In Another Country

David Cay Johnston of the Times presents some "new government data" about the income distribution in America.  However, he can't be troubled to provide a source for this data, and he seems to have made some dramatic errors in his presentation, possibly leading to an understatement of the point he is making.  Here we go:

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.

The combined income of all Americans in 2005 was slightly larger than it was in 2000, but because more people were dividing up the national income pie, the average remained smaller. Total adjusted gross income in 2005 was $7.43 trillion, up 3.1 percent from 2000 and 5.8 percent from 2004.

Since it was only last week that the Times editors demonstrated their unfamiliarity with the difference between medians and means, I am sure you are wondering with me - just what is meant here by "average" income?

The staid, unimaginative approach would be to dig up the study being cited here, and good luck with that - I assume it is out there, but I can't find it at the Census Bureau or the BLS.

However, I did find this at the Census Bureau - historical income results for both individuals and households, and there seems to be a problem.

In 2005 dollars, median individual income was $24,325 (the mean was $35,499).  Neither of those figures is anywhere near the $55,238 reported by Johnston.

OK, so maybe he means household income - the Census report shows quintiles but this WH site says $46,326.  The mean would be somewhat higher if the chart for individuals is a useful guide, so I suppose a household mean of $55,238 is possible.

But if Mr. Johnston is referring to household income, why does he write things like this:

The growth in total incomes was concentrated among those making more than $1 million. The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000.

These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.

"Individuals"?  I doubt it.  Unless he means "the individuals living in these households", which is a pretty lame rationalization, but maybe not so lame that the Times won't use it. 

Pressing on we see this clue:

The group’s calculations showed that 28 percent of the investment tax cut savings went to just 11,433 of the 134 million taxpayers, those who made $10 million or more, saving them almost $1.9 million each. Over all, this small number of wealthy Americans saved $21.7 billion in taxes on their investment income as a result of the tax-cut law.

Hmm - from this site, we see 125 million individual returns in 2000, no doubt covering more than 125 million people, since many file jointly (I know I did.)  From which I infer that when Mr. Johnston says "134 million taxpayers", he is talking about 134 million returns and a lot more than 134 million people.

Bah.  I don't know why Mr. Johnston can't tell us where he got this report, I don't know why he can't be clear that he is referring to household income, I don't know why I can't find the report, and I can't comment on his numbers without more background.  However - it may even be that Mr. Johnston is understating his populist position when he says that average real income fell by 1%.  It appears from the household chart that, in 2005 dollars, the 40th percentile (second quintile threshold) fell from $37,408 to $36,000 while the 60th percentile fell from $59,143 to $57,660.  Those are declines of 3.9% and 2.6%, for an average decline of 3.2%.  The individual chart is less dramatic - the median moved from $24,390 to $24,325, a 0.3% fall.

Well. *IF* he is referring to mean income and not median income, and *IF* the two measures diverge, we may ask Brad DeLong to employ the lash again.

UPDATE:  Here we go, thanks to Paul Zrimsek - it was at the IRS website.  Mr. Johnston himself tells us it is available under the "Tax Stats" button from the home page and I am sure it is, but I still can't get there from here.

From the study, we are talking about 134 million tax returns, not individuals.  And Mr. Johnston is emphatic that he understands medians and means, and is using means here.  In which case, a darker story was available from the use of medians.

And here is a clue I overlooked from the original article:

Nearly half of Americans reported incomes of less than $30,000, and two-thirds make less than $50,000.

Clearly, if two thirds make less than $50,000, he must be reporting a mean income of $55K.  That said, "half of Americans" ought to read "half of tax filers" - since filers will be a mix of individual and joint returns, I am not at all clear that this can be directly compared to either individual or household data from the Census.

And let's just plug Mr. Johnston's book as a reminder that he is hardly new to these issues.  As he notes in his comment, the dead tree version does have space limitations and not every article can be written and targeted to the most anal-compulsive readers among us.

WE NOTE THE HEADLINE CHANGE:  The original headline was "Average Incomes Fell for Most in 2000-5"; since Mr. Johnston would not be responsible for that, I did not belabor the absurdity, but apparently the Times has had second thoughts - the new headline is "2005 Incomes, on Average, Still Below 2000 Peak".

I DISPUTE THE AGENDA NOTION:  Via Glenn, we see Mr. Johnston being taken to task for focusing on the 2000 income peak rather than the 2002 trough.  Well, if he really had an agenda he would have focused on medians, as described above, for which the news is worse.  His use of the average obscures a lot, although it is possible that the 2000 average was unduly inflated by the tech bubble.

WHAT I REALLY THINK:  The problem with a study comparing cross-sections of the economy at two different times is illustrated by the absurd initial headline, which read "Average Incomes Fell for Most in 2000-5".  Set aside the puzzle about whether "most" of us can earn the "average" income and reflect on this:

A group of people filed tax returns in 2000.  Five years later, some of those people had died, retired and had no taxable income, or otherwise fled the tax reach of Uncle Sam.  Let's say, hypothetically, that the typical person has fifty years as a taxpayer, so that in five years there would be ten percent turnover.  In this guess, 90% of the Tax Year 2000 group is still filing in 2005.  And in addition to those filers, a whole new group of high school and college grads as well as new arrivals to our verdant shores will be filing.

So - mathematically it is possible that every last manjack (and womanjack) in the 90 percent who filed in both 2000 and 2005 had a higher income in 2005.  If the oldsters who retired and died made more than the newbies to the job market, the average income could still fall.

In which case, the headline would be what - people are dissatisfied even though 90% earn more than five years ago?  Hey, that could even be true - maybe folks expected ten percent real wage boosts and only got five percent (on average); maybe new job entrants are disappointed by their current station in life relative to their expectations.

