by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Helen Raleigh writes for the Federalist that leading Democratic presidential candidates use faulty data to prop up their misguided ideas about income inequality.
The census data Democrats rely on is inaccurate. … Phil Gramm, former chairman of the Senate Banking Committee, and John Early, former assistant commissioner at the Bureau of Labor Statistics, wrote for the Wall Street Journal this week. Based on their analysis, the census data distorted U.S. income inequality by “omitting one-third of all household income paid in federal, state and local taxes,” as well as the annual public transfer payments to the lower income households through “some 95 federal programs such as Medicare, Medicaid and food stamps, which make up more than 40% of federal spending, along with dozens of state and local programs.”
The scale of such government transfer is astounding. According to Gramm and Early, “The average bottom-quintile household earns only $4,908,” but “receives $45,389 in government transfers; private transfers from charitable and family sources provide another $3,313.” They go on to state that since “the average household in the bottom quintile pays $2,709 in taxes, mostly sales, property and excise taxes, the net result is that the average household in the bottom quintile has $50,901 of available resources — well within the range of American middle-class earnings.” Such annual government transfer totals about $1.9 trillion.
The U.S. government is able to make this enormous wealth transfer every year because of its highly progressive income tax system. Warren claims her “wealth tax” is simply asking the rich to pay a fair share and “pitch in a little bit more,” but according to the National Taxpayers Union Foundation, the rich already pitched in by far the most. In 2017, the top 1 percent of earners (with incomes over $515,371) paid nearly 39 percent of all income tax revenue, the top 10 percent of earners paid 70 percent, and the top 50 percent of earners paid 97 percent of all income tax revenue. In the meantime, “the bottom 50 percent of earners took home 11 percent of total nationwide income while owing 3 percent of all income taxes.”
The conclusion? The census data “overstates the income inequality by more than 300%” by leaving out income tax paid by the rich and the annual government payment transfer.