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The Myth of the ‘Widening Gap Between Rich and Poor’

We hear a lot about increased income inequality in the media — until a Democratic president takes office.

by
Tom Blumer

Bio

January 30, 2009 - 12:00 am
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It gets repeated so frequently and so persistently that many assume it must be true: the rich are getting richer and the poor have been left behind in ever-larger numbers, especially during the eeeeeevil Bush administration.

Baloney.

Let’s take a look at the latest inflation-adjusted Census Bureau data from 2003 through 2007 (data is from Table A-3 at page 40 of the Bureau’s annual “Income, Poverty, and Health Insurance Coverage in the United States” publication; this Bureau page has the link to the PDF publication; more historical detail is here):

I’m using 2003 as the starting point for two reasons. First, the negative effects of the Internet bubble that occurred during the Clinton administration and of the 9/11 attacks didn’t wear off until that year. Second, the investment-related Bush tax cuts on capital gains and dividends, along with across-the-board cuts in marginal rates, finally took effect that year. The Bush tax cuts in 2001 were, unfortunately, relatively ineffectual, because they represented a one-time stimulus instead of long-term change.

Note that in the last four years the Bureau has tracked:

  • The 10th percentile cutoff went up by more than the cutoffs for the richest three percentiles. The rich did not get proportionally richer than the poorest of the poor.
  • In the aggregate, it’s fair to say that no income group “lost ground.”
  • The Gini coefficient, which is a statistical measure of income inequality — a value of zero would mean that everyone has the same income, and a value of one would mean that one person makes all the income — barely budged, and the budge was in the direction of less inequality.

What’s more, the gains at the lower income levels are probably understated. That’s because the Census Bureau’s inflation-adjusted numbers don’t fully take the “Wal-Mart effect” into account. The linked OpinionJournal.com column cites outside research showing that “Wal-Mart’s 1985-2004 expansion of sales resulted in a 9.1% drop in the price of food at home, a 4.2% drop in the price of other goods and commodities, and a 3.1% decline in consumer prices overall, saving the average working family about $2,329 per year.”

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