Conservatives and the CBO

Paul Krugman, NYT

Conservatives have recently made a horrifying discovery: if you look not at nominal but at real incomes, Census data do not show a rising tide raising all boats — they show income actually falling for the bottom quintile. Some of them have responded by turning to a CBO report that took account of transfers and taxes, and shows the income of the bottom fifth rising a bit — 18 percent — between 1979 and 2007.

Before they start claiming vindication, however, these people might want to read the whole report, which actually punctures several of their favorite myths.

One of these myths is that inequality, while maybe it rose a bit in the '80s, has been flat since the early 1990s. It can look that way if you use the Census survey data, which have a hard time tracking very high incomes. But CBO, which uses tax data to remedy this gap, finds that most of the surge in the income share of the one percent actually happened after 1992. It rose from 7.7 percent in 1979 to 10.9 in 1992 — then to 17.1 in 2007.

CBO also has something to say about the notion that we’re becoming a “nation of takers”, ever more dependent on government handouts. Here’s government transfers as a share of personal income:

(More here.)