Forget taxes, it’s wages that plague Americans
By David Cay Johnston
All opinions expressed are his own.
Here is how much economic progress America has made in the 21st Century: the average taxpayer’s 2009 income was at the same level as 1997.
Average 2009 income was $54,283, just $18 more than in 1997 when you adjust for inflation, not that anyone would notice a difference of $1.50 a month in their pocket.
And compared to 2007, the last peak year of the economy, average income fell a painful $8,588 or 13.7 percent in real terms. Having $716 less each month is something most people would notice.
These figures come from the newest tax return data issued by the Internal Revenue Service. You won’t find the numbers above at the IRS website, just raw numbers that I use to calculate changes in incomes, taxes paid and related information.
You also won’t find this data analyzed in most of the mainstream press because our major newspapers and broadcast outlets are too focused on what politicians stay instead of what they do and what the official measures of economic performance tell us.
When you hear politicians saying the cure for what ails our economy is to cut taxes, and that high-income Americans are the job creators who will stop creating jobs if their taxes are not cut more, think about what the data show.
While talking points are political statements, data from tax returns are solid numbers, verified by employers and others and submitted on statements signed under penalty of perjury. The data is not perfect – no set of large numbers is – but the IRS Statistics of Income data gives a reliable picture of incomes that can be compared year-to-year.
So here is what the latest data show, starting with the big picture:
The total income reported by all Americans in 2009 was 4 percent less than in 2000. Since the country’s population grew by more than 25 million people during those years that means not just a smaller pie, but thinner slices all around.
Nearly everyone is feeling the pain, including people at the top. Among taxpayers who make $1 million or more, average income in 2009 was slightly more than $3 million, compared to more than $4.2 million in 2000 and $3.9 million way back in 1997.
Average wages fell, too. Because a taxpayer can be one person or a married couple, the average wage per taxpayer is nearly a third higher than the average wage per worker. The new IRS data does not have details needed to calculate the median wage (half earn more, half less).
In 2009 the average wage per taxpayer was $48,917, lower by $273 in 1999. Indeed only once, in 2004, were average wages per taxpayer higher, and then by a mere $26.
Some other key facts I extracted from the new data, which like all figures in this analysis are in 2009 dollars:
- Every 33rd household that had earned wages in 2007 went all of 2009 without earning a dollar for their labors.
- Because a third of taxpayers are married couples this implies that more than 5 million people, and perhaps closer to 6 million, who had work in 2007 went all of 2009 without earning a buck.
- The number of taxpayers collecting unemployment benefits soared from 7.6 million in 2007 to 11.3 million in 2009.
- The average unemployment benefit was under $7,400, belying the claim that jobless benefits encourage people to lie about and not get a job.
- Among taxpayers who earned $1 million or more, 1,450 taxpayers paid no income tax in 2009, up from 959 such taxpayers in 2007.
The reason our economy sits stuck in the doldrums is not taxes, which are much lower now than in 2007, especially for the highest income Americans. Indeed, as a share of the economy the income tax is at its lowest level since Eisenhower was in his first term.
Individual income taxes in 2010, other data show, were one-third less per capita than in 2001, a recession year when the tax cuts sponsored by President Gorge W. Bush took effect. Total income taxes have never reached the amount collected in 2001 despite a growing population, a situation that contributes mightily to our federal debt and our failure to thrive economically in the 21st Century.
Changes in economic conditions and in policies set by our elected leaders in Washington and the state capitals are pushing down wages for most people and encouraging elimination of jobs, especially public sector jobs on which the economy relies to provide healthy, educated workers and otherwise grease the wheels of commerce.
Employers have plenty of money to invest. American corporations have roughly $2 trillion in cash, nearly $7,000 per American. They have so much idle cash that they cannot even invest at a high enough interest rate to keep pace with inflation.
Putting that money to work would mean more jobs, more income, more taxes and smaller deficits that could quickly turn into surpluses if our political leaders thought more about numbers than scoring political points.
Here’s a video version making these points: