Income Data

by hilzoy

From the NYT:

"Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.

While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show.

The combined income of all Americans in 2005 was slightly larger than it was in 2000, but because more people were dividing up the national income pie, the average remained smaller. Total adjusted gross income in 2005 was $7.43 trillion, up 3.1 percent from 2000 and 5.8 percent from 2004.

Total income listed on tax returns grew every year after World War II, with a single one-year exception, until 2001, making the five-year period of lower average incomes and four years of lower total incomes a new experience for the majority of Americans born since 1945. (...)

The growth in total incomes was concentrated among those making more than $1 million. The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000.

These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.

People with incomes of more than a million dollars also received 62 percent of the savings from the reduced tax rates on long-term capital gains and dividends that President Bush signed into law in 2003, according to a separate analysis by Citizens for Tax Justice, a group that points out policies that it says favor the rich.

The group’s calculations showed that 28 percent of the investment tax cut savings went to just 11,433 of the 134 million taxpayers, those who made $10 million or more, saving them almost $1.9 million each. Over all, this small number of wealthy Americans saved $21.7 billion in taxes on their investment income as a result of the tax-cut law.

The nearly 90 percent of Americans who make less than $100,000 a year saved on average $318 each on their investments. They collected 5.3 percent of the total savings from reduced tax rates on investment income.

The I.R.S. data showed that the number of Americans making less than $25,000 a year shrank, down by 3.2 million, or 5.5 percent.

Nearly half of Americans reported incomes of less than $30,000, and two-thirds make less than $50,000.

The number of taxpayers making more than $100,000 grew by nearly 3.4 million and accounted for more than two-thirds of the growth in the number of returns filed in 2005 compared with those in 2000.

The fact that average incomes remained lower in 2005 than five years earlier helps explain why so many Americans report feeling economic stress despite overall growth in the economy. Many Americans are also paying a larger share of their health care costs and have had their retirement benefits reduced, adding to their out-of-pocket costs."

I'll say. And the fact that those average incomes have not surpassed their 2000 levels even though they include the relatively small number of very rich people whose incomes have risen considerably explains even more about why the rest of us don't feel so great about the economy.

And these figures, of course, do not take into account the current problems in the housing market and the economy more generally.

Comments

[Ugh]

I would just note that unless you're extremely familiar with the underlying material upon which Citizens for Tax Justice bases their reports, you're likely to come away with many incorrect conclusions due to the misleading way they tend to write them (at least based on the 2 or 3 reports of theirs that I've read).

David Cay Johnston should be such a person but he tends to have his own slant to things that aligns with CTJ.

[Ugh]

That said, nothing jumps out at me in the article as being misleading or incorrect.

[Model 62]

The average usually looks rosier (thanks, Bill Gates!), too. I wonder what the median looks* like?

-----------------------
*That's last year's. I suppose this year's will be coming along shortly.

[Brett Bellmore]

"the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows."

I think that's how you define a "peak": An upward trend followed by things being lower for at least a while. I'm glad to hear that things have been trending up again since 2002, though.

[John Thullen]

It bears repeating that a 50-pound bag of lentils can feed a family of four for up to several months.

Plus, it makes a fairly comfy, though ever diminishing, beanbag chair in the interim.

"Many people left their jobs for the more profitable one of selling apples."

Herbert Hoover

[Sebastian Holsclaw]

"These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000."

I suspect the income disparity is going to look a lot smaller after the recent market downturns--few market managers are going to be getting those huge bonuses.

[Nell]

Thanks, John. Can we look forward to more tips for sturdy self-reliance? The beanbag chair image supplies the leavening note of zany ObWi readers have missed in recent months...

[Phil]

Market managers losing bonuses should definitely help close the gap in income between the top 1% and everyone else.

[John Thullen]

Nell:

"more tips for sturdy self-reliance?"

Why, sure. ;)

Give a man a fish and he will eat today. Teach a man to fish and the next you know he'll be asking for beer, too.

