US Household Incomes Increased More in 2018 Than in Previous 20 Years—Combined

[Hydrogen]

Why did US incomes suddenly explode in 2018 after decades of tepid growth? The answer is not difficult to find.

For years, a school of economists has complained that US wages have been virtually stagnant for decades.

“Jobs are coming back, but pay isn’t. The median wage is still below where it was before the Great Recession,” former Labor Secretary Robert Reich said in 2015. “Last month, average pay actually fell.”

In fact, it’s not hard to find data showing that wages have barely increased since the 1970s, a figure many have used to stoke classy envy.

The truth is, there have always been problems with the claim that real wages (adjusted for inflation) have been stagnant for years. As economist Don Boudreaux has pointed out (see below), Reich and others overlook several important factors—including how inflation is calculated, compensation outside of wages such as healthcare, and the distinction between individuals and statistics.

https://www.youtube.com/watch?v=s6FmhXQ32Wo

The stagnant wage narrative was always mostly wrong. Federal Reserve data (which uses a chain-weighted price index) shows US hourly earnings have seen impressive growth in recent years.

Nevertheless, if one does choose to use Bureau of Labor Statistics data to measure family incomes over the last two decades, the picture is indeed a bit bleaker—at least it was.

Government statistics, which use the Consumer Price Index to measure inflation, show that from 2002 through 2015 median weekly earnings didn’t budge at all, but surged between 2018 and 2020.



I’m not the first person to notice this stunning wage growth. Writing in Bloomberg, economist Karl W. Smith describes the growth in income using a slightly different metric, real median household income.

“In 2016, real median household income was $62,898, just $257 above its level in 1999,” writes Smith. “Over the next three years it grew almost $6,000, to $68,703.”

Indeed, median household incomes increased from $64,300 to $68,700 in 2018 alone—an increase of $4,400. To put it another way, US incomes increased more in 2018 than the previous 20 years combined. (Household incomes were $61,100 in 1998 and $64,300 at the end of 2017.)



The question, of course, is why did US incomes suddenly explode after decades of tepid growth? The answer is not difficult to find.

The year 2017 saw massive deregulation and passage of the Tax Cuts and Jobs Act (TCJA). Estimates placed the deregulation savings at $2 trillion. But what was likely even a bigger factor was the cut businesses saw in corporate taxes.

Prior to 2017, the US had the highest corporate tax in the developed world (if not the whole world). With a top bracket of 35 percent, its corporate tax rate was higher than Communist China and socialist Venezuela.

This was a terrible policy on a number of levels. For starters, the revenue-maximizing rate of a corporate tax is 15-25 percent, which means anything above that isn’t even generating more revenue, it’s simply punitive and economically harmful. (Evidence bears this out. The United Kingdom, for example, reduced its corporate tax rate and saw revenues grow.)

Second, high corporate taxes actually hurt workers more than "Big Business." Tax experts point out that roughly 70 percent of what businesses earn in profits gets paid to workers in the form of wages and other benefits. So it’s no surprise to see that studies show that workers bear between 50 and 100 percent of the brunt of corporate income taxes.

But the reverse is also true: cutting corporate taxes leaves companies more capital to grow and invest.

“Lower corporate taxes increase rewards for improving techniques, technology, and increasing capital investments, which increase worker productivity and earnings,” writes economist Gary Galles. “They expand rewards for risk-taking and entrepreneurship in service of consumers. They reduce the substantial distortions caused by the tax. And those changes benefit others, such as workers and consumers.”

So in 2017, when the Tax Cuts and Jobs Act was signed into law, companies saw their tax rate fall from 35 percent to 21 percent. Just that fast, businesses suddenly had more capital to spend to grow their business, improve productivity, and hire more workers—and few things attract workers more than higher wages.

Media scoffed at the possibility that corporate tax cuts would actually result in wage increases for US workers. But the data speaks for itself: Families saw incomes increase faster than at any time in generations.

Moreover, though median wages surged, showing the benefits were broad-based, every segment benefited from these wage gains.

“The lowest quintile increased their pay more than the upper quintile,” Americans for Tax Reform president Grover Norquist recently pointed out in a conversation with FEE’s Brad Polumbo.

To be sure, reducing the corporate tax rate wasn’t the sole factor for the surge in wages, but it was likely by far the biggest.

The surge in family incomes no doubt helped soften the impact of the economic destruction the world suffered in 2020 during the recession precipitated by economic lockdowns during the coronavirus pandemic.

