Income growth and its distribution from Eisenhower to Obama: The growing importance of in-kind transfers

Burkhauser finds that market income for the median American/mean value of the middle quintile of American tax units started to decline in 1969 but has been more than off set by tax/transfers (especially in kind)

".... Using either of our most restrictive income definitions—labor earnings or market income—and a tax unit as both our sharing unit and our unit of analysis (choices researchers using tax record-based data are forced to make—e.g. Piketty and Saez 2003) the resources available to the middle class (measured as the median American tax unit or the mean value of the middle quintile of American tax units) peaked in 1969 and trended downward thereafter. While these yearly values fell and rose within all subsequent business cycles, with the exception of the business cycle of 1989-2000 these values were lower at the end than at the beginning of each cycle. In contrast, as we broaden our income definition to the disposable size-adjusted household income (including both cash and some in-kind transfers) of persons—the measure of income most commonly used in the survey data-based literature—middle class Americans have made peak-to-peak gains over all completed business cycles since 1959 including the 2000-2007 business cycle....We find that the dramatic decline in themarket income of the middle class (measured as the median American tax unit or the mean value of the middle quintile of American tax units) began in 1969. However, we find that this decline was more than offset by government tax and transfer programs—especially in-kind transfers.... However, we also show that government tax and transfer policies have transformed a 23.0 percent cumulative increase (0.36 percent annual rate) in the market income of the median tax unit between 1959 and 2016 into a lower bound 130.4 percent or an upper bound 153.7 percent increase (1.47 and 1.65 percent annual rate, respectively) when we more fully account for taxes and transfers, and use the proper sharing unit and unit of analysis. Doing so we show that while over this period the rich got substantially richer, so did poor and middle class Americans....In 2016, this disposable income measure finally returned to its peak year 2007 pre-Great Recession high at the start of the current, on-going business cycle. However, this is a lower bound measure of the importance of government tax and transfer policies for the growth in the median American’s disposable income. When we include the market values of Medicare, Medicaid, and ESI in our upper bound measure of the median American’s disposable income, we find even greater growth....When we adjust for government taxes, include cash and in-kind transfers, but exclude the value of Medicare, Medicaid, and ESI benefits—thus creating a lower bound measure of disposable income—we find that all five quintiles have experienced gains of more than 100 percent since 1959 with the highest gains among the top and bottom quintiles.When we include the market values of Medicare, Medicaid and ESI, the former two of which are programs that only began in 1966, in our upper bound measures of disposable income, the bottom quintile of the income distribution registers the greatest gains since 1959 and there are much smaller differences in gains across the other quintiles....."

Richard V. Burkhauser, James Elwell, Kevin Corinth, "Income growth and its distribution from Eisenhower to Obama: The growing importance of in-kind transfers.," American Enterprise Institute, November 2019, https://www.aei.org/wp-content/uploads/2019/11/Corinth-Burkhauser-Eisenhower-to-Obama-WP-1.pdf