Friday, May 13, 2011

The Wall Street Journal's Misleading Income Chart

"The Wall Street Journal wrote an editorial last month making the point that there's no way to close our budget deficit by taxing only the rich. It's a point the Tax Foundation agrees strongly with, and the editorial's reasoning—that even if we confiscated 100% of the income of everyone in the top 1%, it still wouldn't be enough to close the deficit—makes sense. However, the editorial also includes a chart, which has been making the rounds on various blogs recently:

WSJ chart

Regardless of the broader merits of the editorial, this chart is a textbook example of how to lie with statistics. It's unfortunate that the Wall Street Journal chose to undermine the rest of its editorial by including such a breathtakingly misleading image.

It purports to show visually that the majority of taxable income in this country is made by those in the middle class—after all, the highest bar is for people making $100-$200K, which is in the middle of the graph! However, the heights of the bars depend as much on the width of your "bins" as on the actual statistic the bars measure. Look more closely: the bar immediately previous to this one is for the income range of $75K to $100K—an income range only one-quarter the size. Of course you're going to get a higher bar when you quadruple the income range it measures. The point here is that you can finagle the ranges for the bars any way you want, and get vastly different charts.

To demonstrate this, I've created two very similar charts using the 2006 IRS Public Use File (the most recent data available.) It's easy to reproduce a very similar chart using the same binning as the Wall Street Journal's:...

...Now, I can produce a chart similar to the Wall Street Journal's, but one that uses the income levels corresponding to the percentiles above:
percentile chart

Looks a little bit different, doesn't it?

My point here is not to criticize the editorial itself, because it's true that taxing only the rich isn't a viable path towards deficit reduction. At the same time, we shouldn't resort to misleading charts that pretend to show that those with high incomes don't make the majority of the money in this country—they do..."

at http://www.taxfoundation.org/blog/show/27272.html

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