The May 23rd Wall Street Journal (WSJ) Outlook and Review Column, “The Poor Get Richer,” states that: “It’s been a rough week for John Edwards, and now comes more bad news for his “two Americas” campaign theme. A new study by the Congressional Budget Office(CBO) says the poor have been getting less poor.” A critical analysis of this report, “Changes in the Economic Resources of Low-Income Households With Children,” shows that the OPPOSITE of this is actually the case, and that the report actually supports the contention of the Edwards campaign that there are two Americas.
The WSJ column states that, “The earnings of these poor households are about 80% higher today than in the early 1990s.” This statement is true according to figure 1 on page 3 of the report, but is an isolated selection of data and terminology that attempts to inflate the perception of the actual increase in the overall economic well being of the poorest. It is an “inflated” figure because earnings are included in the report as a component of income, and the increase in inflation-adjusted INCOME (which INCLUDES earnings) of the families in the report for the lowest 20% from 1991 to 2005, was only 35%. The increases in income for the bottom 5%, the 2nd, 3rd and 4th quintiles were 9%, 18.8%, 17.3%, and 21.5%, while the increase in income for the top 20% of the sample group during this time was 53.2%. This means that all five of these lower groups saw NO RELATIVE INCREASE in income in comparison with the top 20%, in fact from 1991 to 2005 THEY ALL LOST significant GROUND in the economic maintenance of their lives.
An accurate translation of this data would be that the rich got richer, while the middle class and the poor got poorer, with the poorest of the poor and the middle class taking the hardest brunt. The CBO report therefore completely REAFFIRMS the economic part of the contention of the Edwards campaign, that there are two Americas.
Furthermore, the report only focuses on changes in income of households WITH children, and states that the growth in income from 1991-2005 for the poorest households overall “differs significantly” from that of income growth of households with children. As the report states, “Indeed, the lowest quintile of households without children experienced no real increase in income from 1991 to 2005.” Therefore, for all households together, the overall increase in household income was significantly less than the 35% increase indicated in the report, and nowhere near the appearance of economic growth trumpeted by the WSJ of nearly 80%. Therefore, overall the poorest lost even more ground. These statements from the report directly refute the conclusion reached by the WSJ column that the “Poor have been getting less Poor.”
The reasons given by the CBO report for the increase in earnings and income for the lowest 20% of households with children were: 1) the Welfare Reform act of 1996, along with 2) an expansion of the Earned Income Tax Credit and 3) the expansion of the economy in the mid-’90s. According to the report, the withdrawal of welfare payments forced those with children into the job market, and the result was an increase in the percentage of earnings in income for these households, and thus an increase in overall income for these families from 1996 to 2000. In other words, most of the income received in these households during this time, shifted from Government payments to earnings from employment, with a net increase in income for this group.
The main claim of the report, supported by the survey data, is that the average inflation-adjusted income of low income households with children rose from 1991-2005 by 35%. But a look at table 1 on page 12 or the report shows that the situation of ACTUAL INCOME GROWTH for middle and lower class households got much worse from 2000 to 2005, as actual household income FELL for all groups but the top two groups, with the poorest 20% experiencing the largest decrease.
From table 1 on page 12 of the report, 1991-2000 household income for:
the bottom 20% rose from $12,400 to $18,800, an increase of 51.4%,
the 4th quintile rose from $31,600 to $39,400, an increase of 24.9%,
the 3rd quintile rose from $48,700 to $59,100, an increase of 21.4%,
the 2nd quintile rose from $69,100 to $83,700, an increase of 21.1%, and
the highest quintile rose from $114,700 to $176,300, an increase of 53.7%.
From 2000-2005 household income for:
the bottom 20% fell from $18,800 to $16,800, a decrease of 10.8%,
the 4th quintile fell from $39,400 to $37,500, a decrease of 4.8%,
the 3rd quintile fell from $59,100 to $57,200 a 3.3% decrease,
the 2nd quintile rose from $83,700 to $83,900 a .3% increase, and
the highest quintile fell from $176,300 to $176,300, a 0% change.
