http://www.bostonphoenix.com/boston/news_features/top/documents/03218337.aspThe politics of poverty
And the poor get poorer. Federal government fudges
economic figures. What’s next?
BY DAVID S. BERNSTEIN
WHEN THE US Census Bureau released its annual income and poverty report two weeks ago, progressives immediately pointed to the numbers — which showed an increase of 1.7 million people living below the poverty line from the previous year — as evidence of the failure of President George W. Bush’s economic plan. Senator Ted Kennedy, for one, told the Boston Globe: "This troubling development should be a wake-up call to the White House that it’s time to reverse course on the economy." Kennedy’s critique of the Bush economic plan may have been reflexive, but he was right — even more so when the poverty and income numbers released by the Census Bureau are recalculated to adjust for a significant error in how they were tabulated.
The Phoenix has discovered that the Census Bureau calculated the 2001 after-tax-income figures using incorrect tax rates. The result is that after-tax income dropped more steeply last year than the Bureau reported. Here’s how it happened: the Census Bureau used the wrong marginal tax rates to calculate after-tax-income data for 2001. In calculating taxes for 2001, the Bureau used 15 percent as the lowest marginal tax rate, rather than the correct rate of 10 percent, which went into effect that year after Congress passed Bush’s first tax cut. Why did Census Bureau statisticians do this? Because the tax tables published by the Internal Revenue Service that year set the lowest marginal tax rate at 15 percent in order to account for the tax "rebates" of $300 for individuals and $500 for heads of households that were sent out that year. In fact, the "rebates" were advances on the tax reduction; to account for the discrepancy, the IRS did not reflect the tax cut in the tax tables that year. Census Bureau statisticians simply went with the published figure of 15 percent, instead of the correct one of 10 percent. (See "Follow the Money," this page.)
This resulted in the Bureau’s overestimating most taxes by $300 for individual taxpayers, $500 for heads of households, and $600 for couples. Accordingly, its estimates of after-tax income were low by the same amount. In short, the total amount of income unaccounted for in 2001 is roughly $39 billion, based on data from the Internal Revenue Service. The mistake has been verified by officials in the Census Bureau’s Housing and Household Economic Statistics Division, as well as by economists familiar with the data. "Our intention is to rerun the numbers," says Chuck Nelson, assistant chief for the division. He would not say when that will take place, or how the corrected figures will be released. "We could publish right away over the Internet, or wait until next year to include them in the annual report, or do something else, based on the extent of the impact of the correction."
The new figures, however, will show that the 2.2 percent decline in pre-tax income during the 2001 recession year was mostly offset by the tax cut. For the year following the recession, however, they will show a large drop in after-tax median household income — roughly 1.5 percent. All of which suggests that the "jobless recovery" has had a greater negative effect on households’ ability to spend and save money. Or, put another way, middle-class households had a much tougher time last year than they did during the actual recession, which officially ended in the fall of 2002.
Talk about a wake-up call.
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