Opinion

David Cay Johnston

Forget taxes, it’s wages that plague Americans

By David Cay Johnston
August 6, 2011

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:

Comments
24 comments so far | RSS Comments RSS

I have been on unemployment before, it’s not enough to LIVE on and the IRS makes you pay tax on it, especially if you were layed off in the middle of a year. I worked as hard as I could to get back to work and I ended up taking a job making just more that the unemployment I was getting so I could work my way back up the wage scale. If the government really wanted to stimulate the economy they would end the tax on labor and wages, keep it on profits, salaries and gains of corporations, and leave the poor working person alone, but both parties are the criminals and thank God for the Tea Parties.

Posted by kosmic | Report as abusive
 

No kidding. For the last 25 years corporate america’s cry to arms has been what, “Payroll is the easiest controlled expense.” Slash the working mans salary meanwhile corporate america last year recieved 21 percent increase in their salary. The problem is the money makers the rich don’t like to spend their money, they are obsessed with money and the acquisition of every dime they can get. The middle class on the other hand spend their money That helps the economy. Now how do we get out of this spiraling trend. Take a lesson from history Back in the early 19 hundred’s teddy roosevelt Took on big corporations took on the robber barrons took on the ceos he broke up the huge corporation. He coerced corporate america and the robber barrons to giving the middle class a fair days wage for a fair days work. We need a president who willing to do that. President bankrupt obama had implied that he would do that that he would create real change. But alas he was just a fairytale, he is this your ordinary run of the mill washington 2 step politician that will say anything in order to get elected or in this case re elected. Bottom line where is teddy roosevelt when you need him…..

Posted by EN3 | Report as abusive
 

Every single study of empirical data that I have seen comes to the same conclusion. Cutting taxes in times of relatively high unemployment, government deficits and weak economic performance exacerbates all three. Nevertheless, the theory persists that cutting taxes will solve these problems. Shame on those who pander to the biases of the ignorant to maintain their personal power.

Posted by tommyfred | Report as abusive
 

when we work for a company we get paid in accordance with what we earn for that company( well maybe not the CEOs ). Those earnings should increase with an increase in productivity, I was always given a yearly evaluation( I’m retired now) and I only received a raise in pay with a raise in productivity. Why should the average worker or wage earner make more money for the same productivity, that only leads to inflation.

The problem with working with averages is it doesn’t show the inequitable redistribution of these earnings away from the actual producer and into the overstuffed pockets of the hierarchy.

Posted by Darte | Report as abusive
 

Here is a simple survey I did a few months ago. Try it.

Go to a local small business and ask, “Assume your business makes $250,000 in profits” (at this point, they usually laugh, because few local businesses make that much in profits. Gross income, yes, but not profits). Continue “if your business made an extra $40,000 in profits, tax- free, what would you do with the money?”
Most small business owners will say something like take a much-needed vacation, buy a new media center, or pay off old bills.

Now ask “what if that $40,000 were taxed at a much higher tax rate, what would you do?”
Most now said they would invest at least some of the money in the business, where it would not be taxed. Perhaps expand the business, perhaps hire a new person.

Moral: Higher tax rates CREATE jobs from small businesses. Lower tax rates do nothing for job creation (except maybe in China, from greater sales of media centers).

This is SO easy to verify. I don’t know how the myth that reducing taxes will create jobs persists. There is absolutely no incentive for beneficiaries of these cuts to put the money into their businesses, to use it to create jobs. Yet avoiding the tax is a huge incentive to put the money back into the business, creating jobs as they do so.

Posted by Claire_C | Report as abusive
 

Not to sound like a jerk, but there are so many typos in this article that it takes away from your points and makes it sound less than credible.

Posted by MrsDavidson | Report as abusive
 

Great post Claire. I really do think higher taxes do not affect businesses, mostly because if they want to make money they can’t go to Central America or even Europe that easily and even then they wouldn’t make as much money as they make here. Even billion dollars industries could not move anywhere else in the world and have the profits they do here. The people having less money does affect the economy and less jobs kill the market, which is what keeps companies interested in a country, not taxes!

Posted by albalma | Report as abusive
 

Having been on unemployment during the last few years, I would say whether or not you can support you depends on your lifestyle. For example, had we listened to the bank on how much house we could afford; we would have lost our home. Luckily, our family had learned to live as simply as possible (Thanks to Dave Ramsey’s books).

Regarding my bout of unemployment, I will say that I am glad it’s over. Regardless of those who rail against entitlements (at least those not corporate), it was not a proud time for me. I didn’t bask in the lack of work, snacking generously on bon-bons. I worked daily to find work, attempting to use all the resources I could (the phone, the mail, newspapers, the Internet, temp services, CareerNet, etc.) I was able to get a little funding towards retraining (I would have received more had my job been shifted out of the country) to get into an entry level into the healthcare profession. However, I only was pulling in about 60% of what I used to bring in. Luckily, I have been able to scrape together some funds and take some loans to go back to school to become an RN (nurse). If all continues to work out, I hope to be better off than before. However, it’s going to be a several year climb.

It bothers me that the perception of those collecting is that it’s laziness. It’s also not just a matter of ‘getting a job.’ The bulk of what has been available has been minimum wage service jobs. Even if you manage your budget well, you can’t just step into one of these positions and bounce back. It is hard work to get out of one’s circumstances, but it can be even more daunting when so much seems to be stacked against those at the bottom.

Posted by Drewster | Report as abusive
 

@mrsdavidson: Funny, I just spell-checked the entire article and didn’t find a single typo…

Posted by azactivist | Report as abusive
 

Politicians know taxes shape social behavior. They want people to cut back or stop smoking, they raise the taxes on cigarettes. They want to cut down on underage drinking, they raise taxes on booze. They raise tolls, people cut back on driving or find alternate routes or carpool. So… how is it now that raising taxes on businesses doesn’t hurt business?

Posted by Samantha66 | Report as abusive
 

As a business owner (by the types of replies so far I’d say I’m the ONLY one in this thread)
I’ll tell you that you guys are wrong. No matter what you WISH were true, the facts are that we live in a global economy. As long as Obama and his followers think they can over tax corporations and high income earners, those businesses will simply do business elsewhere.
Now you can scream “dint let the door hit you on the way our” and shake your rattle but those are the facts.
While the smartest countries are busy wooing corporations (and the jobs that come with them) with lower corporate taxes, our idiot left is busy driving them away.
Until you eliminate or vastly lower corporate taxes, we will continue to bleed jobs to other countries. It’s just that simple.

Posted by ActualTaxpayer | Report as abusive
 

The old argument between Keynesian economics and…well, everything conservatives believe. In harsh economic times, the government MUST invest–they are the only ones with enough cash, liquidity, and guaranty to be able to invest. Corporations SHOULD invest, and the theory holds that they will, but in actuality the theory is wrong. Corporations are run by people. People (not “corporations”) make decisions on corporate money policy the way they do with their own finances, essentially. If they are worried about the economy, they will not invest those trillions. It’s their hedge against further economic disaster, to keep stock prices buoyed rather than show a decline in assets. The idea that corporations will invest money in difficult economic times is a sham, but it serves conservatives and businesses well, preventing needed tax hikes. “Don’t tax us more, we won’t be able to invest.” FORCE the business world to invest in the economy they depend on–tax them and put the money into government programs that will pay a wage so people can start spending money on those corporations’ products and services. A healthy economy is what business depends on. It’s short-sighted of them to NOT invest in hiring and wage increases, but it’s human nature. It’s kind of like your kids. You can ask them to do something that has to be done, you can explain why it needs to be done, but in the end, if they refuse, the fact is, it still needs to be done.

Posted by GreginFL | Report as abusive
 

You cant blame unemployment in a downward economy. With recession comes unemployment and instead of shifting the blame on wages, more is needed to improve and get the economy going upwards. Taxes has nothing to do with wages. The tax issue is about who should pay what tax.
Will the stupid blame game continue?

Posted by kritik1 | Report as abusive
 

Its not about the wages stupid.
Even if the unemployment were to suddenly go down from 9 percent to 4 percent, the treasury wont be able to turn the deficit around.
The question is about who should pay what in taxes?, Is sarbanes oxley act effective?, Is there a loophole in tax structure creating free income?, Are lobbyists able to push tax incentives more than is fair? has tax audit played a reasonably good job in identifying who should be audited?.

Posted by kritik1 | Report as abusive
 

There are an alarming number of uninformed people claiming that America has a high corporate tax rate that is stifling economic growth and job creation. But all one has to do is examine the most recent data from the Organization for Economic Cooperation and Development, the Office of Management and Budget, or even the U.S. Census Bureau, and you will find that the U.S. is already one of the least taxed countries for corporations in the developed world.
As a share of GDP, the U.S. has the world’s second lowest tax rate, behind only Iceland. This statistic demolishes the constantly parroted right wing lie that America has the highest corporate tax rate in the world, which is only true on paper, at the Wall Street Journal Editorial page, and at Fox News. In the real world, U.S. corporate taxes are 1.3 percent of GDP. They were 4 percent in 1965.
Another thing conservatives love to parrot is that other OECD countries have lowered their corporate tax rates in recent years, while they conveniently ignore that all of these countries have also closed corporate tax loopholes while the U.S. has expanded them. US corporate tax rates have NEVER been lower than they are today. So the next time some “business owner” he is “overtaxed”, laugh and tell him to move his lying butt to Iceland.

Posted by GetpIaning | Report as abusive
 

It’s the tea party’s fault, it’s Bushes fault, it’s the weather’s fault, there’s threat of locus, the Repubs aren’t nice we need higher taxes, more government, more unions, a raise and to spend our way out! Ask what your government can do for you!

Posted by DrJJJJ | Report as abusive
 

Corporate America has two objectives: Run the government over twice with a 8 cyl automobile and to destroy small business so that winner takes all. Both objectives are wishful thinking.

Posted by kritik1 | Report as abusive
 

Flawed number crunching. Fails to look at the type of wages. For example, the increase in the number individuals that have retired in the past 15 years (remember the baby boomer generation that has now come of retirement age) and now drawing a retirement check and the increase in the number of individuals drawing social security. This report also fails to calculate the percentage of high paying job loss to foreign countries. The report cited the population growth by 25 million I’m thinking that info came from the census report. The report fails to cite the increase in the number of illegal aliens in this country. Could it possibly be 25 million?

Posted by ecox | Report as abusive
 

Forget taxes? That’s kind of hard when your combined tax burden is 40% of your income. His opinions really are his own.

Posted by actnow | Report as abusive
 

Here’s an alternative perspective from another small businessman and technically Republican although I vote independent. We pay living wages with good benefits, we pay 100% of decent major medical coverage for our employees and I would _welcome_ higher corporate (and individual) taxes _if_ they were to be used to pay down debt and get us (USA) back on a sound fiscal track.

What I do not welcome and am not willing to pay for is more charity on a credit card, and the further enablement of a growing 3rd and 4th generation entitlement class whose sole ambition is collecting a welfare check every month.

I enjoy your columns Mr Johnston, and I do not doubt the factual correctness of this article. However, the constant spin I read in your words is that all our problems would be solved if only greedy businessmen could be throttled into submission.

No, all our problems would be solved if only we could start acting like responsible forward thinking adults and stop spending more than we make as a country. So simple, so elusive.

Posted by CaptnCrunch | Report as abusive
 

Folks there has been a major structural shift in the American economy due to global competition as well as technology driven productivity increases. The major sectors that have not been displaced to offshore competition are: housing/construction, government, and healthcare. With housing in the dumper and healthcare and government growth being unsustainable the American economy these sectors cannot grow America. In the sectors that are displaceable to foreign competition/outsourcing “living wages” are not sustainable. American business competitiveness is the key issue that American leadership needs to address ahead of tax policy, deficit reduction, and further stimulus. If we can improve competitiveness the other issues can be managed. If we do not improve we will not be able to sustain our standard of living no matter how much we try to tax.

Posted by bpennsr | Report as abusive
 

Flat tax all the way around. 25% for corporations with a 5% write off when they hire a significant number of US Citizens for US operations. A flat 10% tax on federal wages earned by employees earning 56,000 annually or less. 15% on anything above 56,000. Remove all of the rest of the cumbersome public and corporation tax breaks.

Posted by Intriped | Report as abusive
 

@ActualTaxpayer

Taxes are higher in Germany and their economy is booming.

Many business people seem to blame economic conditions for their poor performance but how bad is it for US companies compared to other countries.

The US has some of the lowest taxes in the world. Unskilled wages in the US are very low compared to most developed nations and the US has some of the cheapest energy in the western world.

You would think that with all the financial benefits available to US based companies they would be booming?

The reason the US economy is stuck is because the American people can no longer afford to consume the products made in the factory.

How many people buy a car cash and how many on finance, the American people have been bled dry and if they don’t get higher wages the US will be poorer than Mexico in twenty years.

Posted by Sinbad1 | Report as abusive
 

so does this data include or exclude non-wage benefits like health care?

Posted by TinyOne | Report as abusive
 

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