However, the IRS numbers are not helpful in gauging people's expectations, are they?  Nor are they helpful in telling me what percentage of the 2000 group had a higher income in 2005.

I would have liked to see a study comparing actual filers in 2000 with the same people five years on, and the IRS is uniquely positioned to do that, since they have access to the individual returns.  Then we could learn a bit about income mobility and see whether individuals are really progressing.

They did change the headline, fortunately.

Comments

[sammler]

A familiar face! Mr. Jhonson is usually to be found at http://qando.net.

[Paul Zrimsek]

Found it! The article now gives the source for the data (not very helpfully) as the IRS; a bit of poking around disclosed IRS Publication 1304, Individul Income Tax Returns, 2005 (PDF). The $55,238 figure appears in Table 1.1 on page 29, under the heading "Adjusted gross income less deficit" (i.e., where the adjustments to income exceed gross income, the result is reported as a negative number). So every time Congress creates a new adjustment (was the "deduction for clean-fuel vehicles" there in 2000?), it reduces this figure even if everyone's actual income has stayed the same. Add this factor to the selection bias inherent in looking only at tax returns, and you've got something that perhaps isn't the very best picture of our economic progress.

[David Cay Johnston]

Contrary to your post, the source of the data in my article this morning is identified in the first paragraph as government data, in the second as new tax statistics, in the fourth as tax return data and later down as I.R.S. data. The chart accompanying the story lists as its source the Internal Revenue Service. You will find stories I wrote on the same data when it was released a year ago and two years ago at our website.

If you go to irs.gov you will see a button for tax stats and it will get you to the tables (Table 1.4 individual income for the years covered in the story).

I know medians from means (and so do most, but not all, editors). Averages are means and that is what my article says. The average income I reported is total adjusted gross income divided by number of tax returns. AGI is the last line on the front page of a Form 1040).

The data the IRS released does not allow precise computing of median incomes, though you can come close.

However, as my story noted, nearly half of taxpayers report incomes of less than $30,000 and two-thirds report incomes of less than $50,000. I used these specifics to give perspective.

The average is higher than the incomes of two-thirds because there is no limit on incomes. Previously I have reported that incomes of more than $3 billion for an individual in a single year have been reported and I have analyzed data (which the Bush administration no longer releases) on the 400 highest income taxpayers.

I also gave perspective by pointing out that less than a quarter of one percent (0.23 percent) of taxpayers had incomes of more than $1 million.

Taxpayers, as I have reported many times, can be a single individual or a married couple.

All large numbers are estimates. Whether it is the profit reported by a company (Exxon rounds its figures if you check its 10-k closely), tax returns or how many gallons of gasoline Americans buy each day the figures are dependent on how the data is collected.

AGI data is from people who sign under penalty of perjury, unlike the survey data cited in your post. Each source suffers from its own peculiarities, but over time the various sources of income data track reasonably well. The IRS also does annual reconciliations of its data to the NIPA accounts.

The data in this story do not include non-filing tax units, but they are counted in the computer model used by the Tax Policy Center. There are about 10 or 11 million such tax units (some of which are not required to file because of low incomes or tax-exempt incomes such as disability pensions) and some of which fail to file.

I have written extensively over the years about income levels, from bottom to top, in The New York Times.

You may want to examine chapter three of my book Perfectly Legal, which closely examined income growth at the top and has charts. That chapter is available free at perfectlylegalbook.com by clicking on excerpts and then on the link to the chapter in .pdf format. There will be more on this in my next book. Free Lunch, out at the end of this year.

For a detailed analysis of incomes and tax burdens see nytimes.com/class and click on Day 9 (the hyper-rich) and then on the two charts accompanying my article). This article and the charts are available free.

In line with your question about the bottom: the average income, as reported on tax returns, for the bottom half was less than $15,000 AGI in 2004. You can check that out by going to the Tax Foundation's website for its historic tables and dividing the bottom 50 percent of taxpayers into their AGI, though the last year they have posted the last time I checked was 2004.

Thank you for your observations as they remind me of the need to think about the vast range of differences in how much precision about data sources and explanations readers want. There is limited space for every article and I have to make choices about what to include and what to leave out and how much to assume about readers following an on-going story that I have covered for more than a dozen years.

Assuming the post from Sammler refers to me (he lists the name Jhonson not Johnston), I do not believe I have ever posted at qando.net, but some posting software allows people to attach any time they choose to a post, evidently.

[Sue]

If you look at form 1040 for the tax year 2000, and then look at form 1040 for the tax year 2005, under the section titled Adjusted Gross Income, you will note that there are additional items added that allow you to adjust your gross income. For instance, on the 2000 form 1040, under AGI, you will not find an adjustment for educator expenses, domestic production activities, certain business expenses for reservists, performing artists, and fee basis government officials, or tuition and fees deduction.

Is this taken into account when comparing AGI for the year 2000 and the year 2005?

[Neo]

I stopped reading Time after the issue with the stories .. "Boris' Boffo Trip" and the "The $5.3 Billion Gizmo". I had had a series of 5-year subscriptions before that. The whole magazine started to read like it was written by a bunch of under-educated intellectuals (i.e. legends in their own minds).

[Appalled Moderate]

Mr. Johnston:

Using your measure of compensation -- AGI -- has problems. 401(k) deferrals made by an employeee, as well as IRA contributions, are excluded from AGI. Therefore, if our society over your five year period, decided to start saving more for their retirement using tax-favored vehicles, this would show up in your results as a reduction in compensation. Also, amounts excluded from taxable income as part of a "cafeteria plan" are kept out of AGI. If people are making use of their flexible spendng accounts to pay for their healthcare (or just their premiums) at an increased rate, that, too, would skew your numbers.

Not knowing about changes in these categories over the past five years, I can only speculate, but, given changes in employer benfit programs that have tended to increasingly rely on 401(k) and 125 plans over the past few years, this may be a part of your disparity. Has this accounted for?

