The Center for American Progress values an exchange of ideas on the subject of how middle-class families are faring. And while CAP always welcomes feedback from other researchers on our work, such an exchange should take place on the basis of actual facts.
CAP is confident in and stands by the calculations in our report “The Middle-Class Squeeze,” which was recently criticized by Scott Winship. While he claims that there are mistakes in the report, the mistakes are clearly his.
Winship’s claims mainly refer to the chart in our report that describes the “change in median household income and real price of selected goods and services” for 2000 through 2012. He makes three claims about CAP’s analysis, each of which is incorrect. Winship claims that:
- The chart is factually wrong because it double counts inflation.
- The calculated 8 percent decline in real median family income, illustrated in the chart, is misleading because we used the wrong price index to deflate nominal income.
- The use of U.S. Census Bureau data on household incomes is misleading because it measures pre-tax income and omits certain transfers.
The first claim is wildly off the mark and relatively straightforward to rebut. Winship claims the Consumer Price Index, or CPI, accounts for all changes in costs, and therefore, it makes no sense to talk about changes in the price of the pillars of a middle-class life, including college tuition, health care, child care, housing, and retirement savings. This is simply incorrect: The CPI measures the cost of a market basket of goods for all households. But this market basket is not the middle-class basket—the chart shows that the real price growth of the middle-class pillars has outpaced inflation. There is no double counting here.
The second claim, that our use of the CPI as a deflator overstates the decline in real family income, misses the point of the chart. The chart compares real price increases of the middle-class basket to declines in real family incomes, thus the index we use for deflation is irrelevant. We could have deflated both nominal incomes and nominal CPI components by the Personal Consumption Expenditures, or PCE, price index instead of the CPI. Deflating by the PCE would make the fall in incomes appear smaller, but the price increases appear larger. The result is the same on net. We deflated using the CPI because this is a more familiar index.
The third claim is that because the U.S. Census Bureau uses pre-tax income data that do not count government benefits such as food stamps and employer-provided health insurance, the increased burden caused by the relatively rapid increase in the costs of a middle-class life is overstated. We have three responses. First, we explicitly account for taxes when measuring overall changes in the burden. (See Figure 1.3 in the report) Second, most non-health-care social safety net spending does not go to the middle class, which makes too much money to qualify for food stamps, the Earned Income Tax Credit, and Medicaid. Consequently, the omission of these items would be unlikely to affect the measured income of the households in question. Third, the report focuses on the income that Americans have available to spend on the basics of middle-class security. That their employers are spending more on their health care plans does not increase the amount of money middle-class families have to pay for preschool, housing, or college. The report repeatedly makes the point that reducing health care inflation would let employers increase wages.
In short, it is Winship who has his facts wrong. He would do better to read more carefully.
Marc Jarsulic is the Vice President for Economic Policy at the Center for American Progress. Jennifer Erickson is the Director of Competitiveness and Economic Growth at the Center. Michael Madowitz is an Economist at the Center. Brendan V. Duke is a Policy Analyst for the Center’s Middle-Out Economics project.
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