Paul L. Caron

Friday, January 30, 2015

Corporate Profits Soar, Average Incomes Plummet

Al Jazeera, Economy Grows, Incomes Shrink: Americans Continue to Lose Money While Corporate Profits Soar, by David Cay Johnston (Syracuse):

The first data on 2013 incomes show continuing bad news for Americans, my analysis of a new Internal Revenue Service report shows. Average income fell 2.6 percent in 2013, even though the economy grew 3.2 percent in real terms over 2012. Average inflation-adjusted income in 2013 was 8 percent lower than in 2007, the last peak economic year, and 6.9 percent less than in 2000, the year President George W. Bush set as the standard to evaluate the effect of his tax cuts and regulatory policies.

This is the latest sign of a disturbing trend. An ever-shrinking share of national income flows to individuals while corporate profits expand. In fact, profits hit a record high in 2013 both in absolute terms and as a share of the economy. By both measures, profits have continued rising. By contrast, labor’s share of national income has been trending downward since 1980, except for a spike during the second term of President Bill Clinton. The decline accelerated after the Bush tax cuts took effect, retroactively, to the first day of 2001.


This redistribution of national income away from labor and toward capital flows from policies initiated by President Ronald Reagan and followed to varying degrees by every president since. ...

Total income reported by America’s almost 145 million taxpayers was $9.11 trillion, down seven-tenths of 1 percent from 2012 when measured in 2013 dollars. Average income fell by an even larger figure, 2.6 percent, because the number of taxpayers increased because of population growth.

Average income reported on tax returns in 2013 was $61,668, down from $63,297 in 2012 — a difference of $1,629 — my analysis of the latest IRS Statistics of Income report shows. Along with the startling decline in average income, average wages also fell, although the number of taxpayers reporting income from work grew by almost 2.8 million or 1.9 percent. The average wage declined $576, or 1.1 percent, to $53,797. ...

The news here, overall, is this: The American economy is getting bigger, but average incomes are shrinking. If that trend continues, it will eventually spell economic, social and political trouble for the country.

IRS News, Tax | Permalink


How many of those companies have large offshore operations?
One data point: I work for an enormous corporation that is doing very well, but all of our growth--both in hiring and in incomes--is with my fellow employees in Bangalore and Chennai. The money isn't going into the pockets of CEOs--it's going to employee incomes in places outside the USA.

Posted by: Jim | Jan 30, 2015 1:54:22 PM

I don't quite understand what the graph is showing. If it's a "share" of something, then how come the scale can exceed 100%? If not, please define correctly.

Posted by: sestamibi | Jan 30, 2015 1:56:24 PM

From looking at your graph it appears to me that the trend is down from around 1962/63 and it is merely a change in the slope of the line in the early 80s. with a drastic shift around 2000

Posted by: piscivorous | Jan 30, 2015 6:59:26 PM

It used to be the rage for companies to move their operations to cheaper areas like Mexico and the South, China, Vietnam, etc. Now the companies stay where they are and invite all the foreign workers here. Central Minnesota engilfed by Somalians. No more decent jobs anymore.

Posted by: DaveinMinnesota | Jan 30, 2015 8:35:39 PM

to sestamibi - often when you see a graph with more than 100% of something it's because the baseline is sometime after the earliest date. Here, if you go to the source, you would see the baseline date (100=100) is 2009.

I agree with piscivorous - the drop started around 1960 (drawing a line across the tops of the peaks you see a downward trend) with some weirdness in 2001 with a giant jump (my guess is a different way of measuring?) and then a really drastic drop off that would probably correspond to an increasing drop off in manufacturing. Service industry jobs just don't pay as much as industrial/manufacturing jobs.

Posted by: Karlo | Jan 31, 2015 1:44:22 PM

"...while corporate profits expand. In fact, profits hit a record high in 2013 both in absolute terms and as a share of the economy. By both measures, profits have continued rising."

"Dude" We're not in Kansas anymore. Most of these profits are locked out overseas. Plus, the US share is used to buyback stock instead of creating jobs.

Bottom line is the US is losing its innovative edge.

Posted by: Dale Spradling | Jan 31, 2015 2:54:51 PM

sestamibi, if you go to my column you will see a note that the graphic uses an index to show declining returns to labor. Karl the labor share rose, as my column explains, during the tech boom of the second Clinton Administration.

Dale Spradling, you are right and I have written at length on this and its effects, including how Section 531 now lets MNCs turn the burden of taxes into profits from deferred taxes.

Posted by: David Cay Johnston | Feb 1, 2015 10:11:04 AM

and of course the IRS mired in corruption: big fish are left to do what they want (witness Microsoft hoarding hundreds of billions in Irish shells) and small fish are fries with gusto. Don't say that isn't a substail contributor here!

Posted by: CORRINNY | Feb 3, 2015 1:51:23 PM