03 September 2008

U.S. Middle Class Incomes Stagnant

Tax returns show that in 2006, for the third year in a row, Americans reported rising average and total income. Census Bureau estimates for 2007 show that the median income -- half make more, half make less -- was $50,233, up 1.3% in real terms over 2006. ...

While median income rose year-over-year in 2007, it was still smaller than way back in 1999 by $408 or nearly 1%. Eight years and no gain is not good news. ...

Among people making less than $75,000 -- roughly 8 of every 10 taxpayers -- 2006 average incomes remained below those of 2000 levels. And of the gains of the top fifth, an astonishing 42% went to the 1 in 400 taxpayers who reported seven figures or more of AGI on their Form 1040. . . . For the 99.75 percent of Americans making less than $1 million, wages were up, but by so little that it would be hard to notice. Average wages in 2006 were just $170 more than in 2000. ...

The portion of Americans earning wages is slipping, and the share of total income from wages is dropping. The tax data show that in 2006, 84% of Americans reported earning wages, down from 85% in 2000, or more than a million taxpayers. The share of AGI due to wages was 82% in 1980. By 2000 it was down to 70%, and in 2006 it slipped to 68% of all income.

So where is the income growth coming from? A small part is from pensions and retirement savings plans, which are simply deferred wages, and which will continue to grow as the boomers move into their final decades. But the big growth in incomes is in business profits and investment gains. . . . The dominant and often only form of income for most Americans is slowly eroding, while the capital incomes earned by those at the top are soaring.

From here.

This is particularly notable in light of the Presidential candidates tax plans.

McCain proposes tax cuts for all, with the steppest cuts percentagewise, for the highest income groups. Those making more than $2.87 million a year would receive a 4.4% tax cut.

Obama proposes tax cuts for those making under about $226,981, with the steppest cuts pecentagewise for those in the lowest income groups, and proposes tax increases for those making $603,403 or more a year (up to 11.5% for taxpayers with annual incomes in excess of $2.87 million a year). Those in between see no material change in their tax liability. Obama's tax plan cuts taxes more steeply than McCain's for taxpayers with incomes of less than $111,645 a year.

The report cited in the link above notes that "the Obama plan would cut taxes by $2.9 trillion from 2009-2018. McCain would reduce taxes by nearly $4.2 trillion. These projections assume the 2001 and 2003 tax cuts expire in 2010 and that the Alternative Minimum Tax is fully effective."

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