Myth: Most Americans are worse off since the tax cuts

Liberal myth

Few Americans have benefited from the economy since the Bush tax cuts. Only the wealthiest Americans have seen their lot improve in recent years while middle- and low-income families’ finances have stagnated.

The facts

A realistic look at the data reveals that most Americans have shared in the United States’ rising prosperity and that America remains the land of opportunity. The economic facts:

• Vindicate the nation’s broad economic policies: relatively low taxation, a relatively small government, and relatively lightly regulated markets.
• Should caution against liberal arguments for greater government involvement in all levels of the economy, from income redistribution to increased wage regulation.

A strong economy

The long-term trends show that the economy is in fact doing well.

• Since January, businesses have created over 1.2 million new jobs.
• Over the past four quarters GDP has increased by 3.5 percent, above the average historical rate of growth.
• Inflation-adjusted worker compensation has risen at over a six percent annual rate in the first half of the year.

Workers receive more benefits

Though cash wages appear to have stagnated, overall compensation has risen sharply.

• Total compensation has risen by 3 percent since 2003 and 9 percent since 2000 after adjusting for inflation, according to one common measure.
• Among non-farm businesses, compensation has risen by 6.6 percent since 2003 and by 10.2 percent since 2000.
• In 2005, workers’ share of national income hit a 25-year high.
• Excluding all health insurance cost increases, employee compensation has risen 2.2 percent since 2003 and 7.0 percent since 2000. Even after excluding what employers spend on health care, worker compensation has increased.

Strong growth in total compensation means that workers are better-off today than three years ago and much better-off than they were at the height of the tech bubble.

A better standard of living

Most Americans today enjoy larger and better-equipped homes, better health care, more education, and more household goods than ever before. Overall, most Americans enjoy a higher standard of living today than they did a generation ago or even a decade ago.

• Medical advances, such as new lifesaving drugs, have improved the health and quality of life of all Americans, regardless of income level.
• More households are headed by individuals with at least some college than ever before, and fewer are headed by individuals with a high school education or less than in 1991.
• New homes today are larger, with more bedrooms, and are more likely to have central air conditioning than they were in 1979.
• Luxuries like computers, cell phones and Internet access are now part of everyday life and are no longer for only the extremely wealthy.

Middle- and low-income Americans share in the widespread prosperity and can now afford things out of reach for most Americans just a generation ago.

Better off financially

Far from being buried under mountains of debt, American households are worth more than ever.

• After adjusting for inflation, the net worth (assets minus liabilities) of the median American family rose from $70,800 in 1995 to $93,100 in 2004.
• 54 percent of Americans have no credit card debt.
• The median balance for families that do have credit card debt is $2,200.

Economic growth helps millions

Economic growth has benefited more than a small minority of Americans. Instead, it has raised standards of living for tens of millions of Americans.

• Between 1979 and 2004, the proportion of American households with inflation-adjusted incomes below $75,000 fell by 10.1 percentage points.
• The proportion of those earning more than $75,000 rose by the same amount.
• The largest drop was in the number of households earning less than $35,000.
• The largest gain was in the number of households earning more than $100,000.

Related Heritage research

• James Sherk, “Shared Prosperity: Debunking Pessimistic Claims About Wages, Profits, and Wealth,” October 16, 2006
• James Sherk, “Economy Remains Strong: Unemployment Is Low and Workers Are Sharing in Productivity Growth,” October 10, 2006
• Daniel Mitchell and Michelle Muccio, “Tax Rate Reductions Strengthen the Economy, But Excessive Government Spending Threatens Long-Run Performance,” September 28, 2006
• Tim Kane, “Minimizing Economic Opportunity by Raising the Minimum Wage,” March 4, 2005
• Brian Riedl, “Ten Common Myths About Taxes, Spending, and Budget Deficits,” June 13, 2003