President Obama’s Dubious Claims about Incomes of the Top 1% vs. the Bottom 90%

“In the last decade, the average income of the bottom 90 percent of all working Americans actually declined,” Obama said on April 13. “The top 1 percent saw their income rise by an average of more than a quarter of a million dollars each.”

Politi-Fact, partly on the basis of my own research, generously rates the president’s claim as “Half True.”

The truth is that the President’s source, Thomas Piketty and Emmanuel Saez, refer only to pretax, pretransfer income reported on individual tax returns (as opposed to being sheltered inside a corporation or IRA or simply unreported), and they have no data on the bottom 90%. Worst of all, they leave out transfer payments, which amounted to $2.3 trillion last year — 44% as large as all private wages and salaries ($5.2 trillion). The data also excludes refundable tax credits, which added about $170 billion to low and middle incomes in 2009 according to the the Joint Committee on Taxation (the EITC, child credit and Obama’s “making work pay” credit). And the Bureau of Economic Analysis estimates that gross income reported on tax returns is about $1 trillion less than actual income.

As for the top 1%, my research shows that top investors report more capital gains and dividends when those tax rates go down, which is why they paid such a big share of income taxes (up to 40%) in 1997-2000 and 2003-2007.  Raise the tax on dividends and capital gains to 23.8%, as Obama hopes to do by 2014, and somebody else would have to pay the taxes now paid by the top 1%. Using income reported to the IRS to measure actual living standards is foolhardy at best.