Averages and Incomes

http://www.futureofcapitalism.com/2011/05/averages-and-incomes

From a Wall Street Journal news article today headlined "High-Earning Households Pay Growing Share of Taxes":

Average pretax incomes for the top 20% grew from $140,300 in 1979 to $264,700 in 2007, in inflation-adjusted dollars; for the top 10%, they grew from $182,800 in 1979 to $394,500 in 2007 according to the Congressional Budget Office

I don't know what kind of inflation adjusting they are doing, but a reader might walk away with the impression that the average filer in the top 20% is earning $264,700 a year. The Tax Foundation, though, has IRS data from 2007 (see table 7) indicating that the break point to be in the top 1% was $410,096, the top 5% was $160,041, the top 10% was $113,018, and the top 25% was $66,532. The Census Bureau's current population survey for 2007 put the break point to be in the top 20% — the top fifth of American earners — at $100,000. If the Journal's "average" is correct, it is skewed upward by a relatively small number of super-high-income earners.

The reason this matters is that the Democrats are trying to use these data as a wedge to define the "rich" and to raise taxes on them. So they say things like "average pretax incomes for the top 20% grew from $140,300 in 1979 to $264,700 in 2007," as a way to justify tax increases on those top 20%. What they don't say is that "top 20%" includes a lot of families getting by in high-cost metropolitan areas on $100,000 a year or a little bit more — not poor, and "rich" by global standards, but not $264,700 a year, either. Well more than half of the families in the top 20% probably earn less than the average.

And that's not even getting into the other points oft-made here about how people's income varies from year to year depending on their age and other factors, or about the difference between income and assets.

by Editor  |  May 3, 2011 at 9:55 am Related Topics:  Definition of 'Rich', Income Inequality, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list