Americans in All Income Groups Recouped Pandemic Losses in 2021

(Bloomberg) -- Americans across income groups succeeded in recouping earnings lost to Covid-19 in 2021, though gains for the poorest may be short-lived after pandemic benefits expired, according to a study by economists at the University of California at Berkeley.

Adjusted for taxes and transfers, income for the bottom half of Americans was 8.5% higher as of December than in the same month of 2019, according to the data set developed by Berkeley's Thomas Blanchet, Emmanuel Saez and Gabriel Zucman.

The bottom 50% -- those with average income after taxes and transfers of about $35,000 -- saw their income grow at a rate that nearly rivaled some of the wealthiest Americans -- the top 10% who make an average of $312,000. But that was largely because of expanded tax benefits for lower-income households that haven't been renewed for 2022, according to the paper.

Zucman said that gains for low earners have largely been due to an expansion of the child tax credit and earned-income tax credit -- a federal anti-poverty program that Congress allowed to expire at the end of last year.

Democrats proposed to re-instate the expanded version of those tax credits as part of President Joe Biden's broader economic plan. That legislation has stalled in the Senate. Senator Joe Manchin, a West Virginia Democrat whose vote is crucial to its passage, has said that he has some misgivings about the child tax credit and wants to pare back the benefits.

The study points out that recovery for working-class Americans came much faster after the Covid slump than after the crash of 2008. It took just 20 months for the real incomes of the bottom 50% to get back to pre-recession levels this time, compared with almost 12 years back then.

Stripping out the effects of government programs, the research found that inequality as measured in pre-tax incomes rose to a record at the end of 2021, while wealth disparities were also at a historic high.