Whether the wage gains continue may depend to some extent on the permanency of the corporate tax cut. Former Vice President Joe Biden, who appears poised to become the next US president, has signaled he’d restore the corporate tax to its 35 percent rate or raise it to 28 percent.

“Biden would make our business tax higher than China’s,” Norquist quipped. (He’s not wrong. China’s corporate tax rate stands at 25 percent.)

This appears unlikely to happen, however. Even if Biden’s claim was more than campaign rhetoric, it appears unlikely that he’ll have enough votes in the Senate to roll back the tax cuts.


https://fee.org/articles/us-household-incomes-increased-more-in-2018-than-in-the-previous-20-years-combined/

....


This outlines a good argument for america's 2017 corporate tax cuts boosting job markets and wage growth.

It claims US wage growth in 2018 alone was greater than the previous 20 years combined.

A good contrast to mainstream media's claim that corporate tax cuts benefit "only the wealthy" for those interested in a different perspective.

(I tried to include all of the links in the text portion. There's decent info in them.)

[jaysabi]

One of your own sources undercuts the claim you're trying to make.  Whereas you described the wage growth as "stunning," the source you're quoting to back you up has this to say:

If we start there — and use the same wage series and inflation adjustment as before — we find that wages have grown by 20%. While that is slow compared with the gains enjoyed by the top 1%, it is a significant increase in purchasing power.

Note that the article does not agree with your assessment that the wage growth is stunning. In fact, your source points out what you're missing. It's slow by comparison to the top 1%, who continue to accrue the vast majority of the benefits of the improving economy. The point is that whether it's wage growth or tax cuts, the benefits falling on the different classes are nowhere near equitable considering the middle class built the American economy and the rich are constantly looting the federal treasury to run ever larger deficits so they can have more money. 

The deficit is not sustainable. It wasn't sustainable before Trump took office, and then he supercharged how not sustainable it was by passing tax cuts that overwhelmingly benefited the rich.

[Hydrogen]

One of your own sources undercuts the claim you're trying to make.  Whereas you described the wage growth as "stunning," the source you're quoting to back you up has this to say:

If we start there — and use the same wage series and inflation adjustment as before — we find that wages have grown by 20%. While that is slow compared with the gains enjoyed by the top 1%, it is a significant increase in purchasing power.

Note that the article does not agree with your assessment that the wage growth is stunning. In fact, your source points out what you're missing. It's slow by comparison to the top 1%, who continue to accrue the vast majority of the benefits of the improving economy. The point is that whether it's wage growth or tax cuts, the benefits falling on the different classes are nowhere near equitable considering the middle class built the American economy and the rich are constantly looting the federal treasury to run ever larger deficits so they can have more money.  

The deficit is not sustainable. It wasn't sustainable before Trump took office, and then he supercharged how not sustainable it was by passing tax cuts that overwhelmingly benefited the rich.

....

Claims of record wage growth are defined here(bolded):

I’m not the first person to notice this stunning wage growth. Writing in Bloomberg, economist Karl W. Smith describes the growth in income using a slightly different metric, real median household income.

“In 2016, real median household income was $62,898, just $257 above its level in 1999,” writes Smith. “Over the next three years it grew almost $6,000, to $68,703.”

Indeed, median household incomes increased from $64,300 to $68,700 in 2018 alone—an increase of $4,400. To put it another way, US incomes increased more in 2018 than the previous 20 years combined. (Household incomes were $61,100 in 1998 and $64,300 at the end of 2017.)

This helps put things into perspective on the topic of top 1% wage growth:



It may help to know china utilizes tax cuts to stimulate its own economy. Similar to tax cut policies Trump proposed when he assumed the Presidency:

China economy: Beijing unveils $298bn tax cuts to boost growth

March 2019

Opening the annual session of China's parliament, he forecast slower growth of 6% - 6.5% this year, down from a target of around 6.5% in 2018.

China has struggled with a slowing economy and a US-led trade war.

It plans to boost spending, increase foreign firms' access to its markets, and cut billions of dollars in taxes.

https://www.bbc.com/news/business-47450223

[The Sceptical Chymist]

Indeed, median household incomes increased from $64,300 to $68,700 in 2018 alone—an increase of $4,400.

For an individual living on his/her own with no kids and little or no debt, that yearly income isn't too shabby.  But if you're talking about a two-income family totaling that amount, it's definitely not enough to live comfortably on--depending on your lifestyle, of course.  And if you've got children and debt on top of that, $68k/year is going to be tough to live on.