Try to walk a mile in the other guy's shoes. If things don't work out, at least you're a mile away and you have his shoes. (I stole that one from Mort Zuckerman)

And, courtesy of my mother:

"Johnny, I see you finally have a bird in the hand. That's all very nice, but could you go and wash your hands now."

[Katherine]

I missed you too, John.

[Brett Bellmore]

From a friend of mine: "Set a fire for somebody, and they're warm for a day, set them on fire, and they're warm for the rest of their life."

[Hogan]

I felt sorry for myself because I had no shoes. Then I met a man who had no feet. So I hit him on the head and stole his shoes.

And now I'm a fund manager.

[Jesurgislac]

From a friend of mine: "Set a fire for somebody, and they're warm for a day, set them on fire, and they're warm for the rest of their life."

Terry Pratchett. (At least, I'd never heard that line before I read it in one of his novels.)

[KCinDC]

Brett, it's from Terry Pratchett's book Jingo: "Give a man a fire and he's warm for a day, but set him on fire and he's warm for the rest of his life."

[Ugh]

Enough of these "tips for sturdy self-reliance", the only motivating tool anyone needs is to know that floggings will continue until morale improves.

[cleek]

.. and its corollary: we will keep killing your friends and family until you stop hating us.

[Ugh]

. . . and the short-hand "more rubble, less trouble."

[Brett Bellmore]

Jingo has to be one of the very few Pratchett books I've never read; I really did hear it from a friend. I've no doubt, however, that the friend had read it.

[Sebastian Holsclaw]

This isn't entirely on topic, but if you want a really good explanation of what the fed was doing with the discount rate change, and the operations that surround that, read Econbrowser Here

[tofubo]

when i want to see trends, i take out the high and low, does someone have the numbers from the 5-95 %ile ??

[Jeff]

Hi Hilzoy, remember me? You backstopped me in an argument about Obama's experience and legislative work - oh, it's been months, but I live in slow time.

I have a suggestion that fits over your numbers. It is that in order to be really enlightening in an authentically phenomenological way, economic numbers, which are usually used for purposes of planning and control, not "understanding", have to be paired with cultural data, because society is a balance between economics and culture, and ours is tilted toward economics...way too far.

However, this tilt is only in the data we analyze, not in the things themselves. There's always "culture", but if it is not consciously pursued, it decays.

People feel poorer because they are poorer. Their money is not buying as much happiness or satisfaction for some of the following reasons:

1. The proliferation of television channels has led to a dilution of content, such that a much greater proportion of TV just involves people running around and talking or "doing things" without any artistic script. (This is because production costs have soared. It is cheaper to point a camera at people than to do the kind of layered production movies use. An example: most TV shows now use "music libraries" for accompanying music. Very few music directors go for original music.) As a result, most programs are more and more like other programs. People are not being entertained in the old sense. Their viewing habits are carrying them, like a car running on fumes.

2. People are not getting as much satisfaction from spending their money. It's apparent now that because of rising fuel prices and a sinking economy, the US will never get through another round of increases in the number of cars on the road, or another round of roadbuilding. There will be marginal increases in both. The roads are too crowded as it is, and since the US builds roads to wear out quickly, people have to try to live nearer their jobs and the places they like to go to play, or else suffer the stress of travel. (It is impossible to underestimate the role of more cars and more roads in the long expansion. That is what is over forever. Drving will never be "free" again. People sense that one day they will be trapped in a snarl...and have to walk away from their cars. Cars, once freedom, are now a trap.)