[hit and run]

David Cay Johnston:
I do not believe I have ever posted at qando.net, but some posting software allows people to attach any time they choose to a post, evidently.

I believe it was here and here in the comments that sammler was referring.

And if you read particularly that second reference, you will note, if not remember, that you took umbrage at a mistake in the spelling of your name, to which sammler responded by intentionally misspelling your name repeatedly.

It was a couple years ago, so it is certainly understandable if it was not permanently lodged in your memory.

[Tom Maguire]

If you go to irs.gov you will see a button for tax stats and it will get you to the tables (Table 1.4 individual income for the years covered in the story).

Thanks very much, gents. Actually, I had gone to the IRS website and didn't find it there either, but obviously that was just me.

Well, not just me - I hit the button for "Newsroom" and found nothing there that looked topical. But I'll have to take your word for it that "Tax Stats" is a winner - I still can't find it directly, even with that clue, although obviously others can.

That said, checking past articles by Mr. Johnston would have been a good idea. And since the Times does demonstrate a familiarity with hyperlinks on occasion, I think a link to the publication would have been appropriate. Or at least, easy.

WHERE HAS THE MAGIC GONE?

Assuming the post from Sammler refers to me (he lists the name Jhonson not Johnston), I do not believe I have ever posted at qando.net, but some posting software allows people to attach any time they choose to a post, evidently.

As a great American almost said, you doesn't have to call him "Jhonson".

[Appalled Moderate]

Tom:

Try this:

http://www.irs.gov/taxstats/index.html

[Sue]

I'm not sure about anyone else, but I want my AGI to go down. And down. And down. It means I am getting tax breaks for something I have to pay for anyway. Such as college tuition. Along with others that I listed above.

[hit and run]

How do I qualify for "Forestation or reforestation expenses"? Like Sue, I want my AGI to go down, afterall.

See, I joined the Arbor Day Foundation last year and got 10 free trees.

And hey, 3 of them actually survived the teenage neighbor mowing.

(oh, and that's not at all intended to slight what he did in mowing my yard...he did it as a favor while I was out of town for family reasons, without being asked and without asking, without telling me he did it when I got back, and only reluctantly admitting it when confronted.

[hit and run]

I hesitate to go OT, especially when TM is in the comments, so I'll make this brief.

Get out your #2 pencils

Oh wait, here's my tie in....New York Times spins straw from gold also just up at AT on the same Jonstohn article that spawned this post.

[Neo]

Let me guess, with so many baby boomers heading into retirement, many are taking their "401-k catchup" deductions now to get ready for their too-soon-to-be retirement appears to be showing in the numbers.

On the other hand, does anyone think this has anything to do with this ?

[Al]

Is this the point at which the left tells us that averages are irrelevant and the only thing that matters is median? Or does that only occur with respect to articles that tend to make Bush look good (obviously the point of this article is precisely the opposite)?

[Appalled Moderate]

Neo:

As a matter of caomparision, catch up contributions would not be reflected in 2000 returns (as it is the creature of the 2001 tax bill). However, I have a feeling that the increase in k contributions resulting from catch ups is not material. The increase in the k limit that was phased in over those years, however, may have an effect on the numbers.

[CalDevil]

In addition to the discrepancy in AGI calculations noted above, I'm wondering why 2000 and not 2001 or even 2002 was the starting point of Mr. Johnston's comparison.

If the objective was in some way to examine the economic performance under this particular presidency, wouldn't it make sense (and be the only fair way to accomplish) to compare 2005 (BTW, should't 2006 data - presumably showing an even greater income increase from 2005 - be available very soon?) to the last year of the previous administration's budget and economic policy, 2001?

It doesn't make any sense to try to hold any administration accountable for the economic conditions present in the first few months of its existence when the policies of the previous administration are still in place.

Something tells me that such a comparison wouldn't have been as supportive of the meme that Mr. Johnston was seeking to create.

In fact, by using 2001 or 2002 as the starting point, the data could easily have been reshaped to demonstrate the alternative meme of Mr. Bush's great success at rescuing America from the Clinton recession of late 2000-2001. Although, I don't believe that Mr. Johnston's editors would have ever stood for such a report.

BTW, I would not malign the Clinton administration in such fashion, as despite their not being more vigilant in combating the corporate excesses occurring under their watch (the Enrons and such), that recession is more fairly attributable to monetary policy (see Greenspan, Alan) not economic.

[Neo]

From the chart shown here, it occurred to me that the trend line of the AGI seems to be a good indicator of federal tax revenues, which it is. But more importantly, the last peak in 2000 is when the last balanced budget occurred. It would also seem that the current trend shows that we are on our way to a "balanced" condition again, if Congress doesn't screw it all up.

[Paul Zrimsek]

Look at it this way, TM: When and if the time comes when the NYT wants to use AGI data to trash Hillary!s economy (yeah, right), you and the missus can do your bit by filing separately to drag the average down.

[Sue]

H&R,

Congrats, again. You are really becoming a celebrity. I'll be happy to say I knew you when...

[David Cay Johnston]

The data is not MY data as one poster writes, it is the official government data.

401(k) income is not in AGI, but the relative size of this non-AGI income did not change significantly in the time period covered. AGI, as I have reported in previous articles, is the last line on the front page a tax return. It is not a perfect measure of income, but neither is survey data.

Likewise, there is not a significant change in the ratio of people filing married and filing married but separate.

The poster who raised this point may want to look up my stories on how the Clintons, through expensive but fundamentally flawed tax advice, paid more than twice in much in income taxes as the law allowed for several years, resulting (albeit unintentionally) in less money for charity from her book It Takes a Village, and a slightly larger Social Security check for Mrs. Clinton when she gets older). The Clintons adopted a different strategy with her second book (on their cat and dog), resulting in no tax benefits or costs. The White House specifically denied that they took their tax advice from my work, which prompted laughter in the White House press room that day.

