This past fall, the Census Bureau released its annual report on income and poverty in the United States, and, as it does every year, it reported a yawning income gap between the nation's rich and poor. The Census measures income inequality by dividing society into fifths, or quintiles, and then calculating the share of total income each quintile gets. According to the Census, the bottom quintile receives only a paltry 3.6 percent of total income, while the top gets a whopping 49.4 percentnearly 14 times more than the bottom.
These figures are hugely misleading. First, the quintiles count households and not population. Low-income households are generally small, often made up of retirees or young people just entering the workforce; they tend to have a single wage earner, as with the more than 10 million unmarried mothers in the bottom quintile. By contrast, high-income households are typically married-couple families with multiple wage earners (90 percent of the top quintile live in married-couple families, for example, compared with just 30 percent in the bottom quintile). In other words, though the lowest quintile has the same number of households as the top quintile, it has far fewer people39.2 million to the top's 64.2 million. This huge demographic imbalance, never discussed in Census reports, skews the apparent distribution of income. If we measure per-capita income instead of household income, the richest quintile gets only 8.4 times what the poorest gets, not 14 times.
Census data also ignore government non-cash transfer benefitssuch as Food Stamps, Medicaid, Medicare, and public housing subsidiesthat go to the lowest quintile and are paid for disproportionately by the rich. So the actual income gap is smaller still.
What's worse, the way the Census presents its dataand the way the press reports itmakes it sound as though the poor are mired in Dickensian poverty. But if you look closely, most Americans "living in poverty"the Census's poverty threshold for a family of four was $16,404 in 1997aren't poor in any conventional sense all. About 40 percent of "poor" households own homes, 70 percent own cars, 97 percent own color televisions, 75 percent own video cassette recorders, two-thirds have air conditioning, and so on. Most "poor" kids today are super-nourished, growing up to be one inch taller and ten pounds heavier than the soldiers who stormed Normandy in World War II. And as economist Thomas Sowell has recently noted, few of the poor stay poor for long in America's dynamic, open economy: only 3 percent of the Census's bottom quintile remain there for more than eight years.
While real hardship still occurs in the U.S., the vast majority of the poor live in material conditions that would have been considered comfortable, or even well off, just a few generations ago. If the rich are getting richer in America, so is everyone else.