U.S. households had 8.8% less to spend in 2022 (after taxes) than they did in 2021 due in part to 2021’s pandemic checks and expiring tax credits, such as some for childcare.
WASHINGTON – Real median household income after taxes fell 8.8% to $64,240 from 2021 to 2022, according to a report from the U.S. Census Bureau. And the poverty rate after taxes as measured by the Supplemental Poverty Measure (SPM) increased 59% to 12.4% over the same period. With “real median income,” inflation’s impact is backed out to make year-to-year numbers comparable.
Before-tax real income didn’t show the same gap, though it also declined. In the Census Bureau’s Income in the United States: 2022 and Poverty in the United States: 2022, before-tax 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.
The larger-than-usual difference can be attributed to changes in federal tax policy, according to the Census Bureau.
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 addition, most households also received Economic Impact Payments (EIP) in 2020 and 2021 that were no longer issued in 2022.
The tax-policy rollback had the largest effect on post-tax income for the nation’s lowest-income households, which, in turn, had an impact on the U.S. poverty rate. In 2021, for example, post-tax income for Americans in the bottom tenth percentile was 17.1% higher than the corresponding pretax income estimate, reflecting a substantial boost that year from the EIP and expanded CTC.
In 2022 that changed back, and estimates of pretax and post-tax income at the tenth percentile weren’t significantly different.
Lower post-tax income, particularly at the bottom of the income distribution, also resulted in an increase in income inequality. The Gini index – a common measure of how unequal incomes are for pretax income – was 1.2% lower in 2022 than in 2021, reflecting real income declines for the wealthiest American households.
However, the post-tax Gini index was 3.2% higher among lower-income households due to substantial declines in post-tax income.
Source: U.S. Census Bureau, John Creamer and Matt Unrath
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