Compared to what? Why income distribution data is meaningless

Matt Yglesias makes the following observation:

Something that comes up frequently in tax discussion is prosperous New York journalists who are socially acquainted with even richer people saying that $250,000 isn’t a lot of money in a place like New York.

The best starting point for that discussion is the fact that the median household income in New York City is about $50,000, which is slightly below the national median of $55,000. People are perhaps thinking of the fact that in Manhattan, average incomes are higher than the national average. But even in Manhattan the median household income is only $65,000, and if you’re earning almost quadruple the local median income you’re obviously doing pretty well.

Let me start off by saying that anyone making $250,000 is “doing pretty well” in my view.  I’d say that 10 times in a row, except I know that there’d still be a dozen moronic commenters complaining that I’m claiming that income  is not doing pretty well.  And I also know who those commenters plan to vote for in the fall.

OK, now let’s talk about the real world.  What do you visualize when you think of the average “household” in Manhattan making $250,000/year?  I think of a professional with a spouse and two kids, in a 2 bedroom apartment.  And what do you think of when you visualize “households” making $65,000?  I picture younger single people–the type on Seinfeld.  (OK, I’m from Wisconsin, what do I know about Manhattan?)  Say you have 4 of them sharing a two bedroom apartment.  Their household incomes are each $65,000, but the total income of that apartment is $280,000.  After taxes the gap is far larger, as the tax rate on the middle-age professional is way higher than on the 4 yuppies.   So who’s better off?  Certainly it’s cheaper to raise a family of four than to support 4 yuppies who go to a lot of clubs.  But overall I don’t see a big difference, especially after taxes.

It doesn’t surprise me at all that middle-aged people in midtown Manhattan who are professionals and have kids don’t view $250,000 as a particularly high income.  They aren’t answering the same question as Matt is considering.  They aren’t comparing themselves to illegal Chinese immigrants making $20,000/year in Chinatown working 80 hours a week and living with 7 other guys in bunk beds in a single room.  Or 23 year olds working in a club.  Or a single retired lady who’s 88 years old.

I’ve spent roughly 8 years in each of the 5 income quintiles, and I can tell you that this data says NOTHING about how I’ve been doing in any meaningful sense.  I haven’t migrated from poverty to working class to middle class to upper middle class, at least in my own mind.  Objectively I guess I have.  But real people think of income in a much more intuitive way, and I would argue a way that is often more meaningful than what the official government data shows.

Matt’s right that the upper middle class in America can afford to pay lots more taxes, and if we are going to have the sort of welfare state he prefers they ultimately will have to pay a lot more taxes, as they do in Europe. But it’s not going to be easy convincing families where the dad is a NYC cop and the mom is a nurse that they are pretty affluent because their family income is $180,000, no matter what the income distribution data shows.  Democratic politicians know this.

PS.  I spent about 8 years in the bottom quintile, but I’ve been in the top one for significantly longer, so it would be more accurate to say I’ve averaged 8 years in each of the top four quintiles, if you want to get picky.


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63 Responses to “Compared to what? Why income distribution data is meaningless”

  1. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 10:30

    “I’ve spent roughly 8 years in each of the 5 income quintiles, and I can tell you that this data says NOTHING about how I’ve been doing in any meaningful sense. I haven’t migrated from poverty to working class to middle class to upper middle class, at least in my own mind. Objectively I guess I have”

    There is however, something of a difference between a young person-by definition “poor” as they are just starting out their earning years after college; everyone goes through this accept the Romneyesque who had a trust fund to start-who was born into a middle class life-as I too was-and someone who grows up poor.

    You’re time in lower income groups reflects age, So while what you say is objectively true it’s important to make apples to apples comparisons

  2. Gravatar of Vivian Darkbloom Vivian Darkbloom
    14. July 2012 at 10:36

    The discussions about quintiles and the contributions they make, or should make, to total federal tax revenues is rather one-sided. It’s like looking at the debit side of a balance sheet and ignoring the credit side. That strikes me as irrational, or at least woefully incomplete.

    Greg Mankiw has posted an interesting set of numbers, based on a recent CBO Report, that considers both sides of the ledger—how much each quintile pays in taxes and how much each quintile takes in through transfer payments (what Greg likens to “negative taxes). Greg comes up with the following “effective rate” (perhaps “net contribution rate” would be an appropriate term) for each quintile:

    “Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

    Bottom quintile: -301 percent
    Second quintile: -42 percent
    Middle quintile: -5 percent
    Fourth quintile: 10 percent
    Highest quintile: 22 percent

    Top one percent: 28 percent”

    http://gregmankiw.blogspot.fr/

    A somewhat different perspective, but also worth considering, I think.

  3. Gravatar of Jim Glass Jim Glass
    14. July 2012 at 10:36

    Mankiw on tax rates by income quintile, net of transfers received:

    Bottom quintile: -301 percent
    Second quintile: -42 percent
    Middle quintile: -5 percent
    Fourth quintile: 10 percent
    Highest quintile: 22 percent
    Top one percent: 28 percent

    The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begins) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.

    (Emphasis in original.)

  4. Gravatar of Jim Glass Jim Glass
    14. July 2012 at 10:41

    Vivian, great minds post alike, and both at 10:36.

    (Unless you think of a more appropriate descriptive than “great”.)

  5. Gravatar of Vivian Darkbloom Vivian Darkbloom
    14. July 2012 at 10:49

    Jim,

    You may have a quick mind, but I’m hard to beat on the keyboard. When I think back on my secondary education many, many years ago, it’s likely that the mandatory typing class has had the greatest lasting value. No kidding.

