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Minimum Wage Proposal A Small Step
In his State-of-the-Union Address President Obama proposed raising the federal minimum wage to $9.00 per hour and indexing it to inflation. He said a family of four with two children still lives below the poverty line when one parent works full-time at minimum wage. The proposed increase would lift them out of poverty, he said.
by Google Images
What a welcome suprise! Virtually no attention was given to the working poor in the last election. In the past decade real wages rapidly declined for the working poor, driving ever more citizens into the grip of intractable poverty.
When a person works full-time for a profitable company their compensation should enable them to care for their family. When this isn’t the case, they must rely on taxpayer-subsidized housing, food stamps, medical care, daycare, or other supportive services. This takes a toll. It can erode a person’s dignity and self-worth. It can foster a sense of inadequacy or self-loathing.
On a social level the working poor are often labeled and marginalized. They are deemed to be less worthy. They are less likely to be promoted or rehired after a layoff. Any economic hardship at all can lock them into a cycle of poverty where their hope for a better life evaporates with each passing year. Escaping poverty in America today is the exception, not the rule.
Many wealthy companies are just as dependent on government subsidies for cheap labor. Without taxpayer assistance for their workers these companies would have to pay a living wage in order to maintain a stable workforce.
And what is wrong with that? Shouldn’t adequate compensation be part of the cost of doing business? Why should business owners be allowed to pad their profits by cutting labor costs at taxpayer expense?
We can expect the pro-business lobby to oppose an increase in low-wage pay while calling for more spending cuts and lower business taxes. Austerity can’t create more jobs and spending cuts will never result in more pay for low-wage earners. Only an increase in the minimum wage or a living-wage law can do that.
Pro-business economists will claim that a higher minimum wage will increase unemployment and hamstring businesses, especially small businesses. Much evidence suggests the opposite. Higher minimum wages have a simulative effect on the economy. The extra $1.75 per hour will be spent immediately, boosting business profits and sparking more demand.
The pro-business lobby will claim the proposed increase is excessive, but here the facts are against them. Even President Obama got this wrong. The poverty wage for a family of four is current $10.60 per hour. If passed, President Obama’s proposal would still means a minimum-wage worker would have to work overtime, take another part-time job, or have their spouse work part-time to reach the poverty line.
And what does it really mean to be at the poverty line? Does this make a family economically self-sufficient?
No, it does not. A living wage to lift a family of four above the need for taxpayer subsidies is considerably higher. In Wyoming, for example, a living wage for this family is $16.93 per hour. In Virginia it is $20.88 per hour, and in California it is $22.15 per hour. These figures are not government artifacts. They are actual costs based on local free-market economies.
While business owners and corporations may squeal at the size of the proposed increase in the minimum wage, they would still benefit greatly from taxpayer subsidies for their low-wage employees. Raising the minimum wage shifts some of the burden of caring for employees to the employers, but not much. It still doesn’t hold wealthy corporations responsible for their low-wage workers or for the harm that poverty wages inflict on their families.
Taxpayer Subsidized Downsizing in America
The business of quick and dirty layoffs has become a familiar feature in our culture. One recent example involved a journalist who worked at a large news organization. He was new to the company so he gratefully accepted the friendship of a well respected senior reporter. One Friday morning his mentor emailed him about a story idea and ended it by writing, “I’ll see you at the 10 AM meeting.” This prompted the following email exchange:
“What meeting? I didn’t get the email.”
“I’ll forward it do you.”
Then a short time later: “Forget the email. This meeting isn’t for you. Don’t come to this meeting!”
This is how the newsroom learned that day of the layoffs. Many senior journalists were let go along with a few younger reporters to avoid the appearance of age discrimination. As these “redundant” employees filed from the meeting they were handed garbage bags for their personal effects and accompanied to their desks by hired chaperones. It was all over in an hour.
Coolly calculated business decisions and pitiless firings toss employees off company books and onto government unemployment rolls somewhere in this country nearly every week. No notices, no outplacement services, no severance pay and no extended benefits are required. In many cases there is no effort to treat employees with the dignity or respect they deserve.
Apart from union contracts or employment agreements, American companies have no legal obligations to citizens being fired. They need not assume any responsibility for the impact it has on an employee, their family or their community. The only business costs of any significance are the premiums companies pay for government unemployment insurance. This easy, low cost ability to fire workers is called “workforce efficiency” and the U.S. is among the most efficient in the world. We ranks 12th out of 144 nations according to the study on global business competitiveness .
In most other advanced nations there are laws requiring companies to provide loyal employees with advanced layoff notices, severance pay and other benefits. These structural costs for downsizing may make businesses a little less competitive, but it brings significant benefits. It helps maintain a stable workforce and postpones government funded assistance to severed employees while they look for jobs. Requiring larger companies to provide mandatory severance benefits helps the nations absorb minor bumps in the economy without adding to problems by throwing people out of work at the first sigh of trouble. It also happens to be a humane way for citizens to treat one another.
