For Most Americans, Income Drop Is Much Worse Than What the NYT Reports

The New York Times reports yesterday that average incomes in 2005 were still less than they were in 2000, despite 4 years of the Bush "recovery". Citing newly published IRA data, The Times shows that 2005 average income was $55,238, while 2000 income, adjusted for inflation, weighed in at $55,714, a drop of $476 or 0.9%. This marks the very first time since World War II that incomes failed to advance in any 5 year period. This unprecedented weakness goes far to explain why Americans show great uneasiness on the economy even while statistics like GDP, unemployment and the Dow Jones Average look so great.

Admirable though this article is, it doesn't go far enough.

While the Times does report how the highest income earners enjoyed the most robust growth in the last five years, it does not go the one extra step to calculate what that means for the rest of us. If one group of people enjoyed huge growth, while the whole society slid back a little, that must mean that the rest of us fared even worse. Sure enough, that's what the IRS data shows.

What the Times did not report is that the average income for those earning less than $100,000 in 2005 was $31,849, $2,914 lower than the $34,763 earned in 2000. In both years, the "bottom" 90% of us earned less than $100,000. (In 2000, those earning less than $100K comprised 91.4% of all filers, while in 2005 this group represented 89.3%. These means the groups are closely but not fully comparable until academics are able to obtain detailed enough data to compare exact percentiles with each other. Until then however, this is close enough to get a thumbnail picture of the situation.)

To get these figures, download the 2005 and 2000 IRS income spreadsheets. Then grab the Consumer Price Index for all Urban Consumers to adjust for inflation. Since the Federal fiscal year ends in October, I used the CPI for October 2000 and October 2005. Here's how you do it: to express an income of 30,000 in 2000 in 2005 dollars, divide 30,000 by the 2000 CPI (174) and multiply by the 2005 CPI (199.2) to find that 30,000 earned in 2000 had the buying power of $34,345 in 2005.

So basically, the "bottom" 90% of us are living on wages that are 8% below what they were in 2000, much worse than the 0.9% reduction the Times reported. This doesn't mean that everyone experiences this income drop in exactly this way. What it does mean is the IRS data conclusively proves that the old adage of "the rich get richer and the poor get poorer" is quite literally true in the Bush era. The White House response to the growing imbalance of wealth and income? It "is not a very interesting story."

Well excuse me. Maybe if the White House could bestir themselves to pay attention to this boring story, they would know why most Americans think the Bush administration's economic performance is so poor.