To combat worries about a recession, the Trump team has turned to economic stats to paint a picture of a strong economy.
"Since the passage of Tax Cuts, real disposable personal income per household has increased $5,205," Ivanka Trump tweeted on Aug. 20.
Vice President Mike Pence had tweeted something similar a day earlier.
For most Americans, $5,000 more in their pocket should be noticeable. So is the talking point accurate?
Federal data does back up the number -- but you can be forgiven if you’re wondering where your extra $5,000 is. The figure being touted by the White House is an average, and your take may be much, much lower than that.
The earliest source of this figure comes from a July 31 tweet from the White House’s Council of Economic Advisers. It said, "Thanks in part to the Tax Cuts and Jobs Act (TCJA) and other pro-growth policies of @realDonaldTrump's Administration, Americans are earning more. Since the passage of the #TCJA in December 2017, real disposable personal income per household has increased $5,205 as of June 2019!"
We made several inquiries to the White House to confirm the methodology the Council of Economic Advisers used, but they did not respond.
So we looked at publicly available data from the Commerce Department’s Bureau of Economic Analysis.
On a per-capita basis, inflation-adjusted disposable personal income rose from $43,414 to $45,473 between the 4th quarter of 2017 (the last quarter before the tax cuts) and the 2nd quarter of 2019 (the most recent quarter for which data is available). That’s a difference of $2,059.
However, Ivanka Trump’s tweet, talked about "per household" personal income, while the data on the BEA website calculates it per person.
We were able to adjust this calculation by multiplying the figure by 2.5, which is the approximate number of people in the average household. That produces a final dollar increase of $5,148, which is close to what Ivanka Trump tweeted.
Mathematically, then, the figure is basically accurate. However, it would be wrong to assume that a typical American is $5,000 richer today. Here’s why.
It’s an average. The increase of $5,000 is a national average, rather than a median, so there will be a wide variation in gains on a household-by-household basis. Brookings Institution economist Gary Burtless offered an analogy featuring Microsoft founder Bill Gates.
"If Bill Gates walks into a room containing 99 destitute people, the average wealth of the people in the room will rise from $0 to $1 billion, even though the median wealth in the room remains unchanged at zero," he said.
In the case of the White House’s number, the large benefits accruing to a modest number of top earners boosts the size of the pie that produced $5,000 figure for disposable income gains. Not everyone should expect to have seen their income go up by that much.
It’s partly driven by lower tax bills. It’s worth remembering that at least some portion of the increase in disposable income comes from the tax cuts themselves, rather than from the economic growth they have spurred.
"Gains in disposable real income are positive news," Burtless said. "The news would be even more positive if we knew the improvement also reflects faster gains in the pre-tax real incomes of middle- and lower-income families. That’s because the tax cuts for those families are supposed to gradually fall to zero."
Income has been on the rise, starting under Obama. The performance under Trump does exceed the improvement seen under the final seven quarters of Barack Obama’s presidency – $1,082 under Obama compared with the $5,148 under Trump. But again, it’s worth noting that Obama was not cutting taxes significantly during his final year and a half in office, while Trump was cutting them in the period Ivanka Trump noted.
The following chart suggests that the trend line for inflation-adjusted, per-capita disposable personal income has been on a fairly consistent upward path since early 2013, or about four years before Obama left office.
Ivanka Trump said, "Since the passage of Tax Cuts, real disposable personal income per household has increased $5,205."
Mathematically, the number is accurate, but it’s worth noting some context she left out. The $5,205 figure is an average, so it is likely skewed by large gains among wealthier Americans. In addition, this statistic has been rising pretty consistently since early 2013, when Obama was in office, even during periods where it was not boosted by a large tax cut.
The statement is accurate but needs additional information, so we rate the statement Mostly True.
Ivanka Trump, tweet, Aug. 20, 2019
Mike Pence, tweet, Aug. 19, 2019
Council of Economic Advisers, tweet, July 31, 2019
Federal Reserve Bank of St. Louis, "Real Disposable Personal Income: Per Capita," accessed Aug. 22, 2019
Bureau of Economic Analysis, interactive data tool, accessed Aug. 22, 2019
Census Bureau, " Table HH-4. Households by Size: 1960 to Present ," accessed Aug. 22, 2019
Email interview with Gary Burtless, Brookings Institution economist, Aug. 21, 2019
Email interview with Dean Baker, co-founder of the Center for Economic and Policy Research, Aug. 21, 2019
Email interview with Steven Fazzari, economist with Washington University in St. Louis, Aug. 21, 2019
Interview with Douglas Holtz-Eakin, president of the American Action Forum, Aug. 22, 2019
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