Here in this country we treat our labor force as if it were a commodity to be bought and discarded at will. In the end, big business lets taxpayers foot most of the costs for unemployment benefits and supplemental welfare services for people out of work. At the same time the pro-business lobby pushes Congress for business tax breaks and budget cuts in the programs that help the workers they leave behind. Isn’t it time we stopped bowing to the pro-business lobby and stand up for the American worker?
Do Pro-business Policies Reduce Poverty?
President Calvin Coolidge once said, “… the business of the American people is business”. He was quoted out of context at the time. His remarks were aimed at newspaper reporters who were inept at covering business news, but this intentional misquotation seemed to sum up his economic policies.
Today this misquote seems prophetic. Political leaders from both parties speak as if whatever benefits business benefits the people. State governments offer tax breaks and business friendly regulations to attract companies that might bring in more jobs. This is especially true in less wealthy states where poverty rates are high. President Lyndon Johnson’s “War on Poverty” has been transformed into pro-business politics and the promise of work for the worthy.
It is true that the poor need jobs, but the causes of poverty are more complex. There is little regard for other factors such as the need for quality daycare, health care access, job training or transportation. Journalists rarely asks politicians how they plan to help the poor. When they do, candidates talk about their plans to grow the economy. This has some become an acceptable answer.
The insurgent idea that serving business interests is the best way to fight poverty arguably arose in the mid 1970s when corporate interest groups were forming and the business lobby became a powerful influence on Congress. This was the high water mark of American unions as organized business groups launched campaigns to turn Congress and public opinion against them.
At the same time, these industry lobbying groups began fermenting hysteria over the growing “welfare state.” The poor were poor, they argued, because anti-poverty programs make people dependent on government handouts while government regulations restrict the ability of companies to create jobs for those willing to work. According to their narrative, government needed to spend more resources supporting commercial interests and deregulating markets. President Reagan road these pro-business, anti-union, anti-government sentiments to the White House in 1980.
The success of the pro-business movement is evident. In this past election Mitt Romney’s entire presidential campaign centered around the idea that business prosperity was key to growing jobs and the economy. The California Republican Party explicitly incorporates this thinking in their core beliefs:
“” each person is responsible for his or her own place in society. The Republican philosophy is based on limiting the intervention of government as a catalyst of individual prosperity” Republicans believe free enterprise has brought economic growth and innovations that have made this country great. Government should help stimulate a business environment where people are free to use their talents. “[California Rep Committee Philosophy http://cagop.org/inner.asp?z=585A]
In other words, it is the role of government to facilitate the business economy but each individual’s responsibility to avail themselves of the opportunities businesses provide.
The sufficiency of robust commerce to lift all boats isn’t just a conservative or partisan idea. It is expressed and pursued often by Democrats as well. In this last election even President Obama avoided talking about the poor by referring to them as “those aspiring to be middle class.” There was almost no mention by either party of how they would accomplish this beyond trying to grow the economy.
So how well is our pro-business politics working out for the poor? This should be an empirical question that can be tested by examining the data. Are business interests and the interests of the poor perfectly aligned? Are there points of departure where the needs of some folks cannot be met without compromising some business interests? Most importantly, does the data show that when businesses are doing well there are more jobs and better wages?
Profits, Employment and Wages
Corporate profits are a measure of how well businesses are doing, so conventional wisdom would say wages and employment should rise and fall commensurate with corporate profits. The hypothesis is that when companies do well there are more good paying jobs and therefore less poverty. Is there evidence to the contrary?
In June of 2012, the St. Louis Federal Reserve released data showing a number of economic indicators over the last 71 years. Using their report, the graph below plots corporate profits (CP) as a percentage of gross domestic product (GDP) from 1940 to 2011. GDP is total value of all the goods and services sold and a good measure our economy. The shaded areas represent periods of recession. This graph shows that corporate profits rebounded since the 2007 recession and are at the highest level since 1940. The recession is clearly over for corporate America.
Corporate Profits to GDP by St. Louis Federal Reserve
Does it therefore hold true that robust corporate profits mean more jobs? The next graph plots the number of employed Americans as a percentage of our population. This graph uses an employment per population percentage because the population doesn’t stop growing during recessions. A fair comparison over time has to incorporate population growth for the same reason dollar comparisons over time have to factor in inflation.
Civilian Employment to Population Ratios by St. Louis Federal Reserve
This above graph shows that there are actually fewer people working today as a percentage of the population than at any time in the past thirty years. Last June, in an article related to this graphs, Business Insider magazine speculated that one reason corporations are so profitable is that they aren’t employing as many Americans.
