November 28, 2020

Economix: Where Do You Fall on the Income Curve?

The Tax Policy Center has updated its figures on the income distribution in America, which we’d previously written about in a post about why most rich people don’t feel very rich. They have now crunched income levels for every single percentile, and the numbers refer to 2011 rather than 2010. So I’ve updated my chart on this subject.

The graph below shows how much income is earned by a household at any given percentile in the income distribution, based on these new numbers for 2011:

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Incomes grow much, much faster at the top end of the income distribution than in the middle or at the bottom end. That is, the disparity in income between one percentile and a consecutive percentile is bigger among the very rich.

For example, the difference in income between a household at the 50th percentile and a household at the 51st percentile is $1,237 ($42,327 versus $43,564). But the difference in incomes between a household at the 98th percentile and the 99th percentile is $146,118 ($360,435 jumps up to $506,553).

The gaps become even wider at the extreme top of the income ladder: A family at the 99.5th percentile makes $815,868; its neighbor at the 99.9th percentile makes more than double that, at $2,075,574 a year.

In fact much of the rise in inequality over the last few decades has been because of the increasing inequality isolated among the very top members of the income distribution, as America’s wealthiest have pulled further and further away from their slightly less wealthy peers.

(Addendum: “Income” in this case refers to cash income, without energy assistance, imputed corporate income tax liability and the employer’s share of payroll taxes.)

Article source: http://feeds.nytimes.com/click.phdo?i=4cb8d6efac18259848b7d71fecaa9fee

Economix: Behind the Rise in Pell Grants

My column this week looks at Amherst College’s impressive recent track record of recruiting low- and middle-income students. Amherst now has a much higher share of Pell Grant recipients — who tend to come from the lower-half of the income distribution — than most other elite colleges.

It’s true that many other elite colleges have also increased their number of Pell recipients in recent years. And these colleges deserve praise for increasing financial aid and recruiting in new places. But they may not deserve quite as much praise as they have heaped on themselves.

The federal government, it turns out, deserves some of the credit.

In the last few years, the government has significantly expanded the Pell program, which is the largest federal aid program. Four years ago, 5.2 million students received Pell Grants. Last year (the 2009-10 academic year), 8.1 million students did, according to the Education Department. That’s an increase of 56 percent.

If colleges had not changed their admissions or financial-aid policies at all in the last few years, they probably would still have more Pell recipients today. Amherst’s increase in Pell recipients has nearly doubled since 2005, comfortably outpacing the national increase. But not every college has kept pace.

Article source: http://feeds.nytimes.com/click.phdo?i=f090fce91bc8ad8ed566ff8434dd5ba7

Economix: Rich People Don’t Realize They’re Rich

There’s a movement afoot to mail every taxpayer a “taxpayer receipt,” a breakdown of how the government spends its money. The goal is to educate people about where their taxes go, since Americans are famously unaware about such matters.

But as long as we’re talking about educating Americans about fiscal policy, why not start with what they actually pay in taxes, and what they earn, relative to their fellow Americans?

I am constantly amazed by how little Americans know about where they stand in the income and taxing distribution. The latest example is evident in a recent Gallup study, which found that 6 percent of Americans in households earning over $250,000 a year think their taxes are “too low.” Of that same group, 26 percent said their taxes were “about right,” and a whopping 67 percent said their taxes were “too high.”

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And yet when this same group of high earners was asked whether “upper-income people” paid their fair share in taxes, 30 percent said “upper-income people” paid too little, 30 percent said it was a “fair share,” and 38 percent said it was too much.

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So members of a group that is, statistically speaking, “upper income” are very unlikely to think their  taxes are “too low,” but are five times as likely to say that “upper-income people” as a group pay “too little.”

I blame this disconnect on the fact that upper-income people don’t realize they’re upper income. It’s the “Middle Kingdom” effect.

Everyone thinks they’re middle-class partly because of cultural reasons, and also partly because of the way the income distribution is skewed. The greatest income inequality is at the very top. As a result, people who are rich but not the richest — in the $250,000 zone, say — see they have more than lots of poor people, but also much less than a few very visibly rich people. Then they conclude they’re in the middle, so they must be middle class.

As a result, many Americans are  misinformed about how reliant the country is on their tax contributions, and what kinds of additional sacrifices they might have to make to help get the nation’s fiscal house in order, at least if they hang onto their previously professed beliefs about who should shoulder this burden.

As with the “taxpayer receipt,” I’m not sure it’s really the Internal Revenue Service’s duty to notify Americans about where they stand in the pecuniary pecking order (or the best use of I.R.S. funds, for that matter). I would probably place that responsibility with the media and the nation’s education system.

So far both have done a miserable job of enlightening Americans about their good (or bad) fortune.

Article source: http://feeds.nytimes.com/click.phdo?i=4e2466bb0e526e587269da844ee01ffc

Economix: Economic Diversity at Harvard (Cont.)

Michael Fein/Bloomberg News

Harvard officials have responded to The Chronicle of Higher Education’s recent chart on economic diversity at top colleges — which I wrote about last week — and have made some good points. The brief version: Harvard’s undergraduate student body is more economically diverse than The Chronicle’s numbers suggested. It’s still not very diverse, but it has become more diverse in the last few years.

The issue revolves around something called the Harvard Extension School. About 14,000 students were enrolled in the Extension School last year. Its students generally do not attend classes full time. Many are trying to get a degree of some kind, undergraduate or graduate. But many are not.

To be eligible for a Pell Grant — the main federal financial aid program — a student must be pursuing an undergraduate degree. Fewer than 1,000 of the 14,000 Extension School students were pursuing such a degree last year, says Jeff Neal, a Harvard spokesman. Yet all 14,000 of the Extension School students were counted as Harvard students in the Education Department data that The Chronicle used in its analysis. With these students included, fewer than 7 percent of Harvard students received Pell grants in 2008 (the most recent data available from the Education Department).

If you look at only full-time students enrolled in the traditional Harvard College, 12.8 percent received Pell Grants in 2008, Mr. Neal said. This year, the number is up to 15 percent. Back in 2004, it was 9.6 percent.

Not only are those numbers higher than the ones in The Chronicle’s analysis, but they’re obviously increasing over time. Harvard deserves credit for that. Has it made enough progress? I’d say no.

Pell Grants go roughly to the bottom half of the income distribution. Work by William Bowen, Anthony Carnevale, Richard Kahlenberg and others suggests that elite colleges still overlook or exclude talented low-income students. As long as that remains the case, those colleges won’t be as meritocratic as they claim.

Below, I have pasted two notes. The first is an e-mail that Jeffrey Selingo, the editor of The Chronicle, sent me after I’d asked him about Harvard’s reply. After that is the text of the letter that two Harvard administrators sent to The Chronicle last week.

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Jeffrey Selingo’s e-mail:

Three times in the last five years, The Chronicle has performed an analysis of how well the nation’s wealthiest colleges are serving low-income students by looking at the share of undergraduates on Pell Grants. Each time, we have acknowledged that such a measure is an imperfect indicator of economic diversity for a variety of reasons, but in the absence of better national data reported to the U.S. Education Department, it’s the best one available.

Harvard is not alone among colleges in the sample that maintain that some portion of their undergraduate student body should be excluded (we noted in our article that Harvard’s enrollment figure included its extension school). But to exclude any group would require us to collect data from individual institutions that would need to be manipulated in some way by the institution to exclude those groups of students. Allowing the institutions to provide the data, I believe, could compromise our analysis because we wouldn’t be using national baseline data collected and policed by the Education Department.

While Harvard enrolls many of its nontraditional students in the extension school, many other institutions in the sample include such students in their overall enrollment number. So if we were to make an exception for Harvard, we would treat it differently than other institutions. Doing so would also require us to ask each institution to exclude the extension-type students who receive Pell Grants.

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Letter from Harvard officials:

In recent years, Harvard College has played a leadership role among colleges and universities to attract a diverse array of students, including those eligible for Pell Grants. For instance, in fiscal year 2008, 12.8 percent of Harvard College students benefited from Pell Grant funds. Excluding international students, who are not eligible however modest their economic circumstances, the percentage increases to 14.02. And I’m pleased to report that the portion of Harvard students accessing these funds has continued to grow over the last two years, to 15 and 16.8 percent respectively in 2010.

Harvard College also supports a very generous, need-based, no loan financial aid program that will total approximately $160 million in the coming year. In fact, roughly 70 percent of Harvard College students receive some sort of financial aid and over 60 percent receive scholarship aid directly from Harvard. The average scholarship aid award is $40,000. Families with students on scholarship contribute an average of $11,500 annually toward the cost of a Harvard College education.

The College has a policy of “zero contribution” from families with normal assets making $60,000 or less annually. Families with incomes up to $180,000 with assets typical for these income levels are asked to contribute no more than 10 percent of their incomes. Since 2007, Harvard’s investment in financial aid has climbed by more than 60 percent, significantly outpacing increases in tuition.

Given these facts, I was disappointed that the Chronicle of Higher Education chose to include a misleading statistic about the number of undergraduates at Harvard benefiting from Pell Grants in the chart that accompanied the article, “Elite Colleges Fail to Gain More Students on Pell Grants”. The chart indicates that in 2008-2009, only 6.5 percent of Harvard undergraduates received Pell Grants. But this is only true if you count both students attending Harvard College, the institution that comes to mind when most people think of undergraduates attending Harvard, and also the thousands of non-traditional students who took even one undergraduate class at the Harvard Extension School that year.

The Harvard Extension School is a wonderful institution, which plays an important role in enabling our neighbors in Cambridge and Boston to access the scholarship, teaching and learning occurring on our campus. But its mission and student body are quite different from those of Harvard College. It primarily serves non-traditional students, many of whom are older than the typical undergraduate cohort, most of whom work during the day and attend some number of classes at night and the majority of whom are not participating in a degree program. In fact, many Extension School students are Harvard staff with advanced degrees taking individual courses for their personal edification or for professional development. These and other students taking an occasional course at the Extension School aren’t eligible for and are not seeking Pell Grants. This can hardly be the sample that the Chronicle was purporting to represent.

Sadly, however, the Chronicle’s decision to combine the total student numbers from the Extension School and Harvard College roughly doubles the total number of students being used in the denominator of their calculation, thereby cutting the percentage of students receiving Pell Grants roughly in half, even though, as I’ve noted, most Extension School students clearly fall into a different category of student than those attending the College.

We will continue our ongoing work to make a Harvard College education possible for students from all backgrounds, regardless of financial means.

Sincerely,
William R. Fitzsimmons,
Dean of Admissions and Financial Aid, Harvard College
Sarah C. Donahue,
Director of Financial Aid, Harvard College

Article source: http://feeds.nytimes.com/click.phdo?i=9405dd0636a2c78f9002173df85bd7c6