Misleading Income Statistics, Courtesy of the New York Times

In an earlier post, I confidently predicted that misleading income statistics would soon be coming your way. The New York Times delivers the goods:

August 21, 2007
Average Incomes Fell for Most in 2000-5
By DAVID CAY JOHNSTON

Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.

While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show.

Articles like this are exasperating to me because the reporter does not say who performed the analysis and does provide any of the raw data upon which the analysis was based. We also don't know if the income figures reflect pre-tax or after-tax values because this critical piece of information is not provided. That's because your job is to absorb the emotional anti-Bush message, not to exercise your intellectual critical reasoning abilities.

Fortunately, I happen to know that detailed income figures are provided by the Tax Policy Center here. Their numbers, which are complete through the year 2004, both confirm these trends and completely debunk this story.

The income values provided by the Tax Policy Center are a lot higher than the income values described in the New York Times article because, I assume, the Tax Policy Center figures are for household income, whereas the figures in the New York Times article represent individual income. But, as you might expect, the trends are identical. Here is a chart showing average pre-tax income from 2000 through 2004 [note: in a comment below, a reader noticed that the values on my y-axis were wrong -- the graphs all look the same as they did before and tell the exact same story, but I have corrected the mistakes by fixing the y-axis values and corresponding numbers cited in the text]:


Average pre-tax household income peaked in 2000 at $81,200. Incomes have been on the rise since 2002 (as noted in the article) but only reached $78,700 by 2004. When the 2005 numbers come out, average household income will still lag the 2000 income value, I presume (which is what the New York Times article says is true of individual income). If 2005 pre-tax household income falls 1% below the 2000 figure (as is true of individual income), the number will come in at about $80,400. No wonder everyone is so unhappy about the economy. As of 2005, we still had not gotten back to the income levels we enjoyed during Bill Clinton's last year. Just another reason to hate Bush.

I keep referring to pre-tax income. Why do I do that? Because that's what the figures represent, and describing them accurately leads you to naturally wonder about after-tax household income. After all, we did experience some tax cuts during the Bush years. We all know that those tax cuts merely served to benefit his rich cronies, but we should probably check the values anyway, just to be sure. Also, average income figures can be misleading because incomes for the top 20% are really high and can easily distort the picture when they are included. So, let's check average after-tax household income (because after-tax income tells you how much money you bring home) and then let's do it again separating out the top 20% from everyone else. Aren't you excited at the prospect of seeing how, under Bush, the rich are making off like bandits while the rest of us struggle to get back to where we were back when we had a good president? I know I am. Here is a chart showing average after-tax household income for the years 2000-2004:


What the heck? Average after-tax household income was $62,500 in the year 2000, but that income value was already exceeded by the year 2004 (with an average value of $62,900). For 2005, the numbers will look even better. Isn't the the New York Times trying to convince us that we are still lagging 2000 income values even as of 2005? Yes, but the New York Times is wrong.

As I said, average income values can be misleading because high income values distort the picture for the typical American. Let's exclude the top 20% of household incomes and look at the average value for the lowest 80% of Americans. This is what we really want to know, and my excitement knows no bounds because I am sure that this chart is going to prove that Bush has screwed the average American. Here goes:


What the heck? This doesn't seem to fit the pattern at all, and I can hardly keep my profound sense of disillusionment at bay. By 2004, household incomes were 4% higher than they were in 2000. It will almost certainly be higher still in 2005. How can this be?

Well, for that chart, I just averaged the income values for the lowest 4 income quintiles. A more representative chart might come from looking at the middle quintile alone (which is essentially median after-tax income). Here it is:


Hmm. Same exact story. I thought that Bush was out to screw the little guy, but the numbers don't seem to back that up. Well, don't worry. I have one more chart to show you. It is the chart that shows after-tax income values for the top 20% (i.e., the rich people). Sure, the little people are doing a bit better by 2004 (as I showed above), but you just know that the wealthy are doing vastly better than they were in 2000, don't you? Bush is such a scumbag in that respect. Still, let's just check to be sure:


What the heck? Even when looking at after-tax income (i.e., even when taking into account the Bush tax cuts), the top 20%, unlike the median income group, had not recovered their 2000 income levels by 2004 (update: actually, the values are an exact tie, so the rich have just gotten back to where they were by 2004). Numbers like these should come with a government warning because they could easily cause one's liberal head to simply explode.

Now you know the rest of the story, and it turns out not to correspond to what the New York Times is misleadingly suggesting. The article also makes this laughable assertion:

The fact that average incomes remained lower in 2005 than five years earlier helps explain why so many Americans report feeling economic stress despite overall growth in the economy.

No, that obviously isn't why. The reason is that, despite doing better, many Americans read the news. When they do that, they get the impression that things are much worse than they really are, and they blame Bush (which is exactly what they are supposed to do).

UPDATE: Glenn Reynolds links to a similar analysis at Bizzyblog, which reaches conclusions that are identical to mine.