LAST MONTH the Census Bureau reported that, thanks in large part to President Reagan's 1981 tax cut, average household after-tax income was 2.4 percent higher in 1983 than in the year before. The bureau failed to note, however, that the "average" household, as that term is normally understood, didn't share in that gain -- only those at the very top of the income distribution did. Whatever that result says about administration policies, it says a lot about why it is important to look behind the summary statistics that the government provides.
According to the report, "mean household income" -- that is total household income divided by the number of households -- rose by 1.2 percent in 1983. Taking account of income, payroll and property taxes, however, doubled the rise to 2.4 percent. That's because total federal income tax cuts more than offset increases in total state and payroll taxes. The result would seem to suggest that the administration's economic policies worked well for most people.
A different picture emerges, however, if you look at how the net income increase was actually distributed among families. House Budget Committee economist Van Ooms compared the 1983 data with earlier reports. He found that, far from getting any benefit, most families have lost purchasing power since 1980. In fact, after adjustment for inflation, after-tax income declined for two-thirds of U.S. households including those in the lower-, middle-and even upper-middle income levels.
Only the top fifth of households gained purchasing power over the period. The biggest gainers were in the top 5 percent of households -- those with incomes over $60,000 -- who gained an average $4,250 in after-tax, after-inflation income.
About half of this upward shift came about because job and welfare cuts depressed income in the lower and middle ranges. But the other half of the shift, Mr. Ooms found, was caused by changes in tax policy. This is a striking finding. It means that while the overall tax system, including federal and state income taxes as well as payroll and property taxes, still takes a somewhat higher share of higher incomes, progressivity has been significantly reduced in the last few years.
This result is not, of course, inconsistent with the part of supply-side theory which holds that greater rewards for the wealthy will spur them to create more jobs and incomes for the less favored. Future Census Bureau reports may well provide evidence that the gains have begun to trickle down, as the saying goes. Or at least they might if the administration's budget did not call for saving a few thousand dollars from its near-trillion dollar budget by eliminating all future reports on the subject. House Budget Committee Chairman William Gray and Joint Economic Committee Chairman David Obey have called attention to this omission, and Congress will surely want to prevent it.