Average Income Fell To Its 1997 Level In 2009

Reuters filed a report in early August which didn't receive nearly the attention it deserved. I quote from U.S. incomes fell sharply in 2009: IRS data—

(Reuters) - U.S. incomes plummeted again in 2009, with total income down 15.2 percent in real terms since 2007, new tax data showed on Wednesday.

The data showed an alarming drop in the number of taxpayers reporting any earnings from a job — down by nearly 4.2 million from 2007 — meaning every 33rd household that had work in 2007 had no work in 2009.

Average income in 2009 fell to $54,283, down $3,516, or 6.1 percent in real terms compared with 2008, the first Internal Revenue Service analysis of 2009 tax returns showed. Compared with 2007, average income was down $8,588 or 13.7 percent.

Average income in 2009 was at its lowest level since 1997 when it was $54,265 in 2009 dollars, just $18 less than in 2009. The data come from annual Statistics of Income tables that were updated Wednesday.

The average tax rate was 11.4 percent, up from 10.5 percent in 2007, the Internal Revenue Service data showed.

No income tax was paid by 1,470 of the 235,413 taxpayers earning $1 million or more in 2009, compared with the 959 taxpayers with million-dollar-plus incomes who paid no income taxes in 2007.

Granted, this was 2009, the worst year of the downturn. What little attention this report received focused on the fact that 1,470 of those making a million dollars or more paid no taxes. That's an outrage, but I see no reason to get all bent out of shape because 0.6% of the 235,413 Americans making that kind of money paid no taxes. That focus reflects politics as usual.

It was alarming to me that average income in 2009 was at its lowest level since 1997. And since 1997, the cost of everything has skyrocketed—oil, food, health care, college tuitions, you name it. We're talking about average Americans getting squeezed here. This is of course the average income, so it behooves us to look at the bigger picture (below).

Source. Data for 2008. The average income for the 90% was $31,244. Click to enlarge.

One might argue that the 2009 was skewed because a lot income earners at the high end took a big hit after financial crisis, but the Reuters analysis argues against that conclusion.

The number of tax returns filed fell to 140.5 million, down almost 2 million compared with 2007, as millions of Americans went from working to having no earned income or so little that they did not have to file a tax return.

The number of Americans reporting incomes of $10 million or more also plunged even more than the steep drop in income for the population as a whole.

Just 8,274 taxpayers reported income of $10 million or more in 2009, down 55 percent from 18,394 in 2007. Compared with 2007, total real income of these top earners in 2009 fell 58.6 percent to $240.1 billion, but average income slipped just 8.1 percent to $29 million.

While the number of people who earned enough income to file a tax return fell, the share of those filing who paid no income tax rose to 41.7 percent of tax returns in 2009, up from 36.4 percent in 2008.

The average income of those filing but paying no tax was $14,483.

An astonishing 41.7% of those filing tax returns paid no taxes, up from 36.4% in 2008. The average income of these people was a paltry $14,483. This represents many, many millions of people. Reuters tells us why there was a large increase in this group.

• One is the drop in incomes because a married couple does not pay income tax until they make at least $18,300, and families with two children pay no income tax until they make more than $40,000 under policies started in 1997.


• The second reason was that in 2009, nearly all working taxpayers received the temporary Making Work Pay Tax Credit sponsored by President Obama, which saved as much as $400 or $800 for married couples in federal income taxes in 2009. The credit continued in 2010, but then ended.

No doubt there's been a modest increase in average incomes since 2009, much of which has likely come from restored income for the top 10% of all wage earners. But what about the bottom 90%? I fear they have fared very poorly. Although we've added a few million jobs since the bottom, which has no doubt raised the average income, many of those jobs (if not most) were part-time or represented a pay cut for those who lost their old jobs in 2008-2009.

Whatever the actual average income numbers turn out to be in 2010 and 2011, it is hard to see how the vast majority of American wage earners could have made significant income gains since 2009. As I discussed in Why Fiscal Stimulus Won't Work, stagnant incomes (in real terms) over the last three decades are single largest factor destroying the Middle Class and swelling the ranks of the poor. Debt is an outcome of income stagnation. The IRS data for 2009 confirms that the so-called Great Recession dealt a heavy blow to Americans who were already under great pressure to make ends meet.

At a minimum, there will be no economic revival in this country until this dismal trend is reversed. At present, I see nothing that would change it.

Comments

[Tony Weddle]

I'm not clear about this. The Reuters article talked about comparisons with 1997, but in terms of 2009 dollars. I presume that means inflation has been taken into account. So $54,000 in 1997 (in 2009 dollars) is roughly equal to $54,000 in 2009 (at least officially, using flawed inflation measures). And, if incomes are staying flay in real terms, wouldn't most years show a similar average of 54,000 2009 dollars? I know most capitalists would expect average incomes to keep rising in real terms, so this report is bad, but is it quite as bad as you make out?

Mind you, those figures for top "earners" are disgusting.