Aug. 28 (Bloomberg) -- The number of people in the U.S. without medical insurance rose 5 percent to a record 47 million in 2006, the largest increase in four years, even as poverty fell and household incomes rose.

The share of U.S. residents classified as poor fell 0.3 percentage point to 12.3 percent, the Census Bureau said today, the first significant decline since the 2001 recession. Median household income adjusted for inflation rose less than 1 percent, to $48,200, more than $1,000 less than its peak in 1999.

The growing number of uninsured Americans, as incomes rise, may bolster efforts by Democrats in Congress to expand government health-care programs. President George W. Bush has argued for adding tax incentives instead that would encourage individuals to buy their own insurance policies.

``What this shows is that we aren't going to see increased insurance simply by having economic good times,'' said Stuart Butler, a policy analyst at the Heritage Foundation, a research center in Washington. ``There has to be a structural change. Employment-based insurance is steadily eroding.''

The percentage of people in the U.S. who received health benefits through an employer declined in 2006 to 59.7 percent, from 60.2 percent in 2005, the census report found.

Economic Expansion

The rise in median income and improvement in the poverty rate came five years into an economic expansion, when prosperity should be rising more sharply, economists say.

``Given that the expansion's getting long in the tooth, I'd view it as too little too late,'' says Jared Bernstein, an economist at the Economic Policy Institute, a Washington research center funded partly by labor groups.

The decline in the poverty rate confirms that the economy is doing well and that the best policy is low taxes and limited government spending, Bush said in a statement.

The president said his proposal to give all Americans a tax deduction to cover the costs of health insurance would be fairer to those who don't get benefits from their employer and would encourage more people to buy coverage.

``What American workers do not need right now are tax increases to fuel excess spending by the Congress,'' Bush said. Congressional Democrats have proposed raising the U.S. tax on cigarettes to help fund insurance for low-income kids.

1990s Expansion

The U.S. poverty rate began to decline significantly by the third year of the 1990s expansion, and the median household income rose 1.5 percent in 1996, surpassing its pre-recession level five years into that recovery.

The number of uninsured children in the U.S. increased in 2006 to 8.7 million, or 11.7 percent of all kids, from 8.0 million, or 10.9 percent, in 2005. Children living in poverty were almost twice as likely to be uninsured, census figures showed.

Congressional Democrats seized on the uninsured numbers as proof of the need to expand a popular health program for children in low-income families. Bush has threatened to veto measures passed by the House and Senate that would do so, warning that the State Children's Health Insurance Program risks becoming a ``middle class entitlement'' if enrollment increases.

``I hope these sobering statistics will serve as a wake-up call to President Bush to reconsider his veto threat of this critically important legislation,'' said Representative Frank Pallone, a Democrat from New Jersey, in an e-mailed statement.

`Filling the Void'

Republicans and Democrats in Washington are struggling for solutions to soaring medical expenses, which have been rising about twice as fast as wages, according to health policy researchers. The number of uninsured has been rising since 2001, while the percentage of U.S. residents without coverage increased in every year except 2004.

Presidential candidates from both parties have offered plans to tackle the growing number of uninsured people. Voters in surveys rank health care as a top domestic concern.

Republican candidates, including former Massachusetts Governor Mitt Romney and former New York City Mayor Rudy Giuliani, are promoting tax deductions for people who don't get insurance through their workplace.

Obama, Edwards, Clinton

Among Democrats, Senator Barack Obama of Illinois and former Senator John Edwards of North Carolina have proposed expanding government programs to get more people covered. Senator Hillary Clinton of New York, who has said she will bring down the cost of health care, plans to offer details of her approach next month.

``From day one of my campaign, I have committed to ensuring that every American has quality, affordable health insurance coverage,'' Clinton said in a statement today.

The U.S. should take more aggressive action to fight poverty, Edwards said. The number of people in poverty, 36.5 million in 2006 compared with 37 million in 2005, wasn't statistically different, the Census Bureau reported.

``We simply cannot stand by while tens of millions of our fellow citizens go without the necessities of life,'' Edwards said today in an e-mailed statement. ``We need truly universal health care and a national effort to eliminate poverty.''

To contact the reporters on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net; Aliza Marcus in Washington at amarcus8@bloomberg.net

Last Updated: August 28, 2007 18:09 EDT