October 1, 1992

Value of Typical American Family’s 1992 Income Eroded by Taxes and Inflation

Download Special Report No. 10

Special Report No. 10

Executive Summary The value of the typical American family’s earnings is succumbing to weak income growth, inflation, and accelerating taxes. Just since 1991, the typical family is $214 dollars poorer. Defined as a household with two earners employed fulltime, year-round and two dependent children, the typical family has lost purchasing power every year since 1989, for a 4-year loss of $1,444.

The two-earner family that made $33,492 back in 1982 is now earning an estimated $53,984. However, when federal taxes, state and local taxes, and inflation are taken into account, the sizable $20,492 increase in this family’s income results in a real gain of only $4,021. In other words, over 80 percent of the family’s income growth has been eroded by taxes and inflation. The principal reason for this decline in the family’s well-being has been weak income growth as fallout of the prolonged recession that started in July of 1990. Before taxes and inflation, the median family examined here managed to increase its income an average of only 3.3 percent annually over the past four years.

A 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.

A recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years.

Inflation 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.