The data clearly show that during the Bush years, the economy performed poorly for household incomes overall, with the effects on household income increasingly worsening as one follows the scale down from highest to lowest income brackets in the report. Even if the highest quintile didn’t do as well from 2000- 2005, they held ground, where the lower quintiles lost ground. Even in the bad economic times of recession, by this report, the Bush economy was better for the richest. Likewise the Bush economy during this time was hardest on the poorest, as income for this group fell by 10.8%, the most of any income group.
The data in the report ACTUALLY PRESENTS A HARSHER PICTURE than the one just described of the impact of the loss in income for the lower three groups during the years of 2001-2005. The representation by the CBO of an 10.8% decrease in income for the bottom 20% from 2000 to 2005 is accurate for a snapshot of that timeframe for relative comparison of income with other groups, but does not reflect the loss of income relative to the gains of 1991-2000. The reason for this is because the change in income during 2000-2005 calculates the change in income at the point of the achievements in income increase from 1991-2000, using the higher income figure of 2000 not the lower income figure from 1991. That’s why the figures in table 1 of the CBO report don’t add up. For example, the poorest group’s 51.4% increase from 1991-2000, minus the 10.8% decrease from 2000-2005, does not equal the 35% overall increase from 1991-2005. If we compute the percentage decreases of 2000-2005 from the 1991 income figures for all classes, we come up with income losses for the lower three groups of 16.4%, 6.1%, and 4.1%. Showing the losses in relation to the gains of 1991-2000, displays that the losses incurred during the years of 2001-2005 ACTUALLY WIPED AWAY 31.9% OF THE GAINS IN INCOME ACHIEVED from 1991-2005 for the poorest 20%, 24.5% of the gains achieved for the 4th quintile, and 19% of the gains achieved for the 3rd quintile. The years of 2001-2005 were catastrophic for the poor and the lower middle to middle classes in terms of keeping pace with the cost of their daily lives. This picture mocks the claim by the WSJ that the poor are getting richer.
The only sound conclusions that could be reached by the data in the report from the WSJ column writer that would not be inaccurate or misleading, are that:
1) the poorest 20% of participants IN THE STUDY — of only households WITH children — kept pace with the highest quintile from 1991 to 2000, meaning only that, on average, ONLY THIS GROUP didn’t get relatively any poorer during this time. However, during this time they didn’t make up any ground either relatively during this period they stayed the same. Any relative maintenance of the rate of increase in income with the rate of increase of the top 20%; from entry into the job force from 1996 to 2000 from the Welfare Reform Act; came to a screeching halt in 2000, with the onset of the recession. From 2000 to 2005, income for this group fell by 10.8%, while the top 20% saw a decrease of -0.3% which translates into an overall loss; for the poorest; of 10.5% in relative income, in keeping pace with the top 20%.
2) That for participants in the lowest income group, in the study and on average, the Welfare Reform Act and the expansion of the Earned Income Tax Credit appear to have worked in improving, in the short term, the income of low-income households with children. And
3) The 3rd and 4th lowest income groups, while losing ground in actual income in the percentage loss of income from 2000-2005, lost more ground relatively from 1991-2000, than they did from 2000-2005. The Bush administration will somehow claim this as a victory, that the lower two middle class did better relatively better under them than from 1991-2000. It, however, would be the most Pyrrhic of victories, when actual income for these classes fell 10.5% and 3%, which represent wiping away 24.5% and 19% of the gains from 1991-2000. I don’t know how ANY administration could claim these kind of losses in the income of their citizens somehow as a victory.
The report does no breakdown of the increase in net worth of the upper percentiles of the top 20% during the time periods of the study, which would provide a more accurate picture of the disparity in actual economic growth between the various groups.
The data in the CBO report, when critically analyzed, paints a very serious picture of the deteriorating economic conditions of the ordinary American citizen. It appears that the economic contention of the Edwards Campaign of “Two Americas” is on sound footing, and sadly for the economic health of the ordinary American citizen, much needed.