[kim]

O Cay.
=======

[kim]

What about H&R's point?
=====================

[Barney Frank]

--How do I qualify for "Forestation or reforestation expenses"?--

First you acquire a forest. Then you engage in the business of harvesting timber. Then you either plant areas that were bare originally or you plant areas that are newly understocked. Presto.
The other excellent benefit is a timber depletion allowance when you harvest, just like the oil depletion allowance.

There are innumerable papers on the effects of marginal taxation on output and investment. I doubt there is a commensurate number of studies regarding the effects of marginal taxation on AGI. In my business I am able to adjust my AGI to pretty much whatever level I desire by various quite legal means. The higher my gross income, and therefore my marginal tax rate, the more use I make of the available adjustments. I suspect AGI is a less than accurate meter of actual incomes.

[Sue]

I suspect AGI is a less than accurate meter of actual incomes.

Working for a tax attorney for the better part of my adulthood, I would have to agree with you. AGI is not where you would want to look for comparisons, since it would be apples to oranges instead of apples to apples.

[hit and run]

Barney:
First you acquire a forest.
--Check. (wait, does 110' x 200' qualify as a forest?)

Then you engage in the business of harvesting timber.
--Check. (wait, does cutting down dead trees and burning them in the fire pit qualify as harvesting timber?)

Then you either plant areas that were bare originally or you plant areas that are newly understocked.
--Check. 2 dogwoods, 2 redbuds, 2 golden raintrees, 2 crab apples, 2 washington something or others.

And if I transplant dogwoods from the "forest" to the lawn, can I get credit for both harvesting and planting?

OK, fine, I'll admit it, I've killed every dogwood I've tried to transplant.

[RichatUF]

test

[cathyf]

Just another data point on the "everybody wants their AGI to go down" front... Sure, one good way to get your AGI down is to save more money in retirement and to use your flexible spending account more effectively. (And I'm pretty sure that between 2000 and 2005 there were some tax law changes that made FSAs and MSAs more useful to more taxpayers.) But if you really want the BIG tax savings, you gotta become an entrepreneur and use a schedule C to calculate income. I have seen lots of statistics about increasing numbers of self-employed people out there over time -- which would also result in falling AGIs for the same real incomes.

[Semanticleo]

What about H&R's point?
=====================

What was that? Feel free to repeat in your own words, Kim.

[MayBee]

Clintons, through expensive but fundamentally flawed tax advice, paid more than twice in much in income taxes as the law allowed for several years, resulting (albeit unintentionally) in less money for charity from her book It Takes a Village, and a slightly larger Social Security check for Mrs. Clinton when she gets older).

Good. Bill always says people like him are required to pay too little in taxes. Nice to see him actually pay more than required.

The Clintons adopted a different strategy with her second book (on their cat and dog), resulting in no tax benefits or costs.
Oh well. They later did take the option of paying fewer taxes. All the better to complain about paying too few taxes, I suppose.

[Sue]

401(k) income is not in AGI, but the relative size of this non-AGI income did not change significantly in the time period covered.

But other factors did change significantly. Something that anyone can see for themselves by looking at the actual form 1040 for the tax years 2000 and 2005. Were they taken into account in your calculations?

[RichatUF]

TM;

I was looking at the graph with the NYT article and part of the confusion seems to be that the numbers are all adjusted to 2005 dollars-I might be wrong on that. Also all the bonus money sloshing around in 2000 and 2001 would seem to have skewed AGI (as would the market declines from 01-03) and the cap gain and dividend cuts would have an additional affect.

I am also thinking this sound familiar to some hearings that Con. Frank had a couple of weeks back-further research is needed. I looked at the CTJ website to see if I could find some talking points but didn't see anything that jumped out at me.

[Sue]

Just to help those out who wish to see the actual forms.

http://www.irs.gov/pub/irs-prior/f1040--2000.pdf>1040 - 2000

http://www.irs.gov/pub/irs-prior/f1040--2005.pdf>1040 - 2005

The AGI deductions are easy to find on the first page, but both 2000 and 2005 begin on line # 23.

Warning: PDF files

[Paul Zrimsek]

Likewise, there is not a significant change in the ratio of people filing married and filing married but separate.

In a context where the difference between $55,714 and $55,238 rates a headline, I think we need to be a bit more rigorous than this about what does or does not count as significant.

To see what I mean, have a look at the section on the "1979 Income Concept" starting on p. 14 of the full IRS report I linked earlier. This is a revision of adjusted AGI devised specifically for the purpose of being commensurate in year-over-year comparisons, which the raw AGI (as the report explains) is not. From the top line of Table B, p. 15, the mean 2005 value for this number is $56,648 per return. The corresponding figure calculated from the 2000 report is $50,561. Converting these nominal-dollar amounts to constant 1999 dollars using annual CPI-U data from the BLS, I get an increase from $49,570 to $49,822 over the 5-year period. A significant difference? You be the judge!

Of course, the aggregation problems already noted are still there.

[hoosierhoops]

I believe it was here and HERE in the comments that sammler was referring.

Man, I read that second link you posted H&R.
I would say that was a devistating augument
to David Cay's article. complete burial of his points. slam dunk..and the logic is so..logical.. Just because Bill Gates is getting really rich really fast doesn't hurt me..It's a bigger pie for all..
And to make a point that the middle class is actually getting smaller from the year 2000..
( or poorer ) Well how come everybody in the middle class isn't driving late model chevy's.. and most everyone i know has upgraded thier house in the last 7 years.
You can make any numbers say anything you want..but sometimes you just have to look around at the facts on the ground...I see 80% of the people i know are making more money than 2000 and 20% are making less.
( the old 80/20 rule ) And give me a couple days and i'll supply gov't numbers that prove my point...or well that..could prove anyone's point..

