Income data from the IRS and the Census Bureau have their uses, but measuring equality isn’t one of them. This is because income data lacks context.
A single year snapshot of income data misses how income fluctuates significantly over the course of an individual’s life. For example, a person who is a poor medical student today will later be a doctor who makes a high salary.
In fact, the average taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. return for an 18- to 25-year-old shows about $15,000 in adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” where an average tax return for someone between ages 55 and 64 shows above $80,000.
The chart below illustrates how the income on the average tax return changes over the life cycle. Put simply, the average person is poor when they’re young and become relatively rich as they progress in their careers.
We expand on this example and more in a new report that illustrates the flaws in using income tax data to measure inequality.
