Better Off?

October 31, 2007
Posted by Jay Livingston

“Are you better off than you were four years ago?” asked Ronald Reagan of Americans in a televised presidential debate with Jimmy Carter in 1980. Many people think that this question helped win the election for Reagan. That was then.

What about now? Back in August, I cited a New York Times article by David Cay Johnston showing that average income in 2005 was still lower than it had been in 2000. But I wondered why Johnston hadn’t used median income rather than the mean since the mean is so distorted by changes among the very rich.

Mr. Johnston has e-mailed an elbow in the ribs calling my attention to a Times article he wrote two weeks ago showing income changes for different income groups. I confess I hadn’t seen it (nor had any of the economist blogs I look at made mention of it.).

The message is basically the same. For all but the top 5%, incomes were still slightly lower in 2005 than they had been in 2000. But that’s not quite the whole story. The graph in the article shows both pre-tax and post-tax income.

Although pre-tax income for most people was slightly lower, thanks to the tax cuts, post-tax income was slightly higher. For the lower half of earners, average income in 2005 was $234 higher than in 2000. The graph also shows clearly that the big winners were the top 1%, whose pre-tax incomes were higher by about $18,000 but whose after-tax incomes were higher by nearly $65,000.

Were you better off after four years of Bush? For most Americans, the answer was, “Slightly.” For those at the very top, the answer was, “Yes, quite a lot, thank you.”

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