Interesting data, but it makes me wonder what the true cause of this is.  Inflation in the US isn't exactly out of control, and I'm not sure if all the rampant money printing has anything to do with rising wages--I'm not an economist, never wanted to be, but sometimes I wish I understood a little bit more about how the economy functions.

One thing that might result from this would actually be an increase in inflation.  More money being earned means more money being spent, driving up the demand for goods & services and hence the prices for those things.  Guess we're going to find out.

[amishmanish]

While its a welcome thing, the trend is just too short term to arrive at a conclusion that "The narrative that tax cuts only helps the rich" is false. Trump reversed a lot of climate legislation that had led to job losses in traditional industries like mining and power. The withdrawal from climate change and focusing on the revival of traditional industries (unsustainable and stupid as it may be) may have led to a big chunk of the blue collar workforce getting a boost. That could be a possible cause.

The article tries to paint a positive picture of Trump's policies but such unsustainable policies will eventually have bigger costs. It takes painstaking steps to restructure economy. What Trump did was basically throw all caution to the wind and go back to the old beer-guzzling, fuel burning heydays. Anybody could do that with investment, tax cuts, policy changes AND isolationism. Giving the credit to "Trump's unconventional policy" speaks of the author's confirmation bias.

[erikoy]

I am not pretty sure if the data being presented are all correct but I guess if it did then there are many reason why US has a good income as what OP stated or qouted in an article. One is that the confidence the leader had been inspired them to do what can things can be done for their country. I had seen Trump having a good in decision making and this benefited the ita community. I had also remember a certain news that the United States had been constructing projects in their place instead of investing or constructing it to other countries that can help the company be less in operating expenses and because of this structures it added livelihood, create jobs and added the constructed project as an asset for the United states people and this the reason why USA that time specified by the OP had shown community having good income.

[el kaka22]

It does help "only the wealthy" because you end up with more money as a worker yet you also end up spending it whereas these companies just get away with profit and not spend it, they just keep reinvesting and growing bigger. What you and many other people who support corporate tax miss out is that if we gave 2 trillion dollar cut just to people, literally not take any taxes from their salaries, we would have 100k+ median income right now instead of going from 63 to 68.

You can calculate it yourself, obviously there are state and federal taxes which are different but if we are fine with not getting 2 trillion in tax, do it for workers and not companies and you get yourself a HUGE amount for everyone, instead of just few rich CEO's who wanted more money.

[amishmanish]

It does help "only the wealthy" because you end up with more money as a worker yet you also end up spending it whereas these companies just get away with profit and not spend it, they just keep reinvesting and growing bigger.

Companies reinvesting and getting bigger is not the problem. Hoarding of wealth amongst the stockholders and an army of executives beyond luxury is. The rich really have no incentive to share their wealth except those who have such a calling. This is one of the reasons that the trickle down never really reaches those who need it the most.

What you and many other people who support corporate tax miss out is that if we gave 2 trillion dollar cut just to people, literally not take any taxes from their salaries, we would have 100k+ median income right now instead of going from 63 to 68.

This was always debated in developing countries that direct handouts are not going to help because of corruption and lack of information with the beneficiaries. Yet, as far as the experience in India is concerned, a technology based direct transfer scheme works much better than giving subsidies to businesses.

[Broly46]

This f***g piece of collusion is a snake oil

Perception: 2018 income increased

Reality: many people have no job, virus strike, many depend on life support unit hand out from bank, banker are rich as f**k, banker have too much money, banker literally print $10 trillions out of thin air which is more than 100 years inflation combined, and there is nothing you can do about it.

[el kaka22]

snipped

The way it should be done could be debated and discussed, I am not saying let's give out money to everyone, or we could do that as well from the CEO to homeless everyone should get money but in countries like USA there is a problem with documentation whereas some other nations have national ID the day you are born and everything is documented properly.

So, if you could make sure there is a way that you could give a decent return, like a 2 trillion worth of tax cuts to people who make under 60k per year, you could literally help them make almost double the amount they make, because that is nearly the amount government takes from people, 50%. So like I said, if you give a tax break of 2 trillion to companies so they can get richer, why not do it for the people instead? Shouldn't that help more people?

[atjiat]

This summer, many city dwellers left for their summer cottages and worked outside the city, since there was no main job, they had to engage in agriculture and sell the produced products. This is how people survive. In addition, due to the fact that jobs are being cut and also closed, many people have invented their own home business, producing various things, as well as food, offering their services on social networks. This is exactly what happens in my country and in my city. Therefore, I am not surprised that US residents act in this way.