  6. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 10:58

    Geez you guys share a brain evidently!

  7. Gravatar of Jim Glass Jim Glass
    14. July 2012 at 11:08

    Vivian, ha, another similarity! When I was a kid, late grammar school age, my parents wanted to send to me to a summer camp but I didn’t want to go. The deal that got me out of it was my agreeing to go to typing school during the summer — this was back in the days of manual typewriters and the occasional Stegosaurus walking by in the street. I think my mother didn’t want to get stuck typing my high-school papers for me. So I spent the summer in class with a bunch of people older than me preparing to be secretaries or whatever. And you’re exactly right — it had the greatest practical payoff of any school course I ever took.

  8. Gravatar of Jon Jon
    14. July 2012 at 11:10

    This reminds me of a NYT article this year stating that 50% of households in NYC were comprised of just one person. This has been true for a while.

  9. Gravatar of Steve Steve
    14. July 2012 at 11:15

    When I think of a family earning 250K in Manhattan, I think of someone who a) has a bad job AND b) lives in the wrong place.

    If you are experienced, work 60 hour weeks, and earn 250K in a Manhattan job, you should think about relocating to the sunbelt, where a 40 hour workweek and 80K salary will go farther. Or at least commute from an hour outside the city (but that’s why a 60 hour workweek is a bad job).

  10. Gravatar of Evan Soltas Evan Soltas
    14. July 2012 at 11:19

    Scott,

    Neither you nor Yglesias really deals with the premise that an income of $250,000 does/does not represent a relatively high standard of living in NYC. Fortunately, economists have cost-of-living data just for this purpose.

    Doing some quick searching, I found that $218 in the New York City metropolitan statistical area went as far as $100 would on average across the nation. See here: http://bit.ly/omVtkV. Therefore an NYC-MSA income of $250,000 has roughly equivalent purchasing power as an income of $115,000 for the average American. (There is, however, an argument that NYC provides quality-of-life benefits independent of purchasing power, so saying that an average American making $115,000 has the same quality of life as a New Yorker making $250,000 is not necessarily true.)

    Nevertheless, a national-average equivalent income of $115,000 would still mean that they are in the top income quintile, albeit not by much. (See: http://bit.ly/1vjTbT)

    I think the most interesting avenue for discussion is what I wrote earlier — does the New Yorker with the same purchasing power as an average American have a higher or lower quality of life than that American? My personal assessment, having lived in New York City for almost a decade and having just finished Glaeser’s new book, “Triumph of the City,” is that it’s higher.

  11. Gravatar of Left Outside Left Outside
    14. July 2012 at 12:40

    As someone living in London I don’t quite get it.

    My rent is double in London for a like for like house as the one I used to live in back in Southampton (the original leaving point of the Mayflower, Plymouth was the last stop in the old world).

    If things cost more but you consume them somewhere better (as London is than Southampton, as New York is than Plymouth) then I don’t really understand the confusion, yes you’re spending money on rents but that is the price the market set. It costs lots to live somewhere awesome, but you get to live somewhere awesome.

  12. Gravatar of Jim Glass Jim Glass
    14. July 2012 at 12:56

    There is however, something of a difference between a young person-by definition “poor” as they are just starting out their earning years after college; everyone goes through this … You’re time in lower income groups reflects age, So while what you say is objectively true it’s important to make apples to apples comparisons.

    There are at least three groups counted in the lowest income quintile who are not poor: the young with non-poor to very high expected lifetime income (e.g., students in professional schools), business owners and investors experiencing income-loss years but who have significant wealth and expectations of future high income, and retirees with little or no income living off of ample savings (plus Medicare, etc, benefits with six-figure market value).

    This is why quintile distributions by age cohort give a much better reading of reality than do shapshots of everyone at one point of time. As does the consumption distribution, which tracks smoothed lifetime income (e.g., students and retirees consuming more than their current income as per expected future earnings and accumulated wealth) and which shows *nothing like* the inequality of the popularly-cited income inequality numbers.

    As a self-employed professional (in NYC) I’ve been in all five quintiles as a bill-paying working adult. I’ve been poor and I’ve been rich, with some significant volatility — and can indeed confirm that rich is better. But as I’ve smoothed my consumption, my state of welfare has never been either poor or rich.

    So I’m a first-person example of a person who as a working adult has been counted in the Piketty-Saez income tax data as being both rich and poor without ever being either.

  13. Gravatar of Joel Fish Joel Fish
    14. July 2012 at 13:05

    In the past six years, I’ve lived with my wife in

    1) New York City on about $65k/yr with no kids
    2) Ann Arbor on about $60k/yr with one kid
    3) the Bay Area on about $140k/yr with two kids
    4) Leipzig Germany on about $40k/yr with two kids

    And I can’t say I felt like our standards of living ever significantly changed. We had enough to get by, and occasionally we obtained a few luxuries. So yeah, I agree that income distribution data is not particularly meaningful, and that no matter where you live $250k/yr is a generous household income which is certainly capable of (if not willing to) pay more in taxes. As for income data with cost of living adjustments, my personal experiences would suggest that this data is also not meaningful unless it incorporates costs of raising children (specifically housing and daycare costs).

