INTRODUCTION

This report is the fourth 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, 1981, and 1982. Data from the Annual Housing Survey, the Income Survey Development Program, and the Internal Revenue Service were combined with the March 1984 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 procedures used to develop the estimates in this report are based on revisions to those used in previous years. The section on revisions to the tax simulation methodology describes the revised procedures.

HIGHLIGHTS

• Mean household income after taxes was $20,000 in 1983, up by 2.4 percent over the 1982 figure after accounting for the 3.2-percent rise in consumer prices. This increase follows a 1.7-percent increase between 1981 and 1982. (The rates of change for 1982 and 1983 are not statistically different from one another.)

• Mean household income before taxes ($25,400) increased between 1982 and 1983 by 1.2 percent after adjusting for inflation.

• Taxes absorbed about 21 percent of the total money income received by households, down slightly from 22 percent in 1982. In 1981, 23 percent of the total income received by households went to pay taxes.

• Households paid an average of $5,890 in taxes in 1983, about $170 lower than those paid in 1982 after adjusting for price change.

• The mean after-tax income of households in the Northeast, South, and West Regions increased in 1983. Households in the Midwest (formerly the North Central Region) showed no statistically significant increases in after-tax income.

• Married couples with children recorded a real increase of 2.6 percent in mean after-tax income.

• Married couples without children had after-tax incomes that were 3.3 percent higher in 1983. This increase was not significantly different than that for married couples with children.

• The mean income after taxes for households with a householder age 65 years and over showed no statistically significant increase in 1983. In 1982, their mean income rose by 5.2 percent.

AFTER-TAX INCOME

After accounting for taxes and the 3.2-percent increase in consumer prices, average household income rose by about 2.4 percent between 1982 and 1983. The average income for 1983 was $20,000, compared with $19,540 in 1982. The extent of this increase was clearly associated with the 10-percent reduction in 1983 Federal income tax rates as household income before taxes rose by only 1.2 percent and average amounts of State income taxes and payroll taxes were higher in 1983. The 1983 Federal income tax reduction was the third of four annual tax rate reductions scheduled by the Economic Recovery Tax Act of 1981. The increase in average household income after taxes in 1983 was not significantly different from the 1.7-percent increase in real terms recorded between 1981 and 1982.

The after-tax income of White households ($20,750) increased by 2.4 percent for 1983. The average for Black households ($13,670) showed some evidence of an increase. Spanish-origin households ($16,080) showed no statistically significant change from 1982 (table A).

After-tax incomes of households in the Northeast ($20,290), South ($19,470) and West ($21,150) Regions were higher in 1983. No statistically significant increase

occurred for the average incomes of households in the Midwest ($19,560) Region.'

Average after-tax income increased for 1983 for marriedcouple family households both with children ($24,820) and without children ($24,420). There was no significant change in 1983 among female family households with no husband present ($11,300).

Households with a householder under 65 ($21,510) had a 2.6-percent increase in their average after-tax income for 1983, while the average after-tax income of households with a householder age 65 and over ($14,310) did not change significantly.

The payment of the four types of taxes simulated in this study reduced the income available to households by about $463 billion in 1983. This decrease in income available is illustrated in tables B and C by comparisons of the distribution of household income before and after taxes. Following

'Mean after-tax incomes in the Midwest and South Regions are not

21,511 14,307

20,974 14,139

*2.6 1.2

the payment of taxes, the number of households with incomes of $50,000 or more fell from about 8.8 million to 3.2 million. In contrast, the number of households with incomes less than $15,000 increased from 30.7 million before taxes to 36.5 million after taxes.

TAXES AND THE POVERTY POPULATION

In 1983, about 64 percent of households with incomes below the poverty level paid one or more of the four taxes covered in this study. (See table D.) The taxes paid by poverty households amounted to about 7 percent of their before-tax money incomes. The payment of taxes reduced the mean income of poverty households from $4,480 before taxes to $4,250 after taxes.

The most common type of tax paid by households below the poverty level was FICA payroll taxes: 44 percent paid this type of tax in 1983. Eight percent of all poverty households