Economic contrasts: administration optimism amid persistent shadows
Boston — The average American family is worse off financially than it was 10 years ago.
Or, as the Tax Foundation puts it, ''Many US families may presently be earning more but enjoying it less. . . .''
A foundation study of the impact of inflation and federal taxes on after-tax income confirms the feeling of many Americans that they are riding an economic treadmill.
Within these averages, however, there remains a considerable element of the ''American dream.'' There exists what sociologist James Davis, writing in the June/July issue of Public Opinion, calls ''an impressive amount of intergenerational mobility.'' In other words, many sons with fathers working in blue-collar jobs are getting better educated and taking more prestigious white-collar positions. A smaller number of sons of white-collar workers are moving in the other direction, into blue-collar work.
What Tax Foundation economists have done is examine the average income since 1972 and project it to a 1984 ''prototypical'' family, that is, one earner employed full-time, year-round with spouse and two dependent children. Of course , with more than 50 percent of women working for pay outside the home, adding a second income, and a larger proportion of one-person ''families'' in the nation, such a ''prototypical'' family may not be so ''typical.''
''All these things have to be simplifications,'' said Dr. Elsie Watters, director of research at the business-supported Foundation.
The study shows that the income of the ''prototypical'' family has risen some 114 percent in current dollars over the past decade, from $11,152 to $23,895 (see chart). However, while the family's income more than doubled, its direct federal taxes nearly tripled. Individual income taxes jumped 155 percent, and social security taxes soared 242 percent.
Ten years ago, this Mr. and Mrs. Jones, with their two children, paid $982 in federal income tax and $468 in social security tax, for a total of $1,450. This year the comparative direct federal tax burden should be about $2,502 and $1,601 , for a total of $4,103. These federal taxes, as a percentage of income, have risen from 13 percent in 1972 to a peak of 17.7 percent in 1981. Now Reaganomics is showing some effect. The percentage this year should be 17.17 percent. It should decline to 16.44 percent by 1984.
Inflation has also shrunk purchasing power over the decade - by $1,159 when current dollars are translated into constant 1972 dollars. Perhaps of some encouragement, after-tax income in 1972 dollars should be up $60 this year - enough for a hearty dinner or two out for the Joneses.
Looking ahead, if inflation runs 6 percent per year for the next two years and if this Jones family income keeps pace with it, their after-tax income in constant dollars would go up another $74. Again some improvement.
Of course, these calculations ignore the impact of state and local taxes. The Tax Foundation's Dr. Watters says those taxes increased at a faster percentage than income in the first part of the 1970s, but have not kept pace with income in the last five or six years. On balance, she guesses, state and local taxes are something of an extra burden. ''It is hard to call,'' she says.
Another factor is that the impact of inflation is measured by the consumer price index, which has been shoved up considerably by higher interest rates on mortgages. Many families haven't moved and need not pay such higher interest rates. So their living costs have not risen so fast.
In general, the tide of real incomes in the US has not been rising, not lifting the average family. Individual families have had to add extra incomes or work harder to move ahead financially.
Indeed, the Census Bureau recently reported that during 1981, the number of officially poor people grew by about 2.2 million over 1980 - a 7.4 percent increase. That means that last year 14 percent of the population had an income below the federal government's poverty threshold. In 1973, the official poverty percentage was 11.1 percent. Some 12.3 million children were classified as poor in 1981.
Nonetheless, the Davis report in Public Opinion shows that the individual can still rise above his background. Looking at government surveys from 1972 through 1980 (and ''fudging a teensy bit to make things tidy''), Davis finds:
* 50 percent of sons stayed in their father's socioeconomic group as either white collar, farm, or blue collar. (The number of women working for pay has not been high enough for sufficient time to provide adequate intergenerational information.)
* 25 percent moved from farm or blue collar into white (up).
* 10 percent moved from white collar to blue (down).
* 15 percent moved from farm to blue (down).
* If you consider movement from farm to blue collar as downward mobility, upward mobility and downward mobility are about equally common (25 percent). But because of the increase in white-collar jobs and the decrease in blue-collar and farm jobs, more sons have been going up the ladder.
Which way a son goes, further examination by Davis shows, depends more on education than on the class of his father. So, to get a good job, as they say, get a good education.
How well off is the American family? Direct federal taxes After-tax income Year Median Income Social Total taxes Current 1972 family tax security as percent dollars dollars income of income 1972 $11,152 $982 $468 13.00% $9,702 $9,702 1974 13,004 1,267 761 15.60 10,976 9,311 1976 15,016 1,388 878 15.09 12,750 9,370 1978 17,318 1,717 1,048 15.97 14,553 9,332 1980 20,586 2,163 1,262 16.64 17,161 8,712 1981* 22,410 2,477 1,490 17. 70 18,443 8,483 1982* 23,895 2,502 1,601 17.17 19,792 8,543 1983* 25,329 2,522 1,697 16.66 21,110 8,596 1984* 26,848 2,616 1,799 16.44 22,433 8,617 * est. Source: Tax Foundation Inc.