You've heard the complaint: Although times are good, there is far too much income inequality in America. This gripe is grounded in data from the U.S. Census Bureau's annual report on income, the latest version of which was released in September. According to those data, the 20 percent of Americans with the lowest incomes earn a mere 3.6 percent of all wages paid, while the top 20 percent take home 49 percent of the loot. Translated into money terms, that means for every $1 earned by someone in the bottom quintile, a top quintile person earns more than $13.
Not true, says a recent report from the Heritage Foundation, which identifies three significant sources of bias in the Census Bureau figures. First, the quintiles are not really quintiles. The top quintile actually has 24.3 percent of all income earners, while the bottom contains only 14.8 percent. That's because the bureau counts households, rather than individuals, and high-earner households are more likely to be composed of married couples with multiple earners than are low-income households. Second, the bureau leaves out some forms of income, including government benefits such as food stamps, and fails to adjust for the significantly higher taxes paid by high earners. Third, the bureau doesn't account for the fact that those in the top quintile work nearly twice as many hours as those in the bottom. After these adjustments, says Heritage, the spread is reduced to $3.08 for every $1 earned. Which sounds almost European.