Income Inequality Myths Of Left Exposed Once Again

Economy: The president's strategy this election year is to divide the supposedly battered 99% from the evil, super-rich 1% doing the battering. But reports of America's income inequality are greatly exaggerated.
That financial "inequality" gets treated as a serious issue is proof of an epidemic of economic illiteracy, since the rich do the job-generating in our economy. Now, Manhattan Institute senior fellow Diana Furchtgott-Roth has just added some essential new analysis exposing class-warfare fallacies.
Examining Labor Department data, "The Myth of Increasing Income Inequality," published this week, show "that inequality as measured by per-capita spending is no greater today than in it was in the 1980s."
Among the neglected or ignored factors she addresses are the role food stamps, Medicaid and housing allowances play in the statistics; the increase in both high-income two-earner households and low-income one-person households; and more small businesses shifting from corporate to individual tax schedules since the 1986 tax reform.


For instance, a higher percentage of low-income Americans — 26% in the poorest fifth of households and 31% in the second-lowest fifth — actually own their homes free and clear of mortgage debt than upper-income taxpayers. "In fact, in the top quintile, 18% of households own their homes debt-free, the smallest share of any quintile — a counterintuitive result," Furchtgott-Roth points out.
One reason is that many nonworking elderly, with their meager retirement incomes but substantial assets like stocks and property, get lumped in with the "poor" households. Also categorized as poor are students and recent college graduates whose degrees ensure them a higher income a few years out.
There are also fewer members of lower-income households, because the elderly are living longer, divorce has increased, and marriage takes place later than in previous decades.
"Over the past 20 years, the size of households in the bottom quintile has declined by 5.6%" with the middle and top groups unchanged, she found.  Among the population as a whole, "In 1960, 13% of households had just one person. By 2011, 28% of households, more than double the previous share, had one person."

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The huge increase in women working in recent decades, moreover, has meant "the increased prevalence of two-earner couples and their higher household incomes at the top of the income scale."
When these working women, many of them college-educated, keep on working after getting married, "they frequently become one household with higher earnings — and the measured distribution of income and wealth in society widens," according to Furchtgott-Roth.
Later marriages and more divorces also mean more households headed by young women, "a substantial percentage of which are also susceptible to poverty," as the report notes.
Illegitimacy has skyrocketed "from 26 births per 1,000 unmarried women of childbearing age in 1970 to a peak of 52 births per 1,000 unmarried women of childbearing age in 2008," Furchtgott-Roth stresses. "It is notable that 29% of female households without a husband are living in poverty."
The fact that just 7% of married-couple families were in the poorest fifth in 2010 is testimony to the stabilizing power of the married state. Within the top-earning fifth, by comparison, 78% of households are married couples, while within the top 5%, some 82% are married couples.
The tax reform of a quarter-century ago, finally, caused revenues to shift from the corporate to the individual tax rolls, making it seem, incorrectly, as though some "had suddenly become better off and income inequality had worsened."
Furchtgott-Roth's wide-ranging expose should defuse one of the left's most potent weapons this election year — blaming poverty on the successful — as it seeks bigger, more intrusive government to correct what factual analysis reveals to be a phony problem.