Pedestrian walk in the Times Square area of New York, U.S. (Photographer: Victor J. Blue/Bloomberg)

Rich Americans Are Changing What It Means to Be Average

(Bloomberg) -- To get a clearer picture of income inequality across U.S. households, consider adjusting your choice of statistical measures.

On the surface, Census Bureau data released Tuesday showed little change in the gap between rich and poor because the traditional measure of income inequality – the Gini index – was basically steady from 2015 to 2016.  But the difference between median and mean household income hit a record last year, which suggests the rich got richer as they left the typical American household further behind.

Specifically, median household income, after adjusting for inflation, rose 3.2 percent in 2016 to $59,039, while mean income increased at a bit of a faster clip – 3.6 percent – to $83,143. That’s a difference of $24,104, up from $23,035 in 2015 and just $5,318 when the series started in 1967.

Because the mean is influenced by especially high or low earners on either end of the spectrum, it reflects the emergence of disproportionately affluent outliers. For example, if  a billionaire were to move into a middle-class neighborhood, median income – the exact midpoint of households in the area, at which half earn above and half earn below – would remain basically the same. But the mean, or neighborhood average, would skyrocket.

“The growing wedge between median and mean household incomes is a key way that rising inequality has manifested in recent decades,’’ said Josh Bivens, director of research at the left-leaning Economic Policy Institute. He pointed out that recessions tend to compress the discrepancy as dividend and capital-gains payments recede, depressing the earnings of wealthier Americans.

But since the 2007-2009 downturn ended, the gap between the top and bottom earners has ballooned, according to Census data. Since 2007, average inflation-adjusted income has climbed more than 10 percent for households in the highest quintile of the earnings distribution, while it has fallen 3.2 percent for the bottom fifth. Incomes of the top 5 percent jumped 12.8 percent over the period. 


Also since 2007, median income is up just 1.5 percent, compared with a 6.2 percent advance for the mean.

Rising income inequality may have contributed to the populist sentiment that led to President Donald Trump's election victory last year, as he campaigned on a pledge to boost middle-class wages through tax cuts and an improved jobs market.

The coming congressional debate over tax reform may rekindle discussions about wealth disparity, as Democrats say certain Republican proposals such as eliminating the inheritance and alternative minimum tax would disproportionately benefit the rich. The Trump administration says its focus is providing relief for the middle class.

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