[Paul Zrimsek]

adjusted AGI

Feh. My data searches led me through the Dept. of Redundancy Dept. Someone slap a TRO order on me before I post again.

[kim]

H&R's point? That Dogwoods prefer shade. And traces of Epsom Salts.

For the semicircular, OK, maybe it's Hoven's point.
===============================

[cathyf]

Nah, Paul, from $55,238 to $56,648 to $49,822 would be the adjusted adjusted AGI.

;-)

[kim]

Besides, Cleo, shuddup. Cay has the floor. Unless you'd care to try to refute, in your own words, all these fine objections to his thesis posted here.
==========================

[hit and run]

Cathy:
Nah, Paul, from $55,238 to $56,648 to $49,822 would be the adjusted adjusted AGI.

And if you don't have well-adjusted figures, well, you have dysfunctional ones.

[Charlie (Colorado)]

David, you might want to check this at Backtalk, or this at Bizzyblog. I'd be interested in your response; it would appear that the only group with a decline in after tax income is the top 20 percent (which, sadly, includes me), while the bottom 80 percent have had quite a sibstantial increase in after-tax income. This would seem to call into question your overall thesis.

[kim]

Well, after reading CC's two links, I have a question for Semanticleo. Do you think masking the performance of the economy over the last two years is agenda driven journalism, or a simple(minded) mistake?
=======================================

[RichatUF]

kim-

Do you think masking the performance of the economy over the last two years is agenda driven journalism, or a simple(minded) mistake?

Kim,

It doesn't fit the narrative. Once the premises are agreed upon [ie Bush root of all evil, that Clinton was the best president ever, BushCo™ stole the elections et al] then the data can be tortured [Darth Cheney would approve] to say anything.

I'm still looking for the talking points the article is based on; for some reason, I really doubt that a NYT reporter clicked through the BLS, IRS and Census Bureau websites and still made his deadline. I'm coming up empty at CTJ [the 'think tank' quoted], but its out there somewhere.

[Cecil Turner]

This article is biased. Picking the best year on record (2000) and complaining that the most recently available data doesn't quite measure up is one thing, but at best, the sweeping generalizations are not supported by the data.

Some obvious issues:

• As TM noted, "average" income data isn't the one normally chosen to discuss individuals, because it's skewed by the folks in the upper income bracket (e.g., average one person making seven figures with a score of plebes, and the top earner's income drives the result);
• Accordingly, when looking at a decline in the average, one would first suspect the main difference is a decline in the top earners' income--which according to that backtalk link is exactly what happened;
• Similarly, the use of "Americans" "taxpayers" and "individuals" implies the data represents the average American's (or household's) income (as opposed to "average household income") . . . and it doesn't;
• After tax income is the only logical measure, if one is purporting to evaluate economic welfare, and it was neglected;
• CTJ is hardly neutral, and they have a history of advocacy with tax figures that some would find dubious . . . a warning label is probably warranted.

[hit and run]

Charlie:
David, you might want to check this at Backtalk, or this at Bizzyblog. I'd be interested in your response

He did leave a response at Bizzyblog in the comments

[Rick Ballard]

Taking CalDevil's advice and using the very same source as the article combined with the Fed CPI Adjustor, the "average" numbers look like this:

2000 55,802
2001 52,271
2002 50,356
2003 50,515
2004 53,081
2005 55,238

Pick the starting point and I'll write a story to match the data. 2002 would be cool, 'cause then I'd be able to include the unpleasantness of September 2001 as a "possible negative influence".

I think an even more fun story would be one that noted that the increase in returns filed in '01,'02, '03 totaled 1.05 million while the total for '04 and '05 was 3.95 million. Imagine that.

[Ann]

RUSH is talking about American Thinker again,

New York Times spins straw from gold
Randall Hoven

" Brilliant Analysis"

[Ann]

Cerulean,

Great Article. Congrats!

When are you going to go after Her Thighness :)

Her latest speech on the war and how the surge is working but we must still quit should be fuel for the fire!

[RichatUF]

Rick-

I think an even more fun story would be one that noted that the increase in returns filed in '01,'02, '03 totaled 1.05 million while the total for '04 and '05 was 3.95 million. Imagine that.

I think that was the point of the AT piece-the average size of households has declined over the period. Anyway, the NYT article has a talking-points feel to it and I would like to find the advocacy group that would have written up the talking points.

[Tom Sawyer]

David Cay Johnston could have done a wonderful service to NYT readers by simply pointing them to the sources for this data as well as presenting it in a few charts.

If he then grabbed a half dozen political commentators to interpret the data followed by a half dozen economists doing the same, he could have written an article that had the headline, "Lies, Damned Lies and Statistics!"

[Extraneus]

As CalDevil pointed out, Bush wasn't president in 2000, and took office less than three months before individual returns were filed in 2001. I would add that 9/11/2001 had at least a marginal economic effect on 2002.

Considering those observations, the charts posted at Back Talk paint a different -- and in fact more positive -- picture than does Mr. Johnston.

[Steve]

Great site!

Would you consider a Link Exchange with The Internet Radio Network. At the IRN you can listen for free to over 27 of America's top Talk Shows via FREE STREAMING AUDIO!

http://netradionetwork.com

[RichatUF]

In a previous comment, I mentioned that adjusted dollars is a source of confusion. Duh-a source of confusion for me because the article has it as..."less than the $ 55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show."