  14. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. July 2012 at 13:06

    This morning’s Seattle Times has this headline;

    http://seattletimes.nwsource.com/html/localnews/2018684365_charterfunding14m.html

    ‘Wealthy throwing money at charter-schools initiative’

    from which, you’d never guess that it’s about the same people as in this (from one month earlier);

    http://seattletimes.nwsource.com/html/localnews/2018446335_college16m.html

    ‘Gates grant helps math-rusty community-college students’

  15. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. July 2012 at 13:53

    Mankiw’s earlier post on Gene Steurle’s work on the disincentives from extraordinary marginal tax rates facing low income people is also relevant;

    http://www.taxpolicycenter.org/UploadedPDF/901508-Marginal-Tax-Rates-Work-and-the-Nations-Real-Tax-System.pdf

    ‘At the Urban-Brookings Tax Policy Center and the Urban Institute’s Income and Benefits Policy Center we have done quite a bit of work on calculating these rates, particularly for low and moderate-income households. Through such models as the “Net Income Change Calculator,” or NICC, we can show their effect for individual states. Adding in health care makes the calculations more difficult, but when added in, these rates can be quite high, especially for households with children, commonly reaching 50 percent when moving toward full-time work or a second job in the household; for those getting housing and other assistance, the rate can easily jump to 80 percent or more.’

    Funny Joe Stiglitz doesn’t ever talk about that.

  16. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 14:12

    “Mankiw’s earlier post on Gene Steurle’s work on the disincentives from extraordinary marginal tax rates facing low income people is also relevant”

    “Funny Joe Stiglitz doesn’t ever talk about that.”

    Actually rather than an opportunity to knock Stiglitz what I find funny is that all the Cato institute types who ware always saying “almost 50% of Americans pay no tax” never mention that.

  17. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. July 2012 at 15:23

    ‘Cato types’ aren’t aware of the disincentive effects of high marginal tax rates? Then why are they always so opposed to them?

  18. Gravatar of Bill Ellis Bill Ellis
    14. July 2012 at 15:25

    Viv and Jim…

    “Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received. For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

    Bottom quintile: -301 percent
    Second quintile: -42 percent
    Middle quintile: -5 percent
    Fourth quintile: 10 percent
    Highest quintile: 22 percent

    Top one percent: 28 percent”

    It would interesting to apply this approach to the different Tax/budget plans.

    Romney’s and Ryan’s slash taxes for the top, offer smaller cuts for the middle, while actually raising taxes on the lowest . They also slash programs that mostly benefit the poor, while keeping programs that benefit the wealthy (like oil subsidies ) intact.
    It seems for sure that the GOP plans will fall hardest on the poor and elderly while the middle are mostly unaffected, (unless the middle have elderly that they will shoulder the burden for. ) while the top get large increases in their wealth…
    In short The GOP plans will exacerbate income and wealth inequality by Transferring communal wealth from the poor to the rich.

    Obama’s plan pretty much holds communal wealth and taxes in place for the poor, middle class and wealthy, with small taxes increases for the wealthiest Americans…barley doing anything to change wealth inequity. It is really not much of a change in the status quo at all.

    Can an economic case be made that crushing the poor to put more money in the hands of the wealthy still be made with a strait face ?

    Or is the only argument left for the GOP approach a moral one ?

  19. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. July 2012 at 15:28

    First hit from a search at Cato for ‘marginal tax rates’ gets me;

    http://www.cato.org/publications/policy-analysis/obamas-prescription-lowwage-workers-high-implicit-taxes-higher-premiums

    ‘House and Senate Democrats have produced health care legislation whose mandates, subsidies, tax penalties, and health insurance regulations would penalize work and reward Americans who refuse to purchase health insurance. As a result, the legislation could trap many Americans in low-wage jobs and cause even higher health-insurance premiums, government spending, and taxes than are envisioned in the legislation.

    ‘Those mandates and subsidies would impose effective marginal tax rates on low-wage workers that would average between 53 and 74 percent”” and even reach as high as 82 percent””over broad ranges of earned income. By comparison, the wealthiest Americans would face tax rates no higher than 47.9 percent.

    ‘Over smaller ranges of earned income, the legislation would impose effective marginal tax rates that exceed 100 percent. Families of four would see effective marginal tax rates as high as 174 percent under the Senate bill and 159 percent under the House bill.’

  20. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 15:33

    Ok well they’re just lying about the ACA anyway. They do also always claim that almost half of Americans don’t pay any tax which is a lie. What they should say is almost half don’t oay the income tax. Them and similar Right wing outfits like them

    but they more than make up for it with the payroll tax and high state taxes-sales, fees and the state indivudal and property taxes.

  21. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 15:34

    I will agree that Romney would do a better job of cutting the deficit than Obama though-all he has to to is repatriate all that his money stashed in the Cayman Islands and then actually pay his taxes.

  22. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. July 2012 at 15:35

    ‘Can an economic case be made that crushing the poor to put more money in the hands of the wealthy still be made with a strait face?’

    By lowering the poor’s marginal tax rate from 174%, they ‘crush’ them?

    How much damage does raising the tax rate on investment income do to the poor, by making the 1% less willing to invest and grow the economy? How much lower will the wages of the poor be from the lower capital they have to work with? The fewer consumer goods produced for their benefit?

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. July 2012 at 15:51

    ‘Ok well they’re just lying about the ACA anyway.’

    As much as Obama lied about it? After all, he strenuously denied it raised taxes on anyone earning below $200k, but it was only John Roberts agreeing it was a tax that saved it constitutionally.

  24. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 15:55

    Well no one lies more than Mitt Romney. He contradicts what he said at the beginning of a paragraph. He went in one day from a tax to a penalty.

    His whole campaign is about running against his own law-Obamacare

  25. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 15:58

    Again I agree Mitt’s the man to fix the deficit. Just bring the all that money stashed in the Cayman Islands back and pay his taxes.

