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Typical American Family’s Income Continues to Lag Behind Record Level of Late-1980s

2 min readBy: Chris R. Edwards

Download Special Report No. 24

Executive Summary

The typical American family’s income, after 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. es and inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , still falls below the level reached in 1989 as the economy continues to grow slowly. The growth in family income during the 1980s made possible by the booming economy and cuts in the federal individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate. But since 1989, the economic slowdown and a rise in state and local taxes and various federal taxes, such as the 1990 increase in the federal gasoline excise, have taken their toll on incomes.

The income of the median or typical family with two income earners, as measured by the Bureau of Census, is used as a starting point to analyze the change in federal, state, and local tax burdens since 1980. This family will earn $1,883 in 1993 but will be left with only $33,807 to spend on food, housing, transportation, and all other items after all taxes arc paid.

While the two-earner median family income has climbed to its current level from $26,879 in 1980, according to the Bureau of Census, most of that gain has been eroded by inflation and taxes. The 93 percent rise in pre-tax income has nearly been matched by a 90 percent rise in total taxes and a 73 percent rise in the general price level. The result: after inflation, after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings. for the typical family has risen only 15 percent since 1980 and has not risen at all since 1989.