INTRODUCTION

This report is the fifth in a series presenting estimates of after-tax household income and taxes paid by households. Previous special studies released by the Census Bureau contained estimates of after-tax household income for 1974 and 1980 through 1983. Data from the Annual Housing Survey, the Income Survey Development Program, and the Internal Revenue Service were combined with the March 1985 Current Population Survey (CPS) data to derive the estimates shown in this report. The main purpose of this report is to provide a better measure of year-to-year changes in household purchasing power and of differences in purchasing power between subgroups of the population. Four types of taxes were simulated and subsequently deducted from the total money income received by households in order to estimate after-tax income: Federal individual income taxes, State individual income taxes, FICA and Federal retirement payroll taxes, and property taxes on owner-occupied housing. A discussion of the important limitations of the simulation procedures and underreporting of income in the CPS is contained in the limitations section. A detailed description of the tax simulation methodology can be found in appendix A, along with comparisons of the results of the tax simulation with data from the Internal Revenue Service and other administrative sources. The 1983 income figures in this report differ from those previously published. The section on revised survey procedures describes the reasons for these differences.

HIGHLIGHTS

• Mean household income after taxes was $21,560 in 1984, up by 2.7 percent over the 1983 figure after accounting for the 4.3-percent rise in consumer prices. This is the third consecutive increase in mean after-tax income.

• Mean household income before taxes ($27,460) increased between 1983 and 1984 by 2.9 percent after adjusting for inflation. (The increases in before- and after-tax incomes are not statistically different from one another.)

• Payment of the taxes covered in this report reduced the amount of income available to households by about $513 billion in 1984, or 22 percent of the total money income received.

• Households paid a mean of $6,400 in taxes in 1984, $200 higher than the mean taxes paid in 1983 after adjusting for price changes.

• In 1984, 64 percent of households with incomes below the poverty level paid one or more of the types of taxes covered in this study. Taxes paid by poverty households amounted to 7 percent of the total money income received.

• The percentage of income paid in taxes ranged from 10 percent in households with incomes less than $10,000 to 28 percent in households with incomes of $50,000 or more. AFTER-TAX INCOME

In 1984, mean after-tax household income increased faster than inflation for the third consecutive year. The 1984 mean was $21,560, a 2.7-percent increase over the 1983 figure of $21,000, after accounting for the 4.3-percent increase in consumer prices. Improved economic conditions and a 5-percent reduction in 1984 Federal income tax rates contributed to this increase. The 1984 Federal income tax reduction was the last of four annual tax rate reductions scheduled by the Economic Recovery Tax Act of 1981. The increase in after-tax income in 1984 was not statistically different from the 2.9-percent rise in mean before-tax income (from $26,700 to $27,460). This is the first time in three years that the increase in household income after taxes was not greater than the before-tax increase.

The mean after-tax income of both White households ($22,370) and Black households ($14,800) increased significantly in 1984. The income of Spanish-origin households ($17,360) also increased between 1983 and 1984.

After-tax incomes of households in the Northeast ($22,000), South ($20,950), and West ($23,040) Regions were higher in 1984. There was some evidence of an increase in the mean income of households in the Midwest ($20,870) Region.'

Mean after-tax incomes increased in 1984 for marriedcouple family households both with children ($26,840) and without children ($26,450). There was also an increase among female-maintained family households with no husband present ($12,240). This is the first statistically significant increase in the mean after-tax income of female-maintained family households since the start of this income series in 1980.

The payment of the four types of taxes simulated in this study reduced the income available to households by about

'Mean after-tax incomes in the Midwest and South Regions are not significantly different from one another.