About the author
Mark Perry Tweets
An amazing chart of an amazing job-creating state; we owe a debt of gratitude to ‘Saudi Texas’ and the shale boom
View related content: Carpe Diem
The chart above shows a most amazing economic phenomenon: Since December 2007 when the Great Recession started, Texas civilian employment has increased by 12.4% and by more than 1.36 million jobs, from just over 11 million jobs in December 2007 to 12.37 million in October of this year (see blue line in chart). In contrast, civilian employment in the other 49 states without Texas is still 0.26% and more than 350,000 jobs below the December 2007 level (see red line in chart) — there were 134.9 million non-Texas jobs in October vs. 135.26 million in December 2007.
It’s also important to note that while job growth in Texas slowed considerably in 2008 and 2009 due to the recession, the level of civilian employment in Texas never fell below its pre-recessionary, December 2007 level. Also, while Texas was able to actually increase jobs slightly even during the depths of the recession in 2008 and 2009, the US labor market minus Texas experienced a stunning loss of 8.374 million jobs (a percentage drop of 6.2%) in the two year period between December 2007 and December 2009.
In another job-related milestone for Texas, the BLS reported today that annual payroll employment in Texas increased in October by more than 400,000 jobs from a year ago for the third straight month, and established a new all-time state record for job growth over a 12-month period with a 421,900 gain from October 2013. Over the last year, Texas has added more than 1,600 new jobs every business day – a hiring rate of more than 200 jobs every hour! Also, Texas’s annual job gain of 421,900 through October represented 16% of the country’s 2.643 million increase in nonfarm payroll employment over that period, even though Texas’s population is only 8.4% of the US total. In percentage terms, Texas payrolls increased by 3.74% over the last 12 months, almost double the 1.93% growth in US payroll employment.
The chart and data tell a powerful and remarkable story of job creation in the Lone Star State of more than 1.36 million new jobs added since the start of the Great Recession, compared to a net deficit of 354,000 jobs for the other 49 states combined. Much of the economic success of Texas in recent years that has fueled job creation in the state is a direct result of the shale oil and gas boom taking place in areas like the Permian Basin in west Texas (1.8 million barrels of oil per day) and the Eagle Ford in south central Texas (1.6 million barrels per day). Texas is now producing almost 37% of America’s total crude oil production, and as a separate country would be the world’s 8th largest oil-producer. Further, Texas has done a great job of attracting businesses like Toyota because of the state’s “employer-friendly combination of low taxes, fair courts, smart regulations and world-class workforce.”
Bottom Line: The country, the president, and all of us individually owe a huge debt of gratitude to the state of Texas and to the oil and gas industry for helping support the US economy during and after the Great Recession. Without the energy-driven economic stimulus from the fracking revolution, and without the gusher of jobs in the state of Texas, there’s no question that the Great Recession would have been much worse and lasted much longer, and the jobs picture today would be much bleaker. The chart above helps to illustrate how important the state of “Saudi Texas” is to the US labor market and economy. Thanks largely to the Lone Star State, the US has finally gained back all of the jobs lost during the Great Recession – September and October this year have been the only two months since 2007 that civilian employment in the US surpassed the pre-recession jobs peak. God Bless Texas.
Something to be thankful for: the real cost of a Thanksgiving dinner is 1.3% cheaper than last year, 21% cheaper than 1986
View related content: Carpe Diem
From the American Farm Bureau Federation (AFBF):
The American Farm Bureau Federation’s (AFBF) 29th annual informal price survey of classic items found on the Thanksgiving Day dinner table indicates the average cost of this year’s feast for 10 is $49.41, a 37-cent increase from last year’s average of $49.04. The big ticket item – a 16-pound turkey – came in at $21.65 this year. That’s roughly $1.35 per pound, a decrease of less than 1 cent per pound, or a total of 11 cents per whole turkey, compared to 2013. The average cost of the dinner has remained around $49 since 2011.
The AFBF survey shopping list includes turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10. There is also plenty for leftovers.
Foods showing the largest increases this year were sweet potatoes, dairy products and pumpkin pie mix. Sweet potatoes came in at $3.56 for three pounds. A half pint of whipping cream was $2.00; one gallon of whole milk, $3.76; and a 30-ounce can of pumpkin pie mix, $3.12. A one-pound relish tray of carrots and celery ($.82) and one pound of green peas ($1.55) also increased in price. A combined group of miscellaneous items, including coffee and ingredients necessary to prepare the meal (butter, evaporated milk, onions, eggs, sugar and flour) rose to $3.48.
In addition to the turkey, other items that declined modestly in price included a 14-ounce package of cubed bread stuffing, $2.54; 12 ounces of fresh cranberries, $2.34; two nine-inch pie shells, $2.42; and a dozen brown-n-serve rolls, $2.17.
“America’s farmers and ranchers remain committed to continuously improving the way they grow food for our tables, both for everyday meals and special occasions like Thanksgiving dinner that many of us look forward to all year,” said AFBF Deputy Chief Economist John Anderson said. “We are blessed to be able to provide a special holiday meal for 10 people for about $5.00 per serving – less than the cost of most fast food meals.”
A total of 179 volunteer shoppers checked prices at grocery stores in 35 states. Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals. The AFBF survey was first conducted in 1986. While Farm Bureau does not make any scientific claims about the data, it is an informal gauge of price trends around the nation. Farm Bureau’s survey menu has remained unchanged since 1986 to allow for consistent price comparisons.
1. Compared to last year’s cost of $49.04 for a complete classic Thanksgiving dinner for ten people, this year’s cost of $49.41 for the dinner is only 0.75% (and 37 cents) higher (see blue line in chart). That compares to increases in overall consumer prices over the last year of 1.7% and average wages of 2.2%.
In addition to the 0.5% decrease in turkey prices compared to last year, the other items that decreased in price over the last year were: rolls (-0.5%), stuffing (-4.9%), cranberries (-3.3%), peas (-7.2%), and pie shells (-2.8%). The items that were more expensive this year compared to a year ago were sweet potatoes (+6.0%), pumpkin pie mix (+0.6%), milk (+2.7%), relish tray (+1.2%) and whipping cream (+8.1%).
2. Adjusted for inflation, the cost of a classic Thanksgiving dinner for ten this year is 1.3% cheaper than last year, 3.6% cheaper than two years ago and 5% cheaper than 2011 (see blue line in chart).
3. Compared to the cost of a Thanksgiving dinner of $62.30 in 1986 (in 2014 dollars), today’s classic turkey dinner for ten is almost 21% cheaper at $49.41.
4. Measured in time worked at the average hourly wage for all private production workers of $20.70 in October 2014, the “time cost” of this year’s classic turkey dinner for ten is only 2.39 hours, down by 1.2% from 2.42 hours last year and down by 4.7% from 2.50 hours in 2012 (see bottom chart). Compared to 1986 when the average American would have worked 3.22 hours to earn the income necessary to purchase the turkey dinner for ten, the “time cost” for a worker today (2.39 hours) is almost 26% lower.
5. Cost conscious shoppers can buy the same classic Thanksgiving meal at Walmart for only $32.64 (see top chart above), a savings of 34% compared to the AFBF national average, according to this press release from Walmart. In hours of time worked at the average hourly wage for private production workers, that would be a “time cost “of only 1.58 hours for one worker to purchase a holiday feast for ten people at Walmart, a truly amazing bargain.
Bottom Line: The fact that a family in American can celebrate Thanksgiving with a classic turkey feast for less than $50 and at a “time cost” of only 2.39 hours of work for one person (and only $32.64 or 1.58 hours of work for Walmart shoppers) means that we really have a lot to be thankful for on Thanksgiving: an abundance of cheap, affordable food. Compared to 1986, the inflation-adjusted cost of a turkey dinner today is 21% cheaper, and 26% cheaper measured in the “time cost” for the average worker. Relative to our income and relative to the cost of food in the past, food in America has never been more affordable than it is today.
View related content: Carpe Diem
One of the most frequently reported economic trends is the gradual decline in US real median household income from its 1999 peak of about $57,000 to below $52,000 in each of the last three years (see blue line in top chart above). We hear a number of reasons from politicians and pundits for the decline in median household income over the last decade, mostly reasons that involve a narrative about economic stagnation and growing inequality caused by the progressives’ usual suspects: gains in worker productivity, income and wealth going to corporations and “the rich” instead of being shared by average workers; failure to increase the minimum wage or pass “living wage” laws; the combined effects of globalization, free trade and outsourcing putting downward pressure on middle-class incomes in America, and other variations of economic pessimism. Former President Bill Clinton recently offered his three reasons for stagnant median household income that include not raising the minimum wage and excessive corporate greed.
But there are some other very obvious, but mostly overlooked, factors that could easily explain why median household income has declined over the last decade that have nothing to do with economic stagnation: demographic changes in the composition of US households. AEI’s Alex Pollock addressed this issue recently in his essay “If income is going up, can median household income go down? It’s possible.” Here’s how Alex frames the issue:
One of the most commonly cited numbers in discussions of inequality is the trend in median household income, often used as if it settled the issue. Using median household income poses a fundamental problem, however. It conflates two measurements — changes in the composition of households and changes in income — and thus can easily mislead us.
Has the composition of households in America been changing? Obviously, it has. The percent of married couple households has fallen from more than 60 percent in 1980 to less than 50 percent in 2010. One-person households have risen from 23 percent to 27 percent of households in this period. Shifting from two-earner households to one-earner households lowers the median household income, even if everybody’s income is the same as before [or rising].
Alex provides a series of hypothetical examples showing how simple household demographic changes can result in rising individual incomes while at the same time the median household income is falling. For example, if there is a shift from two-earner, married households to one-earner single households as a result of divorce, the overall median household income could fall even when income is increasing for all individuals in the new mix of households with a greater share of single households.
Alex’s key point is that when demographics and household composition are dynamically changing, individual income and median household income can naturally move in opposite directions. The most frequent mistake, according to Alex, is to look at median household income over time assuming that household demographics are static. And that is precisely the mistake made in almost all of the discussions about median household income, and that leads to a distorted and inaccurate conclusion about why median income is falling.
One example of a major dynamic change in household composition is the significant increase in the share of US households with no earners, from fewer than 20% of all US households in 1980 to 23.7% of households in 2013 (see blue line in bottom chart above, Census data here from Table H-12). Likewise, the share of single-earner households has also increased from 33.2% in the early 1990s to above 37% for the last five years (see red line). In contrast, there’s been a decrease in the share of US households with 2 or more earners from above 46% of all households in 1989 to fewer than 40% of US households in every year since 2010 (see brown line in bottom chart above).
In summary, over the last several decades, there’s been an increasing share of no-earner, single-parent and single-earner households and a decreasing share of married and two-or-more-earner households. That major demographic shift has likely depressed median household income significantly in the last decade, even though it’s possible, as Pollock shows, that the income of individual working Americans could be rising.
Another key demographic shift is the increasing number of retired Americans as a share of the adult population based on Social Security data. As the red line in the top chart above shows, US retirees represented a pretty stable 15% share of the US population from 1990 to 2008. Starting around 2008 when the early “baby-boomers” – those born in 1946 — reached early retirement age of 62, the share of retirees started increasing from less than 15% of the adult population in 2007 to more than 16.6% in 2013.
In the five year period between 2008 and 2013, the number of retired Americans increased by 5.6 million, which was the largest five-year increase in US history, and more than double the 2.5 million increase in the previous five-year period. Given that wave of recent retirements, there have been millions of older, experienced, highly-paid workers going from their peak earning levels to a much lower retirement income that would typically include Social Security payments, pensions, and distributions from retirement accounts. As those millions of retirees are replaced in the workforce by younger, less experienced, lower paid workers, median household income could be falling even though the average income of working Americans could be rising.
It’s probably no coincidence that the recent increase in retirees, both in absolute numbers and as a share of the adult population, along with the other demographic changes described above, has naturally coincided with a decline in median household income. It would be hard to imagine that an aging population with a significant increase in the number and share of retirees, wouldn’t depress median household income, for purely demographic reasons.
Bottom Line: Most explanations of the recent decline in US median household income are based on some variation of a narrative of economic stagnation, rising inequality and pessimism. But what is almost always overlooked are the very significant demographic changes that have taken place in the composition of US households over time that would significantly impact the income of the median US household. Taken together, a) the increase in the share of no-earner, single-earner, and single-parent households, b) the increase in the number and share of retirees, along with c) the decline in the share of two-earner and married households, would logically and necessarily depress the income level of the median US household.
In summary, the composition of US households is not static, fixed and permanent; rather it’s dynamic, evolving and ever-changing. Discussions on changes in median household income over time that ignore the changes in household composition over time will always be incomplete, distorted and misleading. Perhaps the decline in median household income this century is not a narrative of economic pessimism and stagnation after all, but a more upbeat story of a greater number of Americans living longer lives, and enjoying periods of time in retirement that were never possible until this century.
View related content: Carpe Diem
1. Sweatshop Video of the Day I. A surprising and inspiring 2012 TED Talk above on the alleged exploitation of Chinese factory workers, who we are told lead miserable and bleak lives making iPhones, Coach handbags and Nike running shoes in factory sweatshops for rich Americans. Author Leslie T. Chang explains why that’s a completely false and disrespectful narrative. Here’s an excerpt:
Across China, there are 150 million workers, one third of them women, who have left their villages to work in the factories, the hotels, the restaurants and the construction sites of the big cities. Together, they make up the largest migration in history, and it is globalization, this chain that begins in a Chinese farming village and ends with iPhones in our pockets and Nikes on our feet and Coach handbags on our arms that has changed the way these millions of people work and marry and live and think. Very few of them would want to go back to the way things used to be.
Certainly, the factory conditions are really tough, and it’s nothing you or I would want to do, but from their perspective, where they’re coming from is much worse, and where they’re going is hopefully much better, and I just wanted to give that context of what’s going on in their minds, not what necessarily is going on in yours.
HT: Bob Wright
2. Sweatshop Video of the Day II. In the Learn Liberty video above, you’ll learn from UC-San Diego professor Matt Zwolinski about the “Top 3 Ways Sweatshops Help The Poor Escape Poverty.”
3. Sweatshop Cartoon of the Day. A sweatshop cartoon classic, first featured on CD back in 2007.
4. Sweatshop Quotation of the Day I:
Closing sweatshops and forcing Western labor and environmental standards down poor people’s throats in the third world does nothing to elevate them out of poverty. Instead, it forces poor people to buy a lot of rich man’s toys, like clean air, clean water, and leisure time. If clean air and leisure time don’t strike you as extravagant luxuries, that’s because Americans – even the poorest of us – are so rich these days that we’ve forgotten what true poverty is like. But chances are your great-great-grandparents could have told you what it’s like: when you’re truly poor, you can’t afford things like clean air. Nobody in 1870 America worried about the environment.
~Economist Steven E. Landsburg, from his book “More Sex is Safer Sex: The Unconventional Wisdom of Economics.”
5. Sweatshop Quotation of the Day II:
Well-meaning American university students regularly campaign against sweatshops. But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. If Africa could establish a clothing export industry, that would fight poverty far more effectively than any foreign aid program. American students should stop trying to ban sweatshops, and instead campaign to bring them to the most desperately poor countries.
~Nicholas Kristof’s 2006 NY Times op-ed “In Praise of the Maligned Sweatshop.”
6. Sweatshop Quotation of the Day III:
I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty. At a time of tremendous economic distress and protectionist pressures, there’s a special danger that tighter labor standards will be used as an excuse to curb trade.
Among people who work in development, many strongly believe (but few dare say very loudly) that one of the best hopes for the poorest countries would be to build their manufacturing industries. But global campaigns against sweatshops make that less likely. The best way to help people in the poorest countries isn’t to campaign against sweatshops but to promote manufacturing there.
