Income data from the IRS and the Census Bureau have their uses, but measuring equality isn’t one of them. This is because income data lacks context.
A single year snapshot of income data misses how income fluctuates significantly over the course of an individual’s life. For example, a person who is a poor medical student today will later be a doctor who makes a high salary.
In fact, the average tax return for an 18- to 25-year-old shows about $15,000 in adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income. For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods, including inventory and certain labor costs. where an average taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. return for someone between ages 55 and 64 shows above $80,000.
The chart below illustrates how the income on the average tax return changes over the life cycle. Put simply, the average person is poor when they’re young and become relatively rich as they progress in their careers.
We expand on this example and more in a new report that illustrates the flaws in using income tax data to measure inequality.
