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The middle class's incomes are finally growing faster than the rich's

Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.

It’s September, and that means it’s time for the Census Bureau to release its annual estimates of Americans’ incomes and the poverty rate. Most of the time, the data is pretty predictable and not particularly exciting. Last year, for instance, the report found that neither median household income nor the poverty rate had changed in a statistically significant way from 2013 to 2014 — thrilling stuff.

But the report for 2015 is actually genuinely exciting. For one thing, after seeing incomes decline following the recession and stagnate for much of the '00s according to the census’s measure, the typical household saw income grow a whopping 5.2 percent in real terms, or $2,800:

Real median household income, 1967 to 2015 Census Bureau

Not only that, but as Michigan economist Justin Wolfers points out, the gains were concentrated at the bottom. People at the 10th percentile of the income distribution — the poor, basically — saw incomes grow 7.9 percent, compared with only 3.7 percent growth for rich people at the 95th percentile. People at the 10th percentile had, on average, $969 more in 2015 than they did the year before:

This news is even more encouraging when you consider that the census uses the consumer price index as its inflation measure. A lot of economists prefer to use the PCE deflator, an alternative measure of inflation the Federal Reserve puts out that typically shows inflation growing more slowly. When you take that into account, the income growth figures become even bigger.

Predictably, the combination of fast income growth at the bottom and slower growth at the top meant that income inequality fell meaningfully between 2014 and 2015. It’s not enough to reverse the huge upward trend in inequality from the 1970s to the present, but it’s progress:

Census Bureau

On poverty, too, the news is pretty great across the board. The official rate fell from 14.8 percent to 13.5 percent, with 3.5 million fewer people falling under the poverty threshold. But the official rate is bad, and you shouldn’t pay attention to it. It doesn’t include a lot of important social programs as income, like the earned income tax credit (EITC) and food stamps, and it’s pegged to the price of food in 1955, with no adjustments other than for inflation. It’s a very bad statistic.

Much better is the supplemental poverty measure, a superior metric the census has started putting out simultaneously, which takes all important social programs into account and is pegged to the present-day (not 1955) cost of basic goods like food, clothing, shelter, and utilities.

The SPM, too, fell, by a full percentage point, from 15.3 percent to 14.3 percent. According to this metric, 45.7 million people were in poverty in 2015, 2.7 million fewer than in 2014. And as usual, government programs, particularly Social Security retirement and disability insurance and refundable tax credits like the EITC, were a huge factor in keeping the rate down:

Census Bureau

Finally, the report also covers health insurance, and the ongoing rollout of Obamacare continued a trend toward lower and lower uninsured rates. The rate for 2015 was a mere 9.1 percent, and more recent federal data shows that in the first quarter of 2016, that rate fell even further to 8.6 percent, the lowest on record. The drops in uninsurance for poor Americans were concentrated in states that participated in the law’s Medicaid expansion, but even non-expanding states saw some declines:

Census Bureau

It’d take a lot of reports like this to reverse longstanding trends in income inequality and poor median income growth, but it’s pretty stellar news all the same, and a suggestion that the gains of the ongoing economic recovery are finally being broadly shared.

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