Press release from Middle Tennessee State University; June 17, 2013:
MURFREESBORO — Those taxes you paid to the federal government in April are coming from less and less pretax income, and change is not in the offing, according to an MTSU economist.
Dr. Jason DeBacker, an assistant professor in the Department of Economics and Finance, is the co-author of a new report that shows income inequality in the United States is more permanent than it is subject to periodic fluctuations.
In other words, the rich are staying richer and the poor are staying poorer.
Of course, it’s not really that simple. It never is with economics.
The study that DeBacker and his four co-authors conducted for the Brookings Institution shows that income inequality between 1987 and 2009 increased more because of “permanent” factors like technology and globalization than because of “transitory” factors such as changing jobs or being laid off for a few months.
What makes this study different is the unique authenticity of its data. DeBacker, a former Treasury Department employee working with another ex-Treasury colleague and two employees of the Federal Reserve Board, had access to the federal tax returns of 34,000 households.
“They take very strong precautions to make sure these data are not released,” DeBacker said of the Internal Revenue Service. “You can only use them at a computer physically located at Treasury (in Washington, D.C.) or connected to a server that’s located there.”
With access to such precise information, DeBacker and his colleagues discovered practically all of the 23 percent rise in income inequality for male workers was due to permanent factors.
They also determined that about three-fourths of the increase in total household income inequality, which includes women’s wages, small-business income and capital gains income, was due to permanent factors.
The study focused on male heads of households, not because of sexism, DeBacker said, but because “women transition in and out of the labor force more, and there’s just statistical difficulty oftentimes dealing with those transitions.”
The federal stimulus checks that were disbursed in 2008 threw something of a monkey wrench into the scholars’ calculations.
“People who wouldn’t normally have filed (were) filing to get this check,” DeBacker said. “So there was a huge jump up in the number of filers, and these were mostly people who didn’t have any labor-market earnings and have, typically, very high Social Security benefits.”
However, overall, the scholars dropped exceptionally low-income individuals because so few of them file tax returns. Those who made less than a quarter of a year’s worth of full-time work at minimum wage were removed from the sample.
The study has been the subject of reports in the Washington Post, Bloomberg News, The New Republic, National Review, Financial Times of London, and Forbes Magazine, among others.
While DeBacker is grateful the research has received so much attention, he shies away from policy recommendations. That’s not his job as an economist.
“It all depends on what you think of inequality — whether it’s a terrible thing or a not-so-bad thing or nothing to worry about at all,” said DeBacker. “It’s important not to take a strong stance because you don’t want the research agenda of those who can access these data to be defined by who’s in office. You want, really, to use these data to make basic research that other researchers can build off of.”
To read the entire study, go to http://tinyurl.com/incomestudy2013.