Wapo: CBO report indicates income stagnation is a myth

Some interesting numbers

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Well, it’s not so. That’s the message — perhaps unintended — from the Congressional Budget Office, which reports periodically on the distribution and growth of the nation’s income. It recently found that most Americans had experienced clear-cut income gains since the early 1980s.

This conclusion is exceptionally important, because the CBO study is arguably the most comprehensive tabulation of Americans’ incomes.

Most studies of incomes have glaring omissions. Some examine only before-tax income; others, after-tax. Many don’t include some government benefits — for example, food stamps, Medicare or Medicaid (health programs for the elderly and the poor). Others exclude employer-paid health insurance, which is a big item. The CBO study covers all of these areas.

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But it’s not true that no one else had gains. If the bottom 99 percent experienced stagnation, their 2015 incomes would be close to those of 1979, the study’s first year. This is what most people apparently believe.

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The study found otherwise. The poorest fifth of Americans (a fifth is known as a “quintile”) enjoyed a roughly 80 percent post-tax income increase since 1979. The richest quintile — those just below the top 1 percent — had a similar gain of nearly 80 percent. The middle three quintiles achieved less, about a 50 percent rise in post-tax incomes.

Why then the belief in stagnation?

One plausible theory is that the gains in any one year are so small that most people don’t recognize them. Instead, they feel they’re marching in place. The demands on their income — for housing, food, college tuition, vacations and much else — swamp tiny gains.

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Study also tracked real incomes since 2000 (incomes adjusted for inflation)

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All the numbers seem complex and confusing. Piercing the statistical fog is essential to anchor our debates in reality and not in journalistic or political mythology. It may seem that, except for the fortunate few, hardly anyone is getting ahead. That’s convenient rhetoric, but it just ain’t so.

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What the CBO understands that so many people don't is that when you are trying to study the material well-being and income trends of Americans, it makes zero sense to look at pre-tax, pre-transfer numbers, nor to ignore non-wage benefits such as health insurance, retirement plans, etc. The American tax code is fairly redistributive and transfer payments in the form of welfare and public assistance make up a significant % of income to the bottom half of Americans. You shouldn't ignore those.