~Nicholas Kristof’s 2009 NY Times op-ed “Where Sweatshops Are a Dream.”
7. Child Labor Quotation:
As any historian could tell you, no society has ever pulled itself out of poverty without putting its children to work. Back in the early 19th century, when Americans were as poor as Bangladeshis are now, we were sending out children to work at about the same rate as the Bangladeshis are today. Having had the good fortune to get rich first, Americans can afford to give Bangladeshis a helping hand, and there are plenty of good ways for us to do that. Denying Third Worlders the very opportunities our ancestors embraced, whether through fullfledged boycotts or by insisting on health and safety standards they can’t afford to meet, is not one of those ways.
~Steven E. Landsburg, from his blog “The Big Questions.”
Adjusting for transfers and taxes reduces income inequality between highest and lowest quintiles by 50%
View related content: Carpe Diem
As a follow-up to my post on Saturday about the new CBO study on the “Distribution of Household Income and Federal Taxes, 2011,” the table above shows how income inequality between the highest and lowest income quintiles changes when we account for: a) transfer payments and b) federal taxes. Here’s a summary:
1. When we compare “Average Market Income” (labor income, business income and capital gain income), the average household in the highest income quintile received 15.1 times more income in 2011 ($234,700) than the lowest income quintile ($15,500).
2. After adjusting for government transfers, the average household in the highest quintile received only 10 times more before-tax income ($245,700) in 2011 than the average household in the lowest one-fifth ($24,600).
3. After adjusting for both government transfers and federal taxes paid, the average household in the top quintile received less than 8 times more after-tax income ($188,200) than the average household in the bottom 20% ($24,100).
Bottom Line: Almost half of the income inequality between the highest and lowest household quintiles disappears when we adjust for government transfer payments and federal taxes. Before taxes and transfers, the average income of a household in the top 20% is 15.1 times greater than the income of a household in the lowest quintile, but that ratio drops to only 7.8 times after adjusting for transfers and taxes. Much of the discussion on income inequality focuses on income differences before taxes and before transfers, and this analysis above shows how dramatically those adjustments can impact a comparison between high and low income US households.
New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share
View related content: Carpe Diem
The Congressional Budget Office (CBO) just released its annual report on “The Distribution of Household Income and Federal Taxes” analyzing data through 2011 on American household’s: a) average “market income” (a comprehensive measure that includes labor income, business income, and income from capital gains), b) average household transfer payments (payments and benefits from federal, state and local governments including Social Security, Medicare and unemployment insurance), and c) average federal taxes paid by households (including income, payroll, corporate, and excise taxes). Some of the key findings of the CBO analysis are displayed in the table above, with the data organized by household income quintiles. The data in the first five rows above appear in the CBO report (from Tables 1 and 4), and rows 6-8 above have been calculated separately based on data from the first four rows in the table.
The CBO report received attention and commentary this week from John Merline at Investor’s Business Daily (“New CBO Report Explodes Tax Fairness Myths”), Reason’s Nick Gillespie (“3 Charts About Income Inequality, Transfers, and Taxes”), AEI’s Jim Pethokoukis (“Here is what’s really happening to middle-class incomes and inequality”), Heritage Foundation’s Curtis Dubay (“The Richest 1 Percent of Americans Pay 24 Percent of Federal Taxes”) and former economist Paul Krugman (“Why the One Percent Hates Obama”).
Some additional analysis and commentary will be provided here that reveal a yet-to-be discussed major implication of the CBO report – almost the entire burden: a) of all transfer payments made to American households and b) of all non-financed government spending, falls on just one group of Americans – the top one-fifth of US households by income. That’s correct, the CBO study shows that the bottom three income quintiles representing 60% of US households are “net recipients” (they receive more in transfer payments than they pay in federal taxes), the second-highest income quintile pays just slightly more in federal taxes ($14,800) than it receives in government transfer payments ($14,100), while the top 20% of American “net payer” households finance 100% of the transfer payments to the bottom 60%, as well as almost 100% of the tax revenue collected to run the federal government. Here are the details of that analysis.