  26. Gravatar of cassander cassander
    14. July 2012 at 16:15

    What never ceases to drive me nuts is people claiming that because they live in NYC their 250k shouldn’t count, because it costs more to live there. Living in a city like NY is a tremendous luxury, it should cost more to live there. They understand this, or they wouldn’t spend so much on rent, but seem completely unable to connect this to the first idea. Just more proof of how hard it is to get people to understand something when they profit by not understanding it.

  27. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 16:21

    True Cassander you get what you pay for

  28. Gravatar of Steve Steve
    14. July 2012 at 16:26

    Jim Glass and Vivian Darkbloom:

    Mankiw’s blog post is blatantly dishonest. (what else is new?)

    First off, he’s using “market” (wage) income only in order to calculate his income quintiles. Then, he is counting social security and medicare as transfer payment section. Essentially he is saying that the poorest retired people pay a -300% wage income tax rate. Never mind that these people paid into the system for decades.

    To put numbers on it, the average person in Mankiw’s bottom quintile receives $4500/year in wage income and $15000/year in social security+medicare.

  29. Gravatar of Bill Ellis Bill Ellis
    14. July 2012 at 16:29

    Mike sax,

    Is this a joke..?

    “I will agree that Romney would do a better job of cutting the deficit than Obama .”

    Cuz if it is not you have gone crazy.

    All of the “savings” in Romney’s plan come from vague assertions of closing loop holes. All of the “savings” in Romney’s “plan” are literally unaccountable.

    Have you become a faith based Mitt devote ? Do you just trust him ?..and congress to deliver ?

    Without Romney’s Magical-vanishing-loop-holes, his plan adds more than a trillion to the debt (over 10 years) than Obama’s plan.

    How is Romney going to do a better job on the debt than Obama Mike ? Tell me what kind of trillion dollar loop holes do you think congress is going to take away from the 1% ?
    Name me one…( Romney won’t )….then come up with 100 more.

    I hope my snark meter is on the fritz…

  30. Gravatar of Bill Ellis Bill Ellis
    14. July 2012 at 16:46

    Patrick R. Sullivan,

    So you believe that the benefits the poor and elderly receive have them living too comfortably ? That medicare, medicaid and food stamps at the present levels provide luxury ?

    You know the 1% are sitting on about two trillion in cash, and have been since 2007 ? Tell me how is making that throne of money higher going to encourage them to invest more ?

    If you want to get the elite to invest more than increase the demand for their products to the point where they can not afford to let their assets remain idol. Increase it to the point to where they leave money on the table by if they don’t increase production, and hire more workers.

    You can’t increase demand by transferring wealth from those who HAVE to spend it into the hands of those who can afford to sit on it forever.

    ( 301% to 174% ) Where did you get that ? I am not disputing it I just want to know.

  31. Gravatar of Bill Ellis Bill Ellis
    14. July 2012 at 17:23

    Patrick R. Sullivan,

    That cato link was from 2010, well before ACA was worked out. It is nothing but fear mongering speculation.

    AT 133% of poverty and below you get medicaid. You don’t have to get insurance and there is no penalty. At 266 % of poverty your costs are limited to 4% of your income…The caps on what you have to pay for insurance are on a sliding scale up to 500% of poverty…about 9%.
    After 500% you have to pay market rates.

    You know Obamacare and Romneycare a about the same. We have a real world experiment to look at.

  32. Gravatar of Benny Lava Benny Lava
    14. July 2012 at 17:27

    Steve, that is a good point and reinforces the idea mentioned earlier that it is better to figure it by age than income. Old people, especially those bottom 4/5, take more than they pay. Sadly this is an insurance program not a forced savings (like in Singapore), so “paying in” is irrelevant. I would guess this is why things changed since the 70s: the great demographic shift we didn’t save for.

    Obviously a 20 year old male making 9.00/hr with no dependents is not the recipient of massive transfers. I hate the deceitful implication by Mankiw types that they are.

  33. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 17:44

    Bill Ellis, yes it’s a joke. If you had finished the sentence that would have been obvious:

    I was making a joke about how aggressive a tax avoider he is.

  34. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 17:46

    Bill you really should turn on your irony meter

  35. Gravatar of Bill Ellis Bill Ellis
    14. July 2012 at 17:50

    Mike, Tee Many Martoonies on my end. 🙂
    I did enjoy the chance to rant though.

  36. Gravatar of Mike Sax Mike Sax
    14. July 2012 at 17:56

    Bill it was a good rant, so I guess it was worth it.

  37. Gravatar of Steve Steve
    14. July 2012 at 21:15

    Benny Lava wrote:

    “Obviously a 20 year old male making 9.00/hr with no dependents is not the recipient of massive transfers. I hate the deceitful implication by Mankiw types that they are.”

    Benny, not only is the 20yr old $9/hour wage earner not receiving massive transfers, at $18K/year he isn’t even in the bottom quintile. The bottom quintile is probably (just guessing) 65% retired, 10% disabled, and 25% unemployed/underemployed.

    If Mankiw wants these people to be net payers into the system, then he wants to get rid of Social Security, period. If that’s what he believes, he should say so instead of hiding behind statistical obfuscations.

