That was the title of a Barron’s article this past week. There’s been more and more press about the gap between the rich and the poor. In my work as a real estate agent focussing on renting to low income people, I see people who aren’t lazy, but just the opposite. Showing me proof of income made by working a 40+ hour week at a minimum wage job, and asking if we can take their cash income into account as well. The regular extra money they make doing some labor or babysitting nights or weekends. When you make $1400 a month working full time, you’re not going to able to afford much in the way of housing. We try to see three times a rent for income, i.e. $2400/mo income to qualify for an $800/mo apartment.
The Barron’s article started off with an observation, $1.4 trillion cash in the economy. The federal reserve backs up that number. The authors then make 2 logistical leaps that are beyond comprehension. First, that this cash is income. Forget for a moment that most people don’t keep more than a few hundred dollars sitting around. Even if they did, it only counted as income (declared or not) when it came in. The authors then assume that 80% of this money is income to the poorest 1/3 of households, the bottom 40 million families. Then, by magic, wait, not magic, a miracle. As in this cartoon.
Where was I? They conclude that the bottom 1/3 have an income that’s understated by as much as $30-$40K per year. To be fair to Barron’s and their real authors, the article was published in the “other voices” page. This is where essays are solicited from readers who have some knowledge of finance. Whoever accepted this article blew it, in my opinion. Is there no cash economy? No. Of course there is. However, the numbers presented in the article offer bad math and a false conclusion. The income gap is so large that if it’s exaggerated by some percent, it’s still an issue. Sorry, Barron’s, this article isn’t worthy of your otherwise fine paper.
(Note: I am not condoning undeclared income, just putting it in perspective. A real estate agent is not an agent for the IRS, in fact we have an obligation to count any and all income, regardless of source.)