The figures in Row 6 in the table above (and displayed in the graph above) show the amount of federal taxes paid by the average household in each income quintile minus the average amount of government transfers received by those households in 2011. For each of the three lower income quintiles, their average government transfer payments exceeded their federal taxes paid by $8,600, $12,500, and $9,100 respectively, and therefore the entire bottom 60% of US households are “net recipients” of government transfer payments. Averaged across all three lower income quintiles, we could say that the lowest 60% of American households by income received an average transfer payment of about $10,000 in 2011. And because the government has no money of its own, where did those transfer payments come from to finance the “net recipient” households? Where else, but from the top two income quintiles, and realistically almost exclusively from Americans in the highest quintile.
Specifically, the average household in the fourth quintile paid slightly more in federal taxes ($14,800) than it received in transfer payments ($14,100) in 2011, making the average household in the second-highest income quintile a “net payer” household in the amount of $700 in 2011. Basically, households in the fourth income quintile paid enough in taxes to cover their transfer payments, and then made a minor contribution of $700 on average to help cover the transfer payments of the “net recipient” households in the bottom 60% and make a small contribution to the federal government’s other expenditures.
But the major finding of the CBO report is that the households in the top income quintile are the real “net payers” of the US economy. The average household in the top one-fifth of American households by income paid $57,500 in federal taxes in 2011, received $11,000 in government transfers, and therefore made a net positive contribution of $46,500. The second-highest income quintile basically just barely covers its transfer payments, so it’s really the top 20% of “net payer” households that are financing transfer payments to the entire bottom 60% AND financing the non-financed operations of the entire federal government.
Here’s another way to think about the burden of the “net payer” top income quintile. The average household in that income quintile made a contribution net of transfers in 2011 in the amount of $46,500. That would be equivalent to the average household in the top quintile writing four checks: 1) one check in the amount of $8,600 that would cover the average net transfer payments of a household in the bottom quintile, 2) another check for $12,500 to cover the average net transfers of a household in the second lowest quintile, 3) a third check in the amount of $9,100 to cover the average net transfer payments to a household in the middle income quintile, and 4) then finally writing a check for the balance of $16,300 that would go directly to the federal government, which for the households in the quintile as a whole would have covered almost 100% of the non-financed federal government spending in 2011. So except for a small contribution net of transfers in the amount of $700 from the average household in the fourth quintile, the highest income quintile is basically financing the entire system of transfer payments to the bottom 60% AND the entire operation of the federal government. And yet don’t we hear all the time that “the rich” aren’t paying their fair share of taxes and that they need to shoulder a greater share of the federal tax burden? Hey, they (the top 20%) are already shouldering almost the entire federal tax burden along with almost the entire system of entitlements and transfer payments! And that’s not “fair” enough already?
The chart above shows another way that the CBO data reveal an extremely unequal distribution of government transfer payments and federal taxes by displaying the ratio of “dollars received in government transfers per dollar paid in federal tax revenues” by income quintile in 2011 (these data are from row 8 in the table above). The average household in the lowest quintile received $9,100 in government transfer payments in 2011 and paid only $500 in federal taxes, for a ratio of $18.20 in transfer payments for every $1.00 paid in federal taxes that year. In contrast, the average household in the top income quintile received $11,000 in government transfers in 2011, but paid $57,500 in federal taxes, for a ratio of 19 cents in government transfer payments per dollar paid in federal taxes. This analysis is a further illustration that the bottom three quintiles are “net recipient” households that received more than $1 in government transfer payments for every $1 paid in federal taxes in 2011, while households in the fourth quintile were minor “net payers” in 2011 and received slightly less than a dollar in transfer payments on average ($0.95) for every $1 paid in federal taxes. “Net payers” in the top quintile received only $0.19 in government transfer payments per $1 paid in federal taxes in 2011.
