Inflation Drags Real US Household Incomes by Most Since 2010

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Bloomberg

Inflation Drags Real US Household Incomes by Most Since 2010

Alex Tanzi
Tue, September 12, 2023 at 12:14 PM EDT · 3 min read

(Bloomberg) -- US inflation-adjusted household income fell in 2022 by the most in over a decade, highlighting the toll of a higher cost of living and the expiration of pandemic-era programs. ... The median income last year was $74,580 compared with $76,330 in 2021, according to the Census Bureau’s annual reports on income, poverty and health insurance coverage.

The 2.3% drop in incomes — which was the most since 2010 — marked the third-straight annual decline, which has been a feature of past recessions like the global financial crisis, the dotcom bubble and the downturn in the early 1990s. Last year, American families faced the the largest annual increase in the cost-of-living adjustment in over four decades.

The report paints a concerning picture of the financial health of American families halfway through Joe Biden’s presidency. Even as the economy remains strong by many measures and inflation has cooled significantly from last year’s peak, it’s still proven a to be a political roadblock as Biden seeks a second term.

Tuesday’s data include two gauges of poverty. The official US poverty rate — which is calculated before taxes and excludes stimulus payments and tax credits — edged lower to 11.5% from 11.6% in the prior year. The rate has been roughly cut in half over the past six decades, and reached a record low before the pandemic.

However, the supplemental poverty measure — which is based on post-tax income and includes government-transfer payments like stimulus checks — rose to 12.4% last year. It was the first increase since 2010, which in part reflected the end of government pandemic-era programs and stimulus payments.

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Median Household Income After Taxes Fell 8.8% in 2022

End of Pandemic-Era Expanded Federal Tax Programs Results in Lower Income, Higher Poverty

September 12, 2023
Written by: John Creamer and Matt Unrath

Real median household income after taxes fell 8.8% to $64,240 from 2021 to 2022 and the poverty rate after taxes as measured by the Supplemental Poverty Measure (SPM) increased 59% to 12.4%.

These significant changes in after-tax income and poverty rates of U.S. households were much larger than the annual changes in before-tax income and poverty, according to U.S. Census Bureau data released today.

The Census Bureau reports, Income in the United States: 2022 and Poverty in the United States: 2022, show that before taxes, median household income declined 2.3% to $74,580 and the poverty rate (11.5%), as measured by the official poverty measure, was not statistically different from 2021.

This dramatic difference can be attributed to key changes in federal tax policy.

In 2022, several policies enacted by the American Rescue Plan Act (ARPA) expired, including an expansion of the Earned Income Tax Credit (EITC) for filers without children and full refundability of the Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC). ARPA also increased the maximum amount of CTC.

In 2020 and 2021, most households also received Economic Impact Payments (EIP) that were no longer issued in 2022.

The rollback of these tax policies had the largest effect on post-tax income among the nation’s lowest-income households.

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