Warren essentially correct on income decline for the middle class

For the complete fact-check with sourcing go to www.politifact.com/truth-o-meter/statements/2015/jan/13/elizabeth-warren/warren-average-family-bottom-90-percent-made-more-/.

The average family not in the top 10 percent makes less money today than they were making a generation ago.”

— Elizabeth Warren on Wednesday, January 7th, 2015 in a speech at the AFL-CIO National Summit on Raising Wages

Sen. Elizabeth Warren, D-Mass., believes the government’s economic policies over the past few decades have “cut the legs out from underneath America’s middle class.”

At the AFL-CIO National Summit on Raising Wages Jan. 7, Warren spoke about growing income inequality, when the “trickle-down economics” policies gained traction under former President Ronald Reagan. She argued that this theory hasn’t worked.

Warren cited a number of statistics to support her point, including: “Well, since 1980, guess how much of the growth in income over the last 32 years — how much of the growth in income did the 90 percent get? Zero. None. Nothing. In fact, it is worse than that. The average family not in the top 10 percent makes less money today than they were making a generation ago.”

We wondered if that was true.

The statistic comes from data compiled by well-known economists Thomas Piketty and Emmanuel Saez, who study income inequality.

We looked at average income data from 1979 to 2012 for the top 10 percent and bottom 90 percent of earners. The Saez-Piketty data comes from millions of tax returns filed over the past century.

The data supports her claim. Adjusted for inflation, the top 10 percent of earners in the United States made, on average, $144,418 in 1979 and $254,449 in 2012. That’s about 76 percent growth.

The bottom 90 percent of earners, on the other hand, made $33,526 in 1979 and $30,438 in 2012. That’s a decrease of about 9 percent.

There is some context to consider. Mainly, not everyone approves of the Saez-Piketty approach to cataloging income.

Their approach uses pre-tax income and includes realized capital gains. Because the richest Americans earn a lot of capital gains and pay a lot of taxes, this arguably magnifies their income.

The approach also lowballs the income of lower-level earners. The income calculation does not include government payments, such as Social Security, unemployment insurance, food stamps and the earned income tax credit.

Salim Furth, an economist at the conservative Heritage Foundation, also noted that the data looks at “tax units” — individuals or married couples filing together — rather than households, which may artificially lower average incomes. For example, a young adult living with his parents are two separate tax units; together they are one household or family. The Saez-Piketty data captures that the young worker has a very small income, but not the fact that he lives in a house with multiple incomes.

Also, tax law has changed over the past 50 years to increase the number of units, Furth said.

Of the general trend in income growth, he said, “Data sources that are more widely used show solid, though not fantastic, income growth for most of the income distribution through 2007. There are big losses in the Great Recession, and then an incomplete recovery since then.”

Richard Burkhauser, an economist at Cornell University, pointed us to a paper he co-wrote on income inequality that compares Saez-Piketty-style data to other income measurements. The results are consistent with the Saez-Piketty data until households are adjusted for size, and capital gains taxes and government payments are factored in. With those controls, incomes have grown across the board, and income inequality has also grown — but not at as dramatic a rate as the Saez-Piketty data implies.

Ultimately, Burkhauser’s report concludes that different measurements work for different policy questions.

If Warren’s talking specifically about market income — that is, income earned before taxes and before government payments — the Saez-Piketty data “is appropriate, and undoubtedly income inequality has grown substantially in recent years, and the middle class is struggling.”

If the question is, alternatively, whether government programs are doing something to close the gap and help the middle class — other measures show that programs like food stamps and Medicaid are helping to a certain extent, at least for people who qualify. (And of course not everyone in the bottom 90 percent of earners does qualify.)

In the speech, Warren was making a policy argument against the idea of trickle-down economics and in favor of broad economic policies that she believes would improve Americans’ job-earned income, like raising the minimum wage and breaking up the Wall Street banks.

Our ruling

Warren said, “The average family not in the top 10 percent makes less money today than they were making a generation ago.”

According to one measurement, the bottom 90 percent of American earners had a lower income in 2012 than they had 30 years ago.

By other measurements — mainly ones that include government payments such as Social Security — incomes have grown across the board. However, this data still supports Warren’s overall point that income inequality is growing.

We rate Warren’s claim Mostly True.