Real Income Fails to Rise for most of the 2000s

20070821_tax_graphic
I’ve been talking about this for years, but I am glad to see quantifiable proof has now been adduced. According to IRS data:

"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. . ."

Incidentally, the lack of real income growth was calculated using BLS data measures of CPI. It’s even worse than this in reality, as we have long demonstrated that CPI does not accurately measure inflation.  So the true, after inflation, "Real Income,"  is actually far, far worse. 

Perhaps this explains why 2/3rds of the people interviewed in a WSJ/NBC
survey
believe that we are either in a recession or will be within a
year
. . .

Also no secret: Income growth has been concentrated in the highest few percentile:

"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."

So long as we are popping economic myths, let’s also dispatch with the 4.5% unemployment rate. That number has been largely caused by several million exhaustees and others simply leaving the work force:

Nilf_costs

The actual unemployment rate is closer to 6.5%. And if we measured it the way the Europeans do, its closer to 8%. This explains why wages and labor costs have remained subdued despite the alleged 4.5% UE measure.

Anyone with more than 4 functioning brain cells should be able to figure out that a 4.5% unemployment rate would be causing huge labor shortages and wage increases.

Instead, the average income gain is merely a measure of inflation: reported gains reflect increased costs for medical care — the exact same coverage (but with a higher copay) which costs 15% more year-over-year shows up as increased total wages.   
>

You may now return to your previously scheduled economic propaganda 

>

Sources:
Average Incomes Fell for Most in 2000-05
DAVID CAY JOHNSTON
NYT, August 21, 2007
http://www.nytimes.com/2007/08/21/business/21tax.html

America’s Economic Mood: Gloomy
JOHN HARWOOD
WSJ, August 2, 2007; Page A4
http://online.wsj.com/article/SB118600572789185278.html

Study #6074 (PDF)
NBC News/Wall Street Journal
July 2007
http://online.wsj.com/public/resources/documents/WSJ0707_poll.pdf

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