  38. Gravatar of gofx gofx
    14. July 2012 at 21:30

    Geez, I feel like I’m crashing Redistributionist-palooza! Let me get this straight, and yes Bill Ellis this may “only “be a moral argument so I’ll use real human beings as opposed “The Rich or 1%”:
    If Michael Jordan earns $20MM/ year from endorsements or Alec Baldwin earns $20MM/year from acting and they pay an average effective FIT rate somewhere around 20% or $4MM/year; and if I’m in the middle income quintile (approx $30k-$60k) my average effective rate is around 3.2%; (if I am in the lowest two quintiles, my average effective tax rate is negative) and if Michael Jordan and his other “one percenters” currently pay 37% of all FIT with a 17% share of AGI; —-then they just aren’t paying their “fair share” and they OWE me or folks in the lowest two quintiles MORE money——OR ELSE!. And they must pay it into a system that wastes a significant amount of the resources it currently has. I think I need one of Bill’s martinis !

  39. Gravatar of Saturos Saturos
    14. July 2012 at 22:43

    So Scott, according to your intuition, how would you arrange the households of NYC, from “best-off” to “worst-off”?

  40. Gravatar of Dave Schuler Dave Schuler
    15. July 2012 at 04:34

    Left Outside and cassander have the right of it. Living in New York is a lifestyle choice not a law of nature. It’s like living in Maui or Alaska or on a boat. If it costs more to rent a two bedroom apartment, go to nice restaurants, that’s a choice. Complaining about it is just as repellent as complaining that the greens fees at Pebble Beach are too high.

  41. Gravatar of Becky Hargrove Becky Hargrove
    15. July 2012 at 05:45

    I’m with Dave Schuler on this one, as I see desirable locales as highly specific finite goods that will skew any idea of ‘livable’ wages. However it’s not necessarily all bad news that people only visit these places, even if they can’t move to them. The challenge now in this regard is to create more places that pull people in, due to better focused knowledge markets and geographic/environment beauty (or lack of) that is assisted by human skill. Such places might also come with more livable wages.

  42. Gravatar of Vivian Darkbloom Vivian Darkbloom
    15. July 2012 at 07:27

    @Steve

    “Jim Glass and Vivian Darkbloom:

    “Mankiw’s blog post is blatantly dishonest. (what else is new?)”

    Mankiw is definitely partisan, but I don’t think he is “dishonest”, much less “blatantly dishonest”. In fact, he seems to be one of the more honest partisan economists among all of them. Let’s take a closer look at the reasons you presumably think he’s being blatantly dishonest:

    “First off, he’s using “market” (wage) income only in order to calculate his income quintiles.”

    “Market income” is not just wage income—it is basically all income excluding income from “transfers”. The object here, it seems, was to try to estimate, per quintile, the effective rate of net contribution to the government fisc, i.e., taxes paid less transfer income divided by market income. The percentage can be positive or negative. And, these are not just “his quintiles”, they are quintiles as calculated by the CBO. If Mankiw wanted to be “blantantly dishonest”, I doubt he would have pointed out clearly in the text of his blog that he used market income and linked to the table used to support the analysis which also clearly spelled out the assumptions, including the definition of “market income”, etc.

    What, exactly, is the basis of your objection? Do you object to the validity of the exercise per se, i.e., is it an inappropriate inquiry to look not only at taxes paid but also to transfers received to try to determine one’s net contribution to government income or net receipt of government income? If “market income” is not the appropriate measure, what other measure would you suggest (keeping in mind that the net contribution rate can be positive or negative)? If you have a better suggestion, I would like to hear it, and, despite your belief that Mankiw is blantantly dishonest, I’m sure he would, too.
    “Then, he is counting Social Security and Medicare as transfer payment section.”

    Yes, as well as Medicaid and other cash transfer benefits. The entire amount received from Social Security and Medicare are not necessarily “transfers” to the extent that contributions to those programs equal or exceed the benefits from them. However, I trust that you noticed that Mankiw does include current year payroll taxes in his calculation.

    “Essentially he is saying that the poorest retired people pay a -300% wage income tax rate.”

    No, he’s not. It is inherent in any analysis of taxes, benefits and effective rates that the composition of any quintile is an average of every person in it. That’s a limitation of this sort of analysis generally. It is a limitation of any analysis that looks at effective tax rates per income group. The weakness is that persons (generally) do not spend their entire lives within the same income cohort. Scott Sumners’ personal anecdote is a case in point. The payroll taxes of those who are in the lowest income and who have current wages are included even though the eventual “transfer payments”, if any, are not.

    In the best of worlds, one would be able to track the lifetime payroll and income tax payments of each person within each current income quintile for this type of analysis. That’s simply not feasible, but perhaps its something the government should do in the future. Actually, Gene Steurele and others have done considerable work on social security and Medicare to determine exactly how “progressive” those programs are. Their conclusion: Both programs are extremely progressive with the lowest, and even the middle quintile, paying in much less to those programs than they receive in benefits. For example, here is Steuerle’s recent study, which shows even the average earner is getting a net transfer benefit from these programs. Is he being “blatantly dishonest”, too?

    http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf

    This seems to roughly coincide with the numbers Mankiw has come up with.
    It is somewhat strange logic to object to this type of analysis on the basis that, say, if I pay in $10 to Social Security or Medicare and get $50 back (in real income terms), I have not gotten any net “transfer”, either from the current generational cohort or from subsequent ones.

    To put numbers on it, the average person in Mankiw’s bottom quintile receives $4500/year in wage income and $15000/year in social security+medicare.”

    Not exactly. You are correct to use the term “average person” in the bottom quintile ( a strange deviation from your selecting only “poor retirees” from that average to make an objection); however, the “transfers” don’t only include social security and medicare. They include also, refundable tax credits, Medicaid, TAANFL (food stamps) and other cash transfer benefits. Does it surprise you that many persons get far more from government transfer payments than they themselves earn from wages or savings or pay in taxes, current or lifetime? Or is it simply that this is not a politically correct subject of discussion or something that is out of bounds to attempt to measure?

