1) Income definition

Income is defined as cash market income (excluding realized capital gains in Figure A1).

Therefore, our income definition excludes non-cash fringe benefits from employers (such as health benefits) and employer payroll taxes.

The ratio of those non-wage labor costs to our market income definition has grown from 1% in 1929 to 12% in 1973 to 20% in 2006.

 

Our income definition in pre-fisc. That is, income is defined before individual income taxes and employee payroll taxes, and

income excludes all government social transfers such as Social Security retirement and disability benefits, government health care insurance

(Medicare and Medicaid), unemployment insurance, welfare assistance programs, the earned income tax credit, etc.

The importance of taxes and transfers has grown overtime and it would certainly be interesting to recompute series based on post-fisc

income, that is after taxes and transfers, in order to measure the direct redistributive role of the government.

 

2) Family unit of analysis

The unit is the tax unit (such as couple and children dependents, or a head of household with children dependents, or a single person).  The number of individuals

per tax unit has declined overtime from 2.48 in the 1973 to 2.02 in 2006 but the number of adults (aged 20+) per tax unit has only declined from 1.59 to 1.47

from 1973 to 2006.

Note also that a tax unit is smaller than a household (a household is defined as all individuals living in the same residential unit such as two roommates,

grandmother living with her daughter and children grandkids, etc.) In 2006, there were 148.4 million tax units but only 114.4 million households in the United States.

Therefore, average household income is about 30% higher than average tax unit income in 2006 (our average income is $49.6K in 2006 while average household

income according to Census is $66.6K in 2006. Note that the Census income definition includes cash government transfers).

There were 1.252 tax units per household in 1973 and about 1.297 tax units per household in 2006.

 

In sum, from 1973 to 2006, the average pre-fisc income of the bottom 99% would have grown by about 31% in real terms instead of only 8.5% (as displayed on

the figure above) if we had included employers' fringe benefits and payroll taxes (+8%), and especially defined income per capita (+23% effect).

This is still modest relative to the 190% real income growth of top 1% incomes from 1973 to 2006 displayed on Figure A1 above.

 

The finding that top 1% incomes have done so much better than the bottom 99% since 1973 is therefore largely independent of those assumptions.