I'm feeling like an idiot and need my afternoon cup of coffee. Cheers

[Paul Zrimsek]

Incidentally, here is how we talk about the downtrodden low end of the distribution when the correct party holds the White House:

Good times lifted 1.1 million more taxpayers into $100,000 plus incomes in 1998, the Internal Revenue Service reported. A record 8.2 million returns, 1 in 15, were above that threshold. On the other end, one-third of tax returns, 40.1 million, showed less than $15,000 of income, but many of these taxpayers were children who sold stocks at a profit in their college funds. Capital gains accounted for 9 percent of all incomes, but 44 percent of the average $6,290 income in this lowest income class.

(Entire article quoted)

[hit and run]

Thanks Ann. I leave Hill for others.

I like Obama and Edwards. They're easy. They're doofuses. Believe me, I know doofuses.

Low hanging fruits.

[Campesino]

I have seen stuff all over the web this morning with people having trouble with the figures used in this article. I went back and looked at this source:

http://taxpolicycenter.org/taxfacts/displayafact.cfm? Docid=458

The Tax Policy Center, which is apparently a joint effort of Brookings Institution and the Urban Institute, not right wing outfits.

This shows the spread on family income by quintile that folks here were asking for. The numbers are all in constant 2004 dollars, with 2004 as the last year.

It shows very different numbers. The average pre-tax family income is down 1.6% from 2000 - 2004: $80,000 to $78,700, but the average after tax family income is up .6% over the same period: $62,500 to $62,900.

The after-tax income by quintile shows and interesting spread over that period too.

Lowest:
$15,000 - $14,7000 -2%
Second Lowest:
$31,800 - $32,700 +2.8%
Middle:
$45,900 - $48,400 +5.4%
Second Highest:
$65,000 - $67,600 +4%
Highest:
$155,200 - $155,200 dead even

Who are you going to believe?

[RichatUF]

Paul-

Remember:

When a D is in the Oval Office [will it be St. Hillary!] it is "a rising tide lifts all boats"

When a R is in the Oval Office it is "wealth doesn't trickle down"

Narrative, narrative, narrative

I'm waiting for Mr. Johnson to spin up a piece called "Billionaries for Democrats"

[Semanticleo]

"Do you think masking the performance of the economy over the last two years is agenda driven journalism, or a simple(minded) mistake?"

Don't you mean,'Have you stopped beating your wife yet?'?

It seems semantics is in full throttle with this discussion. I think Economic statistics are best suited to the
Disraelian view, "there are lies,damned lies, and statistics".

I prefer Heuristics. It's the same thing
that kept me from being a victim of Black Monday (1987) and the dot.com scam.

Heuristics transcends 'facts' gathered by
those with an agenda. (I've noticed everyone here seems to have one, except perhaps, cboldt)

[Old Dad]

Said another way:

Bush Recovery Still Surging

Despite a recession, 9/11, and the ongoing global war on terror, American incomes are approaching all time highs.

[Barney Frank]

2000 was the peak of the tech bubble. Millions of people cashed in large capital gains in 1999 and 2000. Many of those who did not, took their capital losses in 2001.
Comparing a peak year to a year that is recovering from a trough and that is subject to considerably altered tax policies and a bit of a seismic economic event (9/11)indicates an agenda not analysis.

[Sue]

I swear, I'll fall off my chair the day Rush mentions Hit & Run (using his real name, of course, which I won't reveal here since he hasn't).

[HoosierHoops]

Cleo..
Those with an agenda. (I've noticed everyone here seems to have one, except perhaps, cboldt)...
oh cleo..The Hoopster has no agenda..
BTW.. I have been wondering how your Marine son is doing at Basic. Is he stationed at San Diego? It's pretty difficult training..How is Mom and Pop holding up?
Regards,

[Semanticleo]

HH;

He's due to ship to Basic on 10/15.

We're good. Is your son still slated for
10/8 to Iraq? I'll keep a good thought.

[Sue]

OT, but https://www.cia.gov/library/reports/Executive%20Summary_OIG%20Report.pdf>check this out.

[Sue]

Oops...WARNING...pdf file above!!!!!!!!

[TerryeL]

What about the dot com boom? Wouldn't that have had some effect on income? I remember the late 90's {before reality hit} when everyone was making money in the stock market. It might be that has something to do with the change. My income has not gone up or down. Same old same old.

[hit and run]

Paul Z. (quoting older Johnston NYT story):
Incidentally, here is how we talk about the downtrodden low end of the distribution when the correct party holds the White House:

Good times lifted 1.1 million more taxpayers into $100,000 plus incomes in 1998, the Internal Revenue Service reported.

Mr. Johnston said in the comments at bizzyblog:

The figures are not directly comparable because some people moved up and out of that bracket [making <$100,000]. However, in 2000 this group comprised 90.7% of all taxpayers and it is now 88% of all taxpayers.

Me and math? Statistics? Economics? Worse than drinking and driving. With rigorous editorial oversight necessary and severe lashings possibly warranted...

Turning around the percentages...

9.3% of filers in the greater than $100,000 bracket in 2000

9.3% of 125,000,000 = 11,625,000

12% of filers in that bracket in 2005.

12% of 134,000,000 = 16,080,000

May I suggest:

Good times lifted 4.5 million more taxpayers into $100,000 plus incomes between 2000 and 2005, the Internal Revenue Service reported.

I know there must be something wrong with that. So, let the beatings begin.

And let me assure you, this is going to hurt you much more than it is going to hurt me.

[Nick Kasoff]

CathyF is right, Schedule C is a very good thing. And yes, your AGI ends up being much lower as a Schedule C filer, though for legitimate reasons - you are taking the business expense deductions which normally go to the employer. But you are also incurring the expenses.

Bad news is, they are going to increase their audits of Schedule C filers by 12% in the next two years. I have nothing overly aggressive in my returns, but I hate to think of how many hours it would take to audit the frickin' thing. Yikes!

Nick Kasoff
The Thug Report

[MayBee]

Wait. Why does Ann call H&R "cerulean"?