  43. Gravatar of ssumner ssumner
    15. July 2012 at 08:22

    Mike Sax, I’m glad you agree with me that income distribution data is nonsense because it doesn’t do the “important” thing of making apples to apples comparison. Now will you promise to stop citing income distribution data in the comment sections.

    Vivian and Jim, I liked that Mankiw post, but he makes the same mistake as Yglesias, calling the middle quintile the “middle class.” I’d guess many are simply retired people getting Social Security. Is that what the average reader visualizes? I wonder . . .

    Jon, Good point.

    Evan, Yglesias has addressed that issue, claiming the amenities provided by Manhattan are “consumption,” and hence the cost of living isn’t really higher–you get more in NYC. At least I think that’s what he claims.

    Left Outside, Yes, and that relates to what I said to Evan. Indeed he noted that possibility as well. I don’t have strong views on how important it is.

    Jim Glass. That’s an excellent example, which shows the folly of income distribution data.

    Joel, Good example.

    Patrick, Yes, the problem of high implicit MTRs is often overlooked.

    Steve, I feared there might be that sort of problem with Mankiw’s data. I suppose Mankiw could argue it’s the reductio ad absurdum of all the left wing use of income distribution data.

    Saturos, I’m a utilitarian, so I’d rate people from happiest to least happy.

  44. Gravatar of Saturos Saturos
    15. July 2012 at 09:04

    “Saturos, I’m a utilitarian, so I’d rate people from happiest to least happy.”

    Not to start this one up again, but… how would you go about checking that? (And what if the effect of money on “happiness”, however defined, was small compared to other variables, would you be willing to redistribute those as well?)

  45. Gravatar of Steve Steve
    15. July 2012 at 10:32

    Vivian, I the reason I call Mankiw “dishonest” is because I have high standards for the chair of an Ivy economics department. Maybe deliberate omission doesn’t equate to dishonesty, but I find it objectionable when “scholars” take that route. Mind you, I’ve called plenty of liberals dishonest, too.

    The data that Mankiw referenced can be downloaded and broken out. I put the actual data “Table 7” of the CBO report at the bottom of this post. You tell me the demographics of this group.

    Bottom quintile:

    $5114 labor income
    $1256 interest/dividends/rent/business income
    $1230 retirement income
    —–
    $7600 total “market” income

    $8410 social security
    $6337 medicare
    $3887 medicaid
    $2898 other cash (unemployment insurance and supplemental assistance)
    $1368 other in-kind (food stamps and housing assistance)
    —–
    $22900 total “transfer” payments

  46. Gravatar of Steve Steve
    15. July 2012 at 10:46

    Notice that the transfers to the bottom quintile break out as follows:
    37% social security
    45% health care
    12% unemployment (in this economy!)
    6% food stamps

    Almost half of the transfers are for health, and this is before ObamaCare!!! We have a health care problem in this country, plain and simple (and one ObamaCare is unlikely to fix).

  47. Gravatar of Vivian Darkbloom Vivian Darkbloom
    15. July 2012 at 11:04

    @Steve

    Thanks for the update. I’m glad to hear that Greg Mankiw is not “dishonest” much less “blatantly dishonest” for that post. I think we should use those terms sparingly and back them up with solid evidence before they are bandied about.

    Honest Greg was also careful to point out that the 2009 statistics were likely skewed by the recession (hence the data on unemployment and perhaps food stamps). Maybe you missed that part?

    And, you are correct. We’ve got a problem with health care, we had a problem before the PPACA, and it’s likely we have a bigger problem post-PPACA. Greg’s post, and the data he uses from the CBO only help us understand that. Part of the understanding is that, while recipients of Medicare and Social Security have “paid into the system”, what they have paid into the system, for most people, is much less than what they get out of it. Again, there is a common perception that if one has paid into the system one is entitled to get many times more out of it. That is not sustainable. Unless that common fact is understood, there is little hope that the budget problems caused by these programs will be rectified. Thanks, “blatantly dishonest” Greg Mankiw, for helping us understand that simple fact. Or, perhaps we can just drop the name-calling, and focus, as we should, on the facts.

  48. Gravatar of Steve Steve
    15. July 2012 at 12:04

    @ Vivian,

    I already did cleanup crew for Krugman and Mankiw a few weeks ago when both were misrepresenting the Latvian economy. I pointed out the Latvian dependence on wood/lumber exports to a European housing market. I’m tired of running fact-check for lazy Ivy League professors who are determined to play partisan politics. There, I just called Mankiw lazy instead of dishonest. I hope that doesn’t offend you. But I agree that we should focus on the facts which is precisely why I lash out at these people.

    Actually, I opposed ObamaCare when it was still called RomneyCare back in 2006. The problem is that we have to bend the cost curve, or stop covering poor people, period. I greatly prefer the former. I actually agree with John Cochrane on some of his healthcare stuff: http://johnhcochrane.blogspot.com/2012/07/forget-mandate.html
    I hoping the liberals can pull a rabbit out of the hat and deliver cost reductions, but am I betting on it? No way.

    I realize that social security is a bit of a demographic ponzi, but I think we can afford most of the current system. I do take umbrage at the way Mankiw constructed his statistics, though. Perhaps current retirees only “paid” for half, give or take, of their current benefits. Even so, a good (honest, hard-working, attentive to detail???) economist should give them credit for that half. Plus said economist should not imply that current low income workers are paying negative tax rates just by lumping them into the retirement demographic.

