Contents

The Reagan Information Page

Poverty Income Breakdown

One of the more common notions is that the poor have little disposable income. However, the facts shown below tell a different story; that uncounted (for official government statistics and need determination) benefits and income substantially increases the actual income of the poor.

Income Defintions with regard to Poverty Levels
DefinitionDescription% below poverty level
Income Before Taxes
1Money income excluding capital gains (current)13.5
2...less government transfers20.5
3...plus capital gains20.4
4...plus health insurance supplements to wage or salary income19.9
Income After Taxes
5...less SS payroll taxes20.9
6...less Federal income taxes (excluding Earned Income Credits)21.1
7...plus Earned Income Credits20.6
8...less state income taxes20.8
9...plus nonmeans-tested government cash transfers14.7
10...plus nonmeans-tested government noncash transfers14.3
11...plus means-tested government cash transfers13.2
12...plus means-tested government noncash transfers11.0
13...plus net imputed return on equity in own home9.8
 Source: American Almanac, table 726, page 460 (1993 ed).

Notes:

Defintion 1 is the current defintion of "poverty".

Method 9 "nonmeans-tested" government cash transfers produces a whopping reduction in the poverty rate. Yet this is the very type of thing the government refuses to count when determining who is poor.

Here's another interesting table to go along with it:

Money income of households--% distribution by quintile and index of income concentration, by definition of income: 1990
DefinitionDescriptionAggregate share of incomeMedian Income
1st2nd3rd4th5th
Income before taxes
1Money income excluding capital gains (current measure)3.99.616.024.146.4$29,943
2...less government money transfers1.28.315.725.049.727,283
3...plus capital gains1.28.115.424.550.927,437
4...plus health insurance supplements to wage/salary1.17.915.524.750.728,779
Income after taxes
5...less SS payroll taxes1.17.915.424.551.126,963
6...less Federal income taxes but excluding EITC1.38.516.125.248.824,673
7...plus EITC1.38.616.125.248.724,713
8...less state income taxes1.48.916.425.248.123,947
9...plus nonmeans-tested government cash transfers3.710.416.624.245.126,379
10...plus nonmeans tested, noncash government transfers3.910.816.724.244.327,328
11...plus means-tested cash government transfers4.610.916.624.043.927,442
12plus means, noncash government transfers5.111.116.523.843.527,720
13plus net inputed equity in home5.211.116.623.643.529,615
 Source: American Almanac, table 731, page 462 (1993 ed).

Government money transfers change the aggregate income drastically, with nonmeans-tested cash transfers changing the share by 2.3%, once again at the expense of the highest quintile.

This is all relative, of course. The poor are still less well off than the rest of society. The point is that the government is taking away with one hand to give some back with the other hand. The exchange is inefficient, and ends up costing society in the long run. A lower tax rate, with a flat or perhaps national sales tax would be far better for those at the lower end of the income spectrum.

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