Does it also hold true that robust corporate profits means better wages? The next graph depicts the total amount of U.S. wages paid as a percentage of the value of all goods and services sold (GDP). It shows that wages are at an all-time low relative to the wealth being generated. If jobless recoveries are one reason for record corporate profits, the decline in wages pictured in this next graph may be the other.
US Wages as a percentage of GDP by St. Louis Federal Reserve
It turns out that the null hypothesis is true. Corporate profits are at a record high, employment and wages are at a record lows and the notion that what is good for business is good for people is false. The stock markets have recovered. Corporate profits have recovered, but the financial well-being of families have declined. Median incomes are shrinking and prospects for the poor are increasingly dismal.
Are Measures of Business Competitiveness Compatible with the Interests of Individuals?
When considering what factors make businesses more competitive it’s best to take a broad global view. A global survey of business competitiveness was recently conducted and released by the World Economic Forum. The study on global business competitiveness ranks 144 nations according to indicators grouped in 12 general categories.
Overall, the United States is very competitive, ranking 7th out of 144 countries. When you drill down in some of the 12 categories, however, you find indicators favorable for business that are clearly at odds with worker interests. For example, In the area of “Labor Efficiency” the U.S. labor “redundancy” costs are low, which means it doesn’t cost as much here to fire employees. This makes us more competitive (12th place) on this measure. This variable includes the estimated costs of providing advance layoff notices, severance payments any penalties that other countries might impose on employers for terminating “redundant” workers. The U.S. may be more competitive in this measure, but is this factor good for individual workers? Does it reduce poverty?
The U.S. also did well (8th) when it comes to the ease of hiring and firing people. All of this makes for a “flexible” work force, which is good for business, but does it stabilize the workforce or encourage employers to try and weather out minor economic storms?
Are the states with the most competitive business environments doing better at lifting people out of poverty?
Every year for the past five years CNBC has scored all 50 states on 43 measures of business competitiveness. This survey was developed with input from business groups including the National Association of Manufacturers and the Council on Competitiveness. States receive points based on their rankings in each factor and the factors are organized into broader categories. I was unable to locate a detailed list of factors within each category, but CNBC has published general descriptions of each category. In the category of “Workforce” for instance, they indicate that the prevalence of unions in a state is a negative factor for business competitiveness, while lower costs of doing business is a positive factor. Among the factors creating low costs for doing business are lower tax rates and tax incentives or tax abatement for business. The general category findings for each state are published.
The hypothesis, again, is that when companies are doing well there are more good paying jobs and less poverty. So it follows that the states with the most competitive business environments should also be the states with the lowest rates of poverty.
To test this I used the CNBC business competitive findings to compare ten states with the highest poverty rates and ten states with the lowest poverty rates. The high poverty states, starting with the highest poverty rate, are Mississippi, Arkansas, Kentucky, Louisiana, New Mexico, West Firginia, Oklahoma, Texas, Alabama, and South Carolina. The ten states with the lowest rates of poverty, starting from the top, are New Hampshire, Mariland, Alaska, New Jersey, Hawaii, Connecticut, Wyoming, Utah, Minnesota and Massachusetts. The results of this analysis are found in the table below.
State poverty levels and business competitiveness by Brian Lynch. Business Competitiveness Rankings are from CNBC’s Top States for Business Special Report: ttp://www.cnbc.com/id/100000994
It is striking that states with the highest poverty levels are also states that are more business competitive. The average rank in “Overall Business Competitiveness” for high poverty states is 7 points higher (more business friendly) than the rank for low poverty states. In the “cost of business” category, high poverty states have an average rank of 18 versus 37 for low poverty states. In the “workforce” category, which includes the prevalence of unions in a state, the high poverty states have an average rank of 20 versus 32 in low poverty states.
Despite being “business friendly”, the ten high poverty states have over eight million poor citizens while the ten low poverty states have just over three million poor. There may be some political asymmetry as well since 7 out of 10 states with the high poverty rates have conservative Republican governors, while 6 out of 10 low poverty states have Democratic governors.
Conclusions
It is clear that pro-business politics, which puts commercial interests above the individual’s interests, isn’t working for the poor or for most Americans. While a healthy economy is necessary for individual prosperity, it is clearly not sufficient. What is best for business may be good for some, but not for all of our citizens. There are certain business interests at odds with individual interests. Our political leaders need to acknowledge this when making policy.
The total dominance of pro-business politics has successfully crowded out meaningful debate on how to help the poor, the ranks of whom are swelling every year. The poor are more marginalized and invisible than ever. Almost no one speaks for them. There is no hope for them in the more competitive business policies being proposed. In fact, business prosperity is no longer well correlated with job growth or adequate pay, so plans to grow the economy ring hollow. The social contact that once pegged wage increases with increased productivity is broken. As a result, big business can flourish while the welfare of workers and the poor decline. This is unacceptable.