  49. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    15. July 2012 at 15:34

    I think the term for this is, ‘a facial’;

    http://online.wsj.com/article/SB10001424052702303649504577492300632472284.html?mod=WSJ_Opinion_LEADTop

    ‘…that brings us to Michael Jordan, who starred for the Chicago Bulls from 1984 to 1998. In 1986, the Bulls’ median player salary was $300,000. The team’s lowest-paid player made $135,000, and its highest-paid player made $806,000. The team’s Gini coefficient was 0.36. But Jordan’s superstardom increased the team’s popularity and revenues, and by 1998 salaries looked different. The median income was $2.3 million, the lowest was $500,000, and the highest (Jordan’s) was $33 million. The Gini coefficient had nearly doubled, to 0.67.

    ‘Jordan’s salary of $33 million consumed over half the payroll, but everyone was better off. The median player in 1998 made more than seven times what the median player made in 1986, while the income of the lowest-paid player in 1998 quadrupled that of his 1986 peer.’

  50. Gravatar of JL JL
    16. July 2012 at 04:45

    Scott,

    I come here for the excellent posts on monetary policy.

    But I’ve noticed that whenever the subject turns to taxes on your level of income, you resort to emotional anecdotes and imprecise language, which is atypical compared to your normal MP-related posts.

    – You started with $250K and ended with $180K, where did the $70K go?

    – Note that when you were in the bottom 20% things were better for the bottom 20%. Tuition was cheaper, minimum wage was higher and the rich paid more taxes. Overall, there was less inequality.
    When you were young and poor, GINI was about 40.
    Now it’s 47.

    I understand your opposition to going all USSR, but why don’t I ever see you advocate any type of policy that would reduce GINI to a somewhat lower level, like the 40 that you enjoyed in your younger years?

    – 1.5% of the population has income of $250K or more. Perhaps 15% will earn this much at one point in their life.
    It shouldn’t be too hard to get 85% of the voters to vote in their self-interest.

    I get your point that income distribution is an imperfect metric, but it is the current metric in use.

    And do you honestly expect progressives like Matt and me to pause our crusade for less inequality while we wait for a better metric?

  51. Gravatar of Adam Adam
    16. July 2012 at 07:13

    You seem to be getting kind of bitter about your commenters. I can see why, but it’s unfortunate. Perhaps you should considering just ignoring some of them?

  52. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    16. July 2012 at 07:30

    ‘Note that when you were in the bottom 20% things were better for the bottom 20%. Tuition was cheaper, minimum wage was higher and the rich paid more taxes.’

    How do any of those things make the bottom 20% better off? Not to mention that the rich pay more taxes now (as a percent of revenues).

    Even if they did pay more back in the good ol’ days, that would also come at the expense of the (working) poor who would be deprived of capital with which to use and increase their wages.

  53. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    16. July 2012 at 07:33

    ‘I get your point that income distribution is an imperfect metric, but it is the current metric in use.

    ‘And do you honestly expect progressives like Matt and me to pause our crusade for less inequality while we wait for a better metric?’

    Passerby (to the inebriate down on his hands and knees under a lamppost); ‘What are you doing?’

    Inebriate; ‘Looking for my car keys.’

    Passerby; ‘Did you lose them here?’

    Inebriate; ‘No, I lost them over there, but the light’s better here.’

  54. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    16. July 2012 at 07:34

    ‘It shouldn’t be too hard to get 85% of the voters to vote in their self-interest.’

    The hard part is getting them to understand just what really is in their self-interest.

  55. Gravatar of JeffreyY JeffreyY
    16. July 2012 at 08:04

    Re “They aren’t comparing themselves to illegal Chinese immigrants making $20,000/year in Chinatown working 80 hours a week and living with 7 other guys in bunk beds in a single room. Or 23 year olds working in a club. Or a single retired lady who’s 88 years old.”

    1) why assert that all poor, non-student, hard-working people are illegal immigrants? Trying to bias the discussion?

    2) I believe Matt’s point is that they _should_ be comparing themselves to those other groups. Yes, it’ll be practically hard to get them to do so, but nothing in your post argues that they’re correct to ignore the full comparison. You said that “real people think of income in a much more intuitive way, and I would argue a way that is often more meaningful”, but then you forgot to actually argue it.

  56. Gravatar of JL JL
    16. July 2012 at 08:42

    JeffreyY,

    My parents are similar to Scott.

    Kind people, salt of the earth.
    But whenever it comes to ienquality they focus on stereotypes:
    Even though they had middle class parents, cheap education and an abundance of economic oppurtunities, they were once poor students, but through hard work and sacrifices they are now rich (or, ‘comfortably upper middle class’ as they prefer.)
    Poor people are just temporarily poor, like they used to be in their student years, or else they are drug addicts, illegal immigrants, or just plain ol’ lazy.

    I think it’s a rationalization.
    They can not morally accept that – in supporting right wing policies – they too are complicit in the destitution of the poor and rising inequality.
    Or that their prosperity is partly an accident of birth.

    To accept that would shatter their whole self-worth: being hard working, kind and generous.
    They have to believe the Republican lies, because the alternative is to say:
    – I voted for wars that killed innocent children.
    – I voted for tax policy that blew up the deficit and tranferred billions from the poor to the rich.

    I have stopped arguing with them.
    My tactic now is to proudly label myself as a progressive and to positively talk about the good things Obama is doing for the sick, the disabled and the elderly.

    My thinking is, they can’t accept the full truth.
    But perhaps I can sell them on the idea that voting progressively would be like donating a few dollars to charity.

