in 27 years (an average of about .27%/year) and every one in the bottom 80% is correspondingly out $7,000 per year?

Update: the redoubtable Brendan Nyhan sheds some light on the mysterious $7,000 here. I tried to email Leonhart as well, but apparently is not his correct address.


bnyhan said...

my best guess of where the $7K comes from is here. it's not clear at all from the article though.

Angus said...

Thanks Brendan. I've put that link into the main post.