The ascendance of pro-business politics has given rise to commerce without conscience and too many ordinary citizens are being left behind. We need to change the dialogue and strike a better balance. We need to reclaim the role that government must play in meeting the needs of all our people.
Wealth Redistribution Begins with A Fair Wage
When America’s wealthy elite talk of the redistribution of wealth it is a derisive term applied to federal aid to the working poor paid out of federal tax revenues. The rich are unhappy that some of their compensation goes to support low wage earners. But the growing need for federal aid to support working families is really a consequence of the unfair redistribution of wealth that takes place every working day.
Beginning around 1978 and continuing today, hourly employees have not received a fair wage for a days work. More specifically, hourly wages stopped keeping pace with the rise of hourly productivity (or GDP). Workers continued generating new wealth but they were no longer receiving a share in the additional wealthy they were creating. This simple fact, compounded over the decades, is the single most relevant factor behind our economic difficulties today. Below are some key findings from a report regarding how America’s wage earners are doing. It is from a report put out by the Economic Policy Institute.
THE STATE OF WORKINGAMERICA
Policy-driven inequality blocks growth for low- and middle-income Americans
http://stateofworkingamerica.org/fact-sheets/key-findings/
Daily stock indices, monthly employment reports, and even quarterly data on the gross domestic product are insufficient indicators for answering this vital question:
How well is the American economy providing acceptable growth in living standards for most households?
EPI’s The State of Working America, 12th Edition looks broadly at available data and concludes that the answer is simply “not well at all.”
This is not because the economy has failed to grow, on average. National income has grown enough to substantially improve the fortunes for all. As the data reveal, however, it is the top 5%, the top 1%, and fractions of the top 1 percent that have received almost all the benefits of the economy’s growth.
America’s low- and middle-income families have suffered a lost decade
22% – Despite an increase in productivity of more than 22 percent [between 2000 and] 2010, typical wage earners made roughly the same amount per hour as in 2000.
↓ 6% – Median family income was 6 percent lower in 2010 than in 2000.
This lost decade of no wage and income growth began well before the Great Recession—which started in Dec. 2007—battered wages and incomes. In the historically weak economic expansion following the 2001 recession, hourly wages and compensation failed to grow for either high school– or college-educated workers.
Another lost decade ahead?
Consensus forecasts predict that unemployment will remain high for many more years, suggesting that typical Americans are in for another lost decade of living standards growth. For example, as a result of persistent high unemployment, the incomes of families in the middle fifth of the income distribution in 2018 will likely still be below 2000 levels.
A generation of rising inequality.
156% – From 1979–2007, wages for the top 1 percent of wage earners grew 156 percent, compared to 17 percent for the bottom 90 percent.
60% – From 1979–2007, the top 1 percent of tax units claimed 60 percent of the cash, market-based income growth, compared to 9 percent for the bottom 90 percent.
38.3% – From 1983–2010, 38.3 percent of the wealth growth went to the top 1 percent and 74.2 percent to the top 5 percent. The bottom 60 percent, meanwhile, suffered a decline in wealth.
Rising inequality prevented wage growth for low- and middle-income workers
0.6% – From 1979–2007, incomes for the middle fifth of households grew, but the annualized rate of growth (0.6 percent) reflects a deep economic failure. This middle-fifth growth lagged far behind average growth over the same period, and pales in comparison to growth during earlier periods of history; between 1947 and 1979, for example, cash incomes (not even including expanded employer-provided and government in-kind benefits like health care) for the middle fifth of American families grew at an average annual rate of 2.4 percent—or four times as fast as what was achieved by the middle fifth of households between 1979 and 2007. If the middle fifth of the income distribution had grown at the average rate of income growth overall, these households would have had income $18,897 higher in 2007.
7% – The typical worker has not gained from improvements in the ability to produce more goods and services per hour worked (productivity growth). Between 1979 and 2011, productivity grew 69 percent, but median hourly compensation (wages and benefits) grew just 7 percent.
Policy choices generated inequality
Policy decisions made over the last several decades have caused this explosive rise in inequality. These decisions include: lowering individual and corporate tax rates; deregulating industries; failing to maintain the value of the minimum wage; failing to protect the right of workers to obtain collective bargaining; and failing to prevent asset bubbles.
Additional findings.
These sobering data could be mitigated by the ability of Americans to move freely up and down the income or wealth ladders (mobility). There is no evidence, however, that mobility has increased to offset rising inequality.
Further examination of the data through the lenses of race and ethnicity finds the overall data obscure the dramatically worse outcomes minorities face.
Gender gaps have been reduced in many of our labor market analyses. While due in large part to substantial gains for women, part of the closing of the gap has occurred because men have lost significant ground.
Half of All Full-time Employees Earn Less Than $19/hr.
Bureau of Labor Statistics
For release 10:00 a.m. (EDT) Thursday, October 18, 2012 USