Rich and Poor

Turn on a television or open a newspaper, and you are certain to hear or read someone say that the rich are getting richer, and the poor are getting poorer. This is a good example of where governmental data conflict with each other.

The latest data from the U.S. Census Bureau does seem to indicate that the rich are getting richer while the poor are getting poorer. But these numbers do not reflect the economic improvement of individuals and families.

Data from the Internal Revenue Service does show this movement. It shows that people in the bottom fifth have nearly doubled their income in the last ten years. It also shows that the top one percent saw their incomes decline by 26 percent.

Why are there differing sets of governmental statistics? It turns out that the IRS tracks people over time. After all, people don’t stay in the same income brackets throughout their lives. Millions of people move from one bracket to another, especially during this current economic downturn.

The IRS tracks people each year and thus reflects real changes to real people while the Census Bureau merely creates the illusion of tracking people. The best way to follow people is to actually follow people. That’s what the IRS statistics do, and so they are more accurate.

Consider this simple fact: If people in the bottom fifth doubled their income over the last ten years, then by definition, they probably aren’t in the bottom fifth bracket any more. So you may wonder who is now in the bottom fifth. Some of them had to declare bankruptcy, but many of them are illegal immigrants. As I discuss in my new book, Making the Most of Your Money in Tough Times, economic statistics can sometimes be misleading unless you know the assumptions behind them.

In this case, the cliché that the rich are getting richer and the poor are getting poorer isn’t true. I’m Kerby Anderson, and that’s my point of view.