3. In the same vein, the things people buy have changed. For one thing, we have been in a "Everyday Low Prices" environment for over ten years. During that time, people stopped evaluating products based on durability and quality, and learned to evaluate them only on price. But these ever-cheaper (and ever more swiftly thrown away) things are mostly made in China. Consider this. As a child I enjoyed seeing what state things were made in. It was a way to learn about America. Imported products were exotic. But now, things are just "made in China" (not south China or north China, just China). The final stage in this process, during which the percentage of consumer goods made in China rose to 80%, is what we are seeing now: even FOOD (and almost all vitamins and drugs) is made in China. In other words - in Marxian terms, in fact - we are separated from the means of production. We are the Eloi, opening packages; they are the Morlocks, laboring invisibly. But every now and then the Morlocks came out to EAT Eloi. In our case, it is our culture that is eaten. We no longer produce for ourselves; thus we forget craftsmanship, an important bulwark of a vital culture. Also, American companies force Chinese manufacturers into a price box, ordering them to design things to be thrown away faster. Towels turn into balls of string, jean material shreds faster, lawn mowers and tools have plastic housings and handles that come loose... Speeding up the "product replacement cycle" means that Americans own almost no objects that they "curate", that is, that they use constantly and maintain carefully. Curation of objects, whereby we imbue them with our own personalities and come to love them, is an important part of any viable culture. Curation is meta-economic, in the sense that it is a direct creation of value that determines worth and establishes a real (as opposed to a numerical) baseline for prices.

In simpler terms: we don't keep things we buy, and there's hardly anything worth keeping. Ever-lower prices, for which the Chinese feel they should be thanked, in fact destroy native American thrift (which knows that the most expensive item is often the best value). Americans are literally forced to be wasteful, and the innate wrongness of this devalues the satisfaction of spending money.

4. A vital culture is a growing culture. But the US population is not growing anymore, except through immigration. One senses that in political terms there is enormous anti-immigration potential lurking under the surface. Why? Because the "producing" world competes too hotly for each American's discretionary money. There are many many things to buy, many would-be sources of happiness and satisfaction, and therefore the main source of satisfaction in any vital culture - having children and loving them - is downgraded. Sex is commoditized. At the point at which young people used to reconcile their need for sex with the requirement that it have something to do with having children at SOME point, and thus with the requirement that one commit oneself in fear and trembling to another person - an endless list of substitutes (all costing money) is allowed to compete. ZPG is a nice dream, but American culture is too childish to stop growing. Culturally, we need to take in more people and more "peoples" in order to deepen our national culture and make it more mature and profound.(The Founders were the offspring of a mature culture which "gave birth" so to speak.) But instead we sense that more and more Americans see citizenship as a zero-sum game in which a finite amount of satisfaction must not be shared with any more people.

5. Americans used to sacrifice almost any satisfaction in order to gain the surest value of all - education. But academic advancement and degrees have been diluted and dumbed down to the point where few college freshmen - indeed, few professors or administrators - even remember why required courses were ever required. Many students only want to simplify the process, to learn one money-making thing, and they see all the rest as jumping through hoops. Universities see things the same way, since 70% of all college courses are taught by students without an advanced degree.

6. All societies are founded on a tripod of education, justice, and health care. But health care has not only become more and more expensive while becoming worth less and less. Health care is the core of the perceived zero-sum game of life as an American, because there is simply a shortage of it. The government admits that 20% of Americans live in designated "underserved" areas. Factor in people who have "partial" or "catastrophic" insurance only, and you have a situation in which, if Americans really decided to save enough money to protect themselves from the consequences of illness or injury, they would have to stop all discretionary spending.

As for justice, on one side there is a racist justice system that demonstrates how much we hate population by throwing as much of it in jail as any country in history, and on the other side, behind a cloud of obscurity, there is a massive "probation" system (involving as many people as the prison system) that basically sets a money value on justice, allowing people who have some money to trade it for freedom. Without this epiphenomenal "system" the actual justice system would collapse under its own weight.

[Anarch]

^ Worth promoting to the front page, I think; should be interesting to see what discussion it engenders.

[Sebastian Holsclaw]

"All societies are founded on a tripod of education, justice, and health care. But health care has not only become more and more expensive while becoming worth less and less."

I'm open by some of the bits of this comment, but this one is completely wrong. For any particular thing in health care, the price has been going down. The reason "health care costs" are up is because of the new things. Whether or not the new things are worth the price is a debate worth having. The idea that health care is worth 'less' somehow than it used to be is not.