More Tax Analysis

Using the same IRS data for my recent postings on taxes, I have produced the two charts above showing the adjusted gross income (AGI) floors for the top 50% of taxpayers (top chart), and for the top 1% (the IRS also has data on the top 5%, top 10% and top 25%, those are not displayed here).

Note that these are in constant dollars, adjusted for inflation. Further, because the IRS calculates annually the threshold level of income for the top 50% of taxpayers, those threshold values are actually the median levels of income (AGI), since 50% of taxpayers have higher income than the threshold, and 50% of taxpayers have lower incomes. Therefore, although it is not the direct intention of the IRS, its tax data produce a measure of real median income using actual tax return data.

Conclusions:

1. Real median income, measured by AGI from tax returns, has remained relatively constant over the last 19 years at just under $16,000.

2. The real income of the richest 1% has increased significantly between 1986-2004, and the threshold level to be in the top 1% has increased from $108,000 to $174,000, a 60% increase.

3. The richest 1% have gotten richer over the last year 19 years, but the income of the average, or median taxpayer has remained relatively constant and stable, in real dollars. The middle class has not disappeared, and the median AGI over time has not changed much. There are more high-income taxpayers in the extreme right-hand tail of the AGI distribution, but that has not come at the expense of the median taxpayer. That is, the median income taxpayer has NOT been affected by the top 1% of taxpayers getting richer.

4. I wouldn't pay a lot of attention to the likes of Paul Krugman and his constant opining about this topic, like this recent talk "A History of America's Disappearing Middle Class." If there really was a disappearing middle class, the real median AGI should be declining, when it has actually been increasing slightly since the mid-1990s.

5. Note that the taxpayers in income groups like the top 1% or bottom 50% are not the same taxpayers from year to year, there is actually significant income mobility over a lifetime. "The rich" is not a club closed to new members. Many of the taxpayers in the top 1% in 1998 might now be retired and in the bottom 50%, and many taxpayers in the bottom 50% in 1998 (medical students, law students, business students, etc.), might now be in the top 1%.