This final chart shows average tax rates by quintile in 2011, both before and after government transfer payments. The blue bars in the chart show the average tax rates by income quintile from the CBO report (Table 4) and are also displayed in the top table above in row 5, calculated by dividing federal taxes paid (row 4) into “Before Tax Income” (row 3, Market Income + Government Transfers). Adjusting for government transfers received, the brown bars in the chart are calculated by dividing “federal taxes paid minus government transfers received” (row 6 in the table) into Before-Tax Income (row 3), and show average tax rates by income quintile after government transfers. For example, the average “net recipient” household in the lowest income quintile received a “negative tax” payment of $8,600 in 2011, had an average before-tax income of $24,600, for a negative tax rate of 35%. Reflecting their “net recipient” status, all three lower income quintiles had negative average tax rates in 2011, and only the “net payer” households in the top two income quintiles had positive after-transfer tax rates of 0.7% for the second-highest quintile and 18.9% for the top quintile. This further demonstrates that after transfer payments, households in the bottom 60% are “net recipients” with negative income tax rates, while only the top two “net payer” income quintiles had positive tax rates after transfers in 2011.
Bottom Line: We hear all the time from President Obama, Warren Buffett, Robert Reich, and various other Democrats and liberal pundits that “the rich” aren’t paying their fair share and need to be taxed more. For example, last year Obama reiterated his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes. He said “Obviously, there is still more to do when it comes to reducing our debt. And I’m willing to do more, as long as we do it in a balanced way that doesn’t put all the burden on seniors or students or middle class families, but also asks the wealthiest Americans to contribute and pay their fair share.”
The CBO study released this week provides ample evidence that the richest Americans are paying their “fair share” of federal taxes. In fact, the richest 20% of Americans by income aren’t just paying a share of federal taxes that would be considered “fair” — it goes way beyond “fair” — they’re shouldering almost 100% of the entire federal tax burden of transfer payments and all other non-financed government spending. What’s probably not so fair is that the bottom 60% isn’t just getting off with a small tax burden or no tax burden – the bottom 60% are net recipients of transfer payments from the top 20% to the tune of about $10,000 per household in 2011. So maybe what the CBO report shows is that we should be asking whether or not the bottom 60% are paying their fair share when they’re not paying anything – they’re net recipients of transfer payments that come from “the richest” 20% of American households. When the top 20% of US households are financing almost 100% of the transfer payments to the bottom 60% and financing almost the entire non-financed operating budget of the federal government, I’d say “the rich” are paying beyond their fair share of the total tax burden, and we might want to start asking if the bottom 60% of “net recipient” households are really paying their fair share.
HT: I owe the inspiration for this post to Morgan Frank, who provided the original idea, discussed the development of the main ideas, and also suggested several of the charts above.
Update: As Morgan points out in the comments, it’s important to note for the discussion here that the US has the most progressive tax system among all OECD countries, see the Tax Foundation president Scott Hodge’s article “No Country Leans on Upper-Income Households as Much as US.” Specifically, the top ten percent of American households pay 45.1% of all income taxes (both personal income and payroll taxes combined), which is the highest of any of the 24 countries in the OECD and far above the 31.6% average. Adjusting for the income share of the top ten percent, the US has the highest ratio of tax share (45.1%) to income share (33.5%) for the top decile of 1.35 times, compared to the OECD average of 1.11.
View related content: Carpe Diem
The current market capitalization of Apple, Inc. is approaching $670 billion, which is an increase of almost 33% and $165 billion from its $505 billion valuation at the beginning of this year. That means that just one American company – Apple, Inc. – is now worth more than the entire stock markets of Russia ($553 billion market capitalization), Mexico ($538 billion) and Malaysia ($523 billion), according to data from the World Federation of Exchanges, see chart above. If Apple’s phenomenal growth continues, it could surpass the market capitalization of Singapore’s stock market by next year.
See a related Bloomberg report here.
Economic Lesson: Never underestimate the size, power and dynamism of the US economy and its ability to foster and nurture American-based corporations that grow in market value to levels that exceed the entire stock markets of countries like Russia and Mexico.