[Sue]

Because he has beautiful blue eyes...she's sucking up to him when he becomes famous. But I've got the beer. ::grin::

[Barney Frank]

Schedule C can be a good or bad thing.
Any income that can be diverted to long term capital gains will not only be taxed at a lower rate it will avoid self employment tax. You will of course lose many of your deductions but the savings can often make up for that.
Often the best method is to split income between Schedules C and D if you are in a business where that is possible.

[Patrick R. Sullivan]

The data is not MY data as one poster writes, it is the official government data.

Oh, please. It's merely one statistic, and as several have already pointed out, it was calculated DIFFERENTLY in 2005 than in 2000. So, it's useless for comparisons.

Further, 2000 was the TENTH year of an economic expansion. Which is unprecedented, and the late 90s labor markets were almost laughably strong. People were being allowed to bring their infant children and pets to work, retired people were being enticed back into the labor force, people working at dot coms were cashing in stock options and reporting capital gains.

All thanks to the over-investment in information technology to avoid Y2K problems. In short, 2000 is no valid basis for comparison.

[hit and run]

Sue:
I swear, I'll fall off my chair the day Rush mentions Hit & Run (using his real name, of course, which I won't reveal here since he hasn't).

If I've practiced the on-air interview with Rush in my head one time, I've done it a thousand times.

heh. Just kidding.

I have a detailed 3-year plan to become famous.

And when that fails, infamous.

[HoosierHoops]

Cleo...Nope..
He left 2 weeks ago...They were so ready..
Before he left they threw a party for the guys, 17 kegs of beer, The jack Daniels girls were there bartending..and a church bought and delivered an entire Dryers ice cream truck..( thats alot of ice cream ).
So in the last 3 months they changed the deployment dates and area's to be deployed 4 times. I think things might really be fluid with the surge right now..or our kid listens to too many rumours and relates every single one too mom...She is holding up pretty good and spends alot of time organizing care packages for his unit..I swear over the last 9 months or more she has talked or emailed every guy in the 3/5 kilo.. She is mother T to them and when we would get a chance to visit Camp Pendleton we always take out the boys to dinner and a local bar and get to know them..We are so proud of them..I think Mother T has adopted
a squad of Marines..

[Barney Frank]

--I have a detailed 3-year plan to become famous.

And when that fails, infamous.--

I think you're well on the way to your fallback position already, aren't you?

[BarbaraS]

Clintons, through expensive but fundamentally flawed tax advice, paid more than twice in much in income taxes as the law allowed for several years, resulting (albeit unintentionally) in less money for charity from her book It Takes a Village, and a slightly larger Social Security check for Mrs. Clinton when she gets older

She will probably recoup that tax in social security payments and the reason they adopted a different tax advise because she had reached the limit of what she could receive and it would be money down the drain to use the old method. After all, she is the smartest woman in the world, is she not? One thing guaranteed, the Clintons look after the Clintons very well.

This whole article has two themes: the economy was better during Clinton's tenure and the rich make too much money. Money that should be distributed more equaly among the masses. The idea of using the AGI as a basis for wages is extremely disengenious. Why not use total gross income as a basis? It too is on the 1040 form.

[MikeS]

Semanticleo:He's due to ship to Basic on 10/15.

MCRD San Diego is just across an canal from a Naval Training Center. On Sunday the Navy guys usually picnic in the grass next to the canal. If a Marine training platoon has performed well during the week, they are sometimes allowed to pass the picnic area while running 5 miles with a couple sand bags in their Marine backpacks.

[hit and run]

Barney:
I think you're well on the way to your fallback position already, aren't you?

Oh definitely. The plans definitely can work in parallel and are complementary. Remember, ashes to glory, overcoming the odds, and whatnot contribute to a feel-good story that helps launch fame.

Though I'm winging the fallback position on a slow boil. It only takes a moment to achieve when it is ready to be executed.

[Rick Ballard]

Here are Schedule C stats.

Dunno about sussing out all that much that would be valuable for this discussion.

[BarbaraS]

But even then 401-Ks, 403-Bs and the cafeteria items would not be included.

[Rick Ballard]

Yeah, the deferred income items are missing. So are the interest and dividend income being earned on the deferred earnings. Not appreciation - just I & D.

With 14 trillion in holdings involved, the missing I & D item is what is known as 'non-trivial'.

[Sara]

You can blame it on me. In 2000 I had income of $121,000. In 2004-2005 I had an income of zero as I came off the years of caretaking of my elderly Mother and had no outside employment income and too young to draw retirement and had to draw down savings and investments to near zero in order to survive and with considerable penalties and the loss of my largest investment, my house. In 2007, I've got income of $27,000 as retirement income that kicked in at the beginning of the year.

Since I'm a Charter Baby Boomer, I expect my story is being repeated more and more often.

[Ann]

Sue,

I was hoping RUSH would mention Cerulean's article, too! He will one day, because I have started an email campaign. (Flatter, fawn, suck up...)

Actually, I just adore men that are smart, funny and have beautiful blue eyes. :)

[Sue]

Ann,

H&R is a favorite with the ladies around here. There have been a few who have challenged each other to a mud wrestling match for his favors. Just warnin' ya'...as long as I have the beer god as a friend, H&R's mine.

[centralcal]

Does Mrs. H&R know that he is a "favorite of the ladies around here," that he is being lured with "beer," fought over by "mud wrestling," and who knows what may be happening via email?

Don't know gals, she might come at you all like Faith Hill if you're not careful.

[Ann]

Sue,

Thank you, I consider myself warned but undeterred. BRING IT ON! (Don't forget the beer.) :) :)

[ken]

One more item RE: the "average" income nonsense. Well, the guy doesn't even have a bacherlor's degree. And he claims he "studied" at the graduate school at the University of Chicago. Well, if you count a 5 month exec course.