    The only win-win situation is if they call themselves independent (thus saving face, without alienating conservative friends/family) and secretly vote progressively, out of a sense of charity (to avoid the cognitive dissonance).

    Anyway, I wonder what I’ll be like when I’m their age.
    I’m sure I’ll have my own self-serving biases.
    And I hope I’ll have smart, utilitarian kids who contrive psychological games to get me to support just causes.

  57. Gravatar of ssumner ssumner
    16. July 2012 at 10:23

    Saturos, I didn’t know you wanted a ranking that could be actually measured, I thought you meant in principle. For a general measure of well-being I’d use consumption, as it’s easier to measure. I happen to think things like personality are more important, but can’t be measured (or redistributed.)

    I’d redistribute anything that raised aggregate utility. Having said that, I favor small government, as I don’t think they are very good at redistributing.

    Patrick, Great example with the Bulls.

    JL, You don’t seem to understand that I think income is a meaningless concept, so why the hell would I care about Gini coefficients using income. You and “Matt” are free to present consumption inequality data, and then I might take the arguments seriously.

    I’m actually one of the few right wing bloggers who does advocate income redistribution, so I think that complaint also doesn’t hold water. I favor universal health care, low wage worker subsidies, education vouchers for all, progressive consumption taxes etc, etc. What more do you want?

    The US has lots of serious problems, including unemployment, poverty, health care, education, war on drugs, global warming, etc. That’s where I focus my effort. Gini coefficients don’t even make the top twenty of problems in the US.

    BTW, some people think the debate about inequality is a debate about poverty. It’s not.

    I used the $180,000 example to respond to Yglesias, who asks why Democratic politicians don’t call for higher taxes on those making LESS THAN $250,000. So I gues sthat went right over your head. Instead you assumed nefarious motives. Very classy.

    Adam, That’s right. BTW, I plan to take a break from answering comments soon. First for several trips, and then for the fall semester. I’ll have a big teaching load, and won’t have time. Unfortunately that will include all commenters, not just the bad ones. I’ll resume in 2013, hopefully refreshed. Dealing with jerks does wear one down after a while.

    And no sooner than you say that, I get a ridiculous post from Jeffrey claiming I’m biased against illegal immigrants.

    Jeffrey, Actually I like them better than NYC yuppies. I thought it obvious that it makes no sense to compare the income of a middle aged family of four to a single student or retired person. I guess not to some people.

    And an even dumber post from JL. The views you attribute to your parents have nothing to do with my views. If you think they do, then you haven’t understood a word I said. Do you really think I’m claiming those illegals in Chinatown deserve their low incomes because they are illegal, or lazy? If so, why would I favor income redistribution. Incredible.

  58. Gravatar of JL JL
    16. July 2012 at 11:11

    Scott,

    I apologize for my tone and lack of respect.

    Honestly, the “I favor income distribution, but I don’t believe in gini or the governments ability to redistribute income” sounds to me like “I am in favor of environmental conservation, but I don’t believe in man-made global warming or governments ability to significantly curtail carbon emissions”.

    Certainly, it is a refined and thoughtful argument, respectable even. Much better than “f— the poor” or “drill baby, drill!”.

    But the end result is the same: the argument weakens efforts by progressives such as Matt [Yglesias] to actually do something about the problem in the present.
    It justifies inaction.

    I can’t judge your inner motives, but I can judge your words and the effect your blogging effort seem to have on the world in which I reside.

    So in my humble opinion, your posts on MP are empowering the effort for better MP and to end this depression.
    Whereas your posts that touch on taxation and income, like those of G. Mankiw, are weakening the effort to combat inequality (which includes poverty).

    Perhaps I am wrong – but that is my assessment.

  59. Gravatar of Major_Freedom Major_Freedom
    16. July 2012 at 17:44

    ssumner:

    I’m actually one of the few right wing bloggers who does advocate income redistribution, so I think that complaint also doesn’t hold water. I favor universal health care, low wage worker subsidies, education vouchers for all, progressive consumption taxes etc, etc. What more do you want?

    The other 5 planks of Marx’s Manifesto perhaps?

  60. Gravatar of Razer Razer
    16. July 2012 at 17:57

    Scott,

    How do you give health care and subsidies to the poor without taking the money from others first? How is that not wealth redistribution? Or do you want to argue that taxes are purely voluntary? Some critical thought needs to go into your philosophy.

  61. Gravatar of Razer Razer
    16. July 2012 at 18:18

    Scratch my last post. I misread. I thought you wrote that you weren’t for wealth redistribution. Not sure how you can call yourself any kind of Libertarian though. That’s like saying you’re a Christian atheist.

  62. Gravatar of ssumner ssumner
    17. July 2012 at 17:24

    JL, I would suggest directing your attention to people like Krugman, who complain about the outsourcing of jobs to India and China, even though it reduces global inequality. I agree with Yglesias on having a progressive consumption tax. I agree with DeLong on having HSAs plus universal catastrophic insurance. I favor government education vouchers for everyone. Low wage subsidies. If you don’t think those are good policies, and you agree with Krugman that we should try to deny jobs to Asia’s poor, please let me know why.

    Razer, Lots of famous libertarians favored redistribution (Friedman, Hayek etc.)

  63. Gravatar of Libertarians Often Care About Millionaires More Than The Median | Medianism.Org Libertarians Often Care About Millionaires More Than The Median | Medianism.Org
    30. December 2014 at 09:17

    […] of helping the median.  The same search on Scott Sumner’s site finds him claiming “income distribution data is meaningless.”  ¡¿Inequality is meaningless? Another post notes that median income has been declining, […]

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