U.S. Incomes Aren't Falling

That this NY Times story on how "U.S. incomes are falling" is being seized upon by those looking to denigrate the "Bush economy" (and continue playing the class warfare card) is, well, unsurprising. Too bad the premise of the piece ain't exactly true, according to U.S. News economist/columnist James Pethokoukis (commenting on a derivative story published in the Boston Globe):

"More Americans making ends meet with less money," was the headline atop a Boston Globe story Tuesday morning. The newspaper went on to tell its readers that Americans in 2005 earned a smaller average income, when adjusted for inflation, than in 2000, $55,238 vs. $55, 714.

What the story notably failed to tell readers is that incomes have been on the rise since 2002, a fact I gleaned from a different version of the story on the New York Times website. (The original version of the Times story had a misleading headline "Average Incomes Fell for Most in 2000-05," but it was later changed to "2005 Incomes, on Average, Still Below 2000 Peak." The Globe story also said that Americans' total income in 2005 was $7.43 billion. I'm pretty sure it's "trillion," not "billion.")

It might have also been nice had either story mentioned the great likelihood that the Internal Revenue Service data the newspapers relied on will show further income gains for 2006 and 2007, given the state of the economy and the continuing rise in real wages. I would have also liked to have the seen the two stories give a nod to the fact that government numbers tend to overstate inflation, and thus real incomes probably did even better than the official numbers show. How about this for a fair headline: "Incomes Grow for Third Straight Year, Though Still Below 2000 Peak"?

T. Blumer at Bizzyblog (here and here--h/t) has much more info that takes apart the Times analysis as does Tom Maguire, who points out that the Times implies it is referring to individuals when it is using household numbers and also makes this interesting point about these wages vs. time stories:

The problem with a study comparing cross-sections of the economy at two different times is illustrated by the absurd initial headline, which read "Average Incomes Fell for Most in 2000-5"....A group of people filed tax returns in 2000. Five years later, some of those people had died, retired and had no taxable income, or otherwise fled the tax reach of Uncle Sam. Let's say, hypothetically, that the typical person has fifty years as a taxpayer, so that in five years there would be ten percent turnover. In this guess, 90% of the Tax Year 2000 group is still filing in 2005. And in addition to those filers, a whole new group of high school and college grads as well as new arrivals to our verdant shores will be filing.

So - mathematically it is possible that every last manjack (and womanjack) in the 90 percent who filed in both 2000 and 2005 had a higher income in 2005. If the oldsters who retired and died made more than the newbies to the job market, the average income could still fall.

In which case, the headline would be what - people are dissatisfied even though 90% earn more than five years ago? Hey, that could even be true - maybe folks expected ten percent real wage boosts and only got five percent (on average); maybe new job entrants are disappointed by their current station in life relative to their expectations.

However, the IRS numbers are not helpful in gauging people's expectations, are they? Nor are they helpful in telling me what percentage of the 2000 group had a higher income in 2005.

Average after-tax household income was $62,500 in the year 2000, but that income value was already exceeded by the year 2004 (with an average value of $62,900). For 2005, the numbers will look even better. Isn't the the New York Times trying to convince us that we are still lagging 2000 income values even as of 2005? Yes, but the New York Times is wrong....

Even when looking at after-tax income (i.e., even when taking into account the Bush tax cuts), the top 20%, unlike the median income group, had not recovered their 2000 income levels by 2004 (update: actually, the values are an exact tie, so the rich have just gotten back to where they were by 2004). Numbers like these should come with a government warning because they could easily cause one's liberal head to simply explode.