Hey, that makes him an expert, right? I think you actually have your explanation for all of the errors. No need to analyze any further.

Here's a defunct blog on the subject a year or so ago

http://davidcayjohnstonwatch.blogspot.com/2006/06/david-cay-johnstons-misleading.html

[Charlie (Colorado)]

Actually, I just adore men that are smart, funny and have beautiful blue eyes.

I have blue eyes sometimes.

[Charlie (Colorado)]

Well, the guy doesn't even have a bacherlor's degree. And he claims he "studied" at the graduate school at the University of Chicago. Well, if you count a 5 month exec course.

Ken, I don't have a bachelor's degree either, but I managed to get through grad school anyway. Don't make too much of that lest you step on your, erm, self.

[Rick Ballard]

"BRING IT ON!"

If a referee is necessary, I'll be pleased to oblige. This is a "thong only" match, right?

[RichatUF]

Rick-

I'll bring the beer. Can we tape it and post it to YouTube?

[Forbes]

Times reporter Johnston made the third comment to this post.

Does anyone else sense the defensive tone of the comment. Or the irony of a reporter explaining (or attempting to explain) what was meant, or what he claims to know, in this follow-up comment.

Perhaps if TM, and the JOM comments, didn't smell the stench of agenda--had Mr. Johnston written a straight up report--he wouldn't feel compelled to respond to a critique of his article.

For starters--as others have mentioned--no one earns an average income. Averages are exceedingly distorted by extraordinary events--the "average" statistic is dominated by that which is not average at all.

In many aspects of the human condition, an average is a telling statistic, e.g. human height or weight, or even IQ, but not income.

Using the top year (2000) of the internet bubble is a huge distortion of the base year of comparison in Johnston's report. In 2000, results of the prior years investment boom were cashed-out in the form of capital gains (capital gains taxes) to the tune of $644 billion ($127 billion).

Needless to say, the capital gains earned in subsequent years dropped to a rate at about half that as in 2000, and has yet to return to the level earned in 2000.

(A $300 billion decrease in capital gains would amount to how much a decrease in "average" income for 125--or 134--million taxpayers?)

Despite the IRS's definition of AGI, I've yet to know anyone who describes "income" as anything other than what is earned from employment--nor anyone who plans to live on their capital gains "income".

That capital gains were at an all-time high at the end of a speculative asset bubble, and have yet to return to those levels, is a "dog bites man" story. That such a story is trotted out as some how revealing about average incomes for most Americans is pathetic.

[Rick Ballard]

Rich,

Sure. I think a big hit on U-Tube would be the explanation by the 'prize' to his wife as to why he needed to go to a mud wrestling match. Will your equipment capture the reverb quality of a skillet smacking a skull?

I hope she uses aluminum - the cast iron ones just kinda 'thud'.

I'll work on a release form for all the participants.

[Ralph L]

H&R, wild dogwoods don't transplant well, not that anything could survive this summer. Get a small one at a nursery and dig a BIG hole, then plant it above ground level because it'll settle (something the gardening books and shows forget).

I'm not surprised D Cay J is particular about his name. Here in the South, a Johnston is considered quality, but a Johnson is just a johnson, and not always a big one.

I am surprised he didn't bring up all the poor sods who don't file income taxes. What do the illegals do?

[RichatUF]

Rick-

Will your equipment capture the reverb quality of a skillet smacking a skull?

This can be arranged.

[Ralph L]

H&R, don't call Edwards a fruit. His wife will beat you up.

[Mark L.]

Having read the comments, I have to conclude that Mr. Johnston was either extremely disingenuous when he wrote the article or extremely stupid. He picked metrics that are likely to go down, even as incomes go up. Either he was choosing facts to fit his theory or he didn't have the brains to realize the implication of using adjusted gross income post Bush tax cuts.

Since Mr. Johnston is reading the comments, inquiring minds want to know -- which is it Mr. Johnston? Are you dishonest or merely stupid?

[Sue]

If, by chance, Mrs. H&R stumbles across the posts that inadvertently reveal secrets of Mr. H&R's popularity with the ladies in pink earmuffs, I hope she has the sense of humor he does and doesn't take a skillet, iron or aluminum, to any of us. ::grin::

[Sue]

Does anyone else sense the defensive tone of the comment. Or the irony of a reporter explaining (or attempting to explain) what was meant, or what he claims to know, in this follow-up comment.

I was surprised to see him posting here. And so quickly after Tom's post went up.

I was amused at some of his defenses of his work. Especially the one where he claimed the NYTs wouldn't post something that wasn't factual, paraphrasing of course, since I'm too lazy to go find his actual quote.

[DPW]

Using AGI as a measurement of increased or decreased income is very misleading. I have a business of my own and my husband has a separate business. We file two schedule Cs and you can believe that we are using ALL the deductions we can find, including purchasing new equipment to write off in the same tax year ans well as other equipment to depreciate. Funding Simple IRAs for both businesses, HSA deductible accounts and so on.

Finding a good tax consultant has also been a big help. So even though each year has been better for us in income production than the last, we have been able to keep our AGI/taxable income to an ever lower amount each year.

The figures that the NYT is using are deceptive.

[Rick Ballard]

"to the tune of $644 billion ($127 billion)."

Or not. How much was captured in deferred accounts? Does a dollar captured in Calpers count the same as a dollar captured in my IRA as a dollar im my trading acount as a dollar captured in...

AFAICT there is a dearth of government statistics available to demonstrate income changes. Why in the world do we have to sort through BLS, Census, IRS etc. to come up with some simulacrum of "income"? What's so tough about reporting the "total income" line before adjustments and letting us divide by the population or the estimated number of "households" or the "total civilian workforce" (which is a very shady number by itself, counting retirees as it does)?

Why is the "total market value of stocks and bonds" number so hard to come up with in the financial press? It ain't exactly a bomb design.