The Rich Get Richer – Others, Not So Much

New data from everyone’s favorite agency, the IRS, reveals that in the year 2006 average income in the U.S. has finally caught up with its most recent peak in 2000. Congratulations all around.

First a caveat: keep in mind we are talking about income of which the IRS is aware. The off-the-books “underground economy” is significant but doesn’t show up in this data. Also, in this context “income” refers to “adjusted gross income,” not total income.

That said, we now know that in 2006, the average taxpayer reported adjusted gross income of $58,029. Adjusting for inflation, this was an increase of $739 from the year 2000. That year was, you may recall, the peak of the technology bubble and the beginning of an extended economic downturn and bear market. Average income fell dramatically in 2001 and 2002, and did not catch up until 2006. (Data for 2007 is not yet available).

Averages can be deceiving. In this case, the average figures are significantly distorted by the small number of people with very high incomes. Look at it this way: between 2000 and 2006, the total income of all American taxpayers rose by $619.2 billion. All of that amount went to people with income of more than $75,000.

In other words, people with taxable income of $75,000 or less, on average, had about the same income in 2006 that they did in 2000. Meanwhile the cost of gasoline, food, health care, taxes, and pretty much everything else has grown steadily. This is why consumer confidence is still in the tank despite a slight gain last month. With the real cost of living growing much faster than official inflation figures, few people are as comfortable now as they were in 2000.

Low-income workers do have one advantage: they can vote. Their votes count just as much as the millionaire, and the millionaires are far outnumbered. Elections are just over two months away. Big changes could be coming.