The Claim

  • The headline on Bloomberg and elsewhere was that US household income went down in 2020 and poverty rose.
  • USA Facts, a “non-partisan” provider of data described it this way. “Median household income decreased 2.9%, dropping from $69,560 in 2019 to $67,521 in 2020. By the end of 2020, there were 3.3 million more people in poverty than the year before — the first increase in the poverty rate in six years.”

The Facts

  • The Bureau of Economic Analysis – the official provider of data on personal income – reported that personal income increased by 6.5% between 2019 and 2020.
  • BEA is part of the Commerce Department and so is the Census Bureau which was the source of the numbers shown in USA Facts, and believe it or not, they do talk to each other a fair amount.
  • The problem is that “income” is defined very differently between BEA and Census. Under Census, “Money Income” excludes non-cash transfers such as Medicare and Medicaid (7.5% of what BEA considered Personal Income last year) because they were technically not “money”.
  • More important, Census excluded those stimulus checks sent to households for pandemic relief because, although they were “money”, they were technically channeled through the tax system and that doesn’t count.
  • The enhanced Unemployment benefits did count because they are done outside of the tax system, but not the $1,200 per person payments.
  • The narrative completely reverses if those $1,200 per person checks do count. Buried in the release that USA Facts and Bloomberg cited was an effort by Census to take them into account.
  • Median household income rose 4% when one counts those checks rather than declining by 2.9%.
  • Not only that, but the biggest gains went to those groups most likely in poverty.
  • Compared to the 4% gain on average, income for households heading by single Moms went up 11.3%; it rose 9.4% for black households and 6.6% for Hispanic households.
  • The share of total income received by the top quintile dropped 1.1% (0.7% of that coming from the top 5 percent) with the bottom two quintiles each gaining 0.4%, and the middle quintile gaining 0.3%.
  • Income inequality plunged in 2020 after dropping somewhat in both 2019 and 2018. (Our prediction in 2017 that Trump would be the first president in half a century to see a decline in income inequality came true; it would have happened without the pandemic and government assistance during the pandemic made it even more so.)

Economist Corner

There are a few lessons in this. First, no number has meaning unless placed in a proper context; in our view USA Facts and Bloomberg have the cognitive ability to understand that total income doesn’t rise 6.5% with “median” income dropping 2.9% and should have the intellectual curiosity to figure out why the difference exists.

Second, the initial pandemic relief efforts, passed in a hurry during extremely trying and uncertain times and in a bipartisan manner, did assist those most in need as well as creating the macroeconomic conditions for economic to turn on a dime. The reportage bemoaning falling incomes undermines one of the greatest discretionary deployments of the fiscal safety net for macroeconomic reasons every undertaken. This will create a jaundiced view of the efficacy of such measures in the future.

Third, perhaps we should rethink the actual trends in inequality over the last half century as the data used is the Census’ Money Income that excludes some of the most rapidly expanding parts household income. Medicare and Medicaid alone have gone from essentially zero to 7.5% of personal income; far more than the reported shifting of the share of income up the distribution. Those benefits go overwhelmingly to the bottom quintiles of the population. The child credit (to be $200 billion this year) and the Earned Income Credit ($80 billion this year) are excluded as well. Combined they will constitute 1.5% of personal income. The (left of center) Tax Policy Institute reported that a $1,000 increase in the EITC led to a 7.3% increase in employment and a 9.4% reduction in the share of families with after tax and transfer income in poverty. The maximum earned income credit this year for two children will be almost $6,000. When one looks beyond the technical Census definition of “Money Income”, America turns out to be a far more equal and generous country than is commonly portrayed.