The Weird World Of Economics

Despite significant gains in 2004, the total income Americans reported to the tax collector that year, adjusted for inflation, was still below its peak in 2000, new government data shows.

Reported income totaled $7.044 trillion in 2004, the latest year for which data is available, down from more than $7.143 trillion in 2000, new Internal Revenue Service data shows.

Total reported income, in 2004 dollars, fell 1.4 percent, but because the population grew during that period average real incomes declined more than twice as much, falling $1,641, or 3 percent, to $53,974.

Since 2004, the Census Department has found, the income of the typical American household has grown along with the rise in average incomes but at a slow pace that, until recent months, had barely kept ahead of inflation.

The tax data, while not as up to date, helps spell out whose incomes were most affected in the recent downturn and why.

The overall income declines of that extended era came despite a series of tax cuts that President Bush and Congressional Republicans promoted as the best way to stimulate both short- and long-term growth after the Internet bubble burst on Wall Street in 2000 and the economy fell into a brief recession in 2001.

The tax cuts contributed to a big decline in individual income tax receipts, which fell at a rate 14 times that of the drop in incomes.

In 2004 individual income tax receipts were 21.6 percent smaller than in 2000 — and indeed smaller than they were in 1997, the new I.R.S. report shows. The government collected $831.8 billion in individual income taxes in 2004, down from $980.4 billion in 2000 and $848.6 billion in 1997.

Those figures have risen since then, but rather than pay for themselves through economic growth, the Bush tax cuts, at least through 2004, were financed with borrowed money.

A White House spokesman, Tony Fratto, said the decline in income through 2004 was a predictable result of “what we all know now was a bubble economy with inflated asset values, which is why $7 trillion of equity in the stock markets evaporated.”

Mr. Fratto said that the benefits of lowered tax rates were shown by more recent gains in incomes and tax receipts and the creation of more than 6.5 million jobs since 2003, the year that he contended should be used as the benchmark to assess the value of the Bush tax cuts on incomes, jobs and increased wealth.

Incomes in 2004 did rise above those in 2003, with an overall average gain of 6.8 percent. The average year-over-year increases from 2003 to 2004 ranged from 1.8 percent for the poorest fifth of Americans to a 27.5 percent increase for the top tenth of 1 percent.

But those gains were not enough to make up for the drop in 2001, the further drop in 2002 and the almost unchanged overall income total in 2003, when only the top 1 percent made any significant gains, primarily by selling assets at a profit to take advantage of lowered tax rates on capital gains that took effect that year.

Analysis of the I.R.S. data by The New York Times found that average reported incomes fell or were virtually flat at the end of the period at every level of income except for the poorest 26 million taxpayers, the bottom fifth. Those impoverished taxpayers made less than $11,166 each in 2004 and had an average income of $5,743, up $135 or 2.4 percent, from the year 2000.

A taxpayer can be a single individual or a married couple. The poorest taxpayers consist of nearly 48 million adults and about 12 million dependent children. This means that the poorest 60 million Americans reported average incomes of less than $7 a day each.

The official poverty line in 2004 was $27 a day for a single adult below retirement age and $42 a day for a household with one child. The I.R.S. data does not include the value of government benefits like food stamps, the earned-income tax credit for working families and subsidized medical care.

It also excludes unreported income, which the Treasury Department and the I.R.S. have said is a major and growing problem among the highest-income Americans, especially those who own businesses, invest in stocks and have overseas financial interests.

Incomes after 2000 fell the most among those at the top of the income ladder.

The top one-tenth of 1 percent, about 130,500 taxpayers, reported their average income fell almost 17 percent, to just under $4.9 million each in 2004. Because of the tax cuts after-tax incomes fell by a significantly smaller amount, 12.1 percent.

Still, those very top households, which include about 300,000 Americans, reported significantly more pretax income combined than the poorest 120 million Americans earned in 2004, the data show. This was a sharp change from 1979, the oldest year examined by the I.R.S., when the thin slice at the top received about one-third of the total income of the big group at the bottom.

Over all, average incomes rose 27 percent in real terms over the quarter-century from 1979 through 2004. But the gains were narrowly concentrated at the top and offset by losses for the bottom 60 percent of Americans, those making less than $38,761 in 2004.

The bottom 60 percent of Americans, on average, made less than 95 cents in 2004 for each dollar they reported in 1979, analysis of the I.R.S. data shows.

The next best-off group, the fifth of Americans on the 60th to 80th rungs of the income ladder, averaged 2 cents more income in 2004 for each dollar they earned in 1979.

Only those in the top 5 percent had significant gains. The average income of those on the 95th to 99th rungs of the income ladder rose by 53 percent, almost twice the average rate.

A third of the entire national increase in reported income went to the top 1 percent — and more than half of that went to the top tenth of 1 percent, whose average incomes soared so much that for each dollar, adjusted for inflation, that they had in 1979 they had $3.48 in 2004.

Because of cuts in the tax rate, the top tenth of 1 percent did even better than their rising incomes alone would suggest. For each inflation-adjusted dollar they had after tax in 1979 they had $3.94 left after taxes in 2004.

For the bottom 60 percent, their income taxes were so small in 1979 that the cuts did little to change their after-tax incomes. While their pretax average incomes fell by a nickel on the dollar from 1979 to 2004, their after-tax incomes fell by a fraction of a penny less.

NYTimes.Com

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