A new Brookings report, “Income Growth and Income Inequality: The Facts May Surprise You” reports that after-tax income inequality declined
between 2000 and 2010, and likely declined through 2012 (the most recently reported numbers).
While it’s true that top income earners capture most all the gains since the depths of the recession, Brookings reports: “CBO’s new numbers show that households in the top income percentile saw their before- and after-tax incomes shrink more than one-third between 2007 and 2009. Middle-income Americans experienced pre-tax income losses of 4.5% and after-tax income losses of just 1.4%. In the bottom one-fifth of U.S. households, after-tax incomes actually edged up during the recession…Even accounting for the robust pre-tax gains they enjoyed in 2010-2012, IRS data suggest the top 1% of households had lower pre-tax incomes in 2012 than they did in 2007… or in 2000.”
Brookings also reports, “A commonly used indicator of middle class income… the Census Bureau’s estimate of median household money income… [which] reached a peak in 1999 and fell 9% in the years thereafter…fails to account for changing tax burdens and… even worse…ignores income received as in-kind benefits and health insurance coverage from employers and the government. By ignoring in-kind benefits as well as sizeable tax cuts in the recession, the Census Bureau’s money income measure seriously overstated the income losses that middle-income families suffered in the recession…Between 1979 and 2010 the after-tax real incomes of…households in the middle three-fifths of the income distribution saw their after-tax incomes grow only about 40%…”
As well, household incomes overlook large increases in the size of the U.S. workforce and household formation since 1980. Since 1980, the U.S. added 45 mm jobs—a 50% increase, double the growth rate of Germany and France. This growth absorbed 25mm immigrants, not counting their native born children, who are of similar magnitude.