Forget what you read on the signs at the local Occupy Whatever City rally. The so-called “99 percent” have never had it so good.
Living standards for poor and middle-class Americans have improved steadily since 1980. Much of this improvement can be credited to the economic growth and tax reforms that provide incentives to invest and work. In a study for the American Enterprise Institute last month, Bruce Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame examined survey-level data to determine changes in what they call the “material well-being” of the poor and middle class - that is, the Americans in the bottom 20 percent of the income distribution and those in the middle 20 percent.
Much of the literature looks at the income these groups receive - before tax and transfers - to conclude incorrectly that they are worse off today. Mr. Meyer and Mr. Sullivan argue, quite correctly, that pre-tax income doesn’t tell the whole story. For example, a retired couple with substantial assets could have almost no income. Even though they enjoy a very comfortable living, they would be tossed in the “poor” category because they lack income. That’s why Mr. Meyer and Mr. Sullivan concluded that consumption levels are a better measure of how well people are doing.
By this yardstick, even the bottom 10 percent of the population can boast a 54 percent improvement in material well-being between 1980 and 2009. Moving the next rung up the ladder, the 20 percenters live in homes, on average, that are 200 square feet larger. Eighty-three percent have some air conditioning, compared to 41 percent in 1981. In 1981, just 69 percent of those in the bottom 20 percent owned at least one car; in 2009, this number was 76 percent. The cars have more comforts and conveniences - just 47 percent of cars had air conditioning in 1981, compared with 77 percent in 2004.
The middle class - in the strict sense of the word, the middle 20 percent of the income distribution - also has done well over the past almost 30 years. Median income grew by 46 percent. Houses grew bigger, increasing on average by 300 square feet, without adjusting for family size. Central air conditioning increased from 27 percent to 67 percent. Car ownership is at almost 95 percent, with 83 percent of the cars having air conditioning.
The only year consumption fell for the middle class, notably, was 2009 - the year of the Great Recession. That’s no accident. The improvement in the material well-being of the poor and the middle class that Mr. Meyer and Mr. Sullivan documented so thoroughly was the result of economic growth. Some of this economic growth was correlated to tax reforms that reward effort. They identified lower marginal tax rates and the earned income tax credit in particular as major sources of poverty reduction in the long run, but found that non-cash transfer programs, such as food stamps and subsidized housing, don’t do much to improve material well-being.
Ultimately, the best way out of poverty is to have a job, and the best way Congress can help is to set clear ground rules and simplify the tax code to allow the private sector to flourish. That’s the key to improve living standards for everyone.
Nita Ghei is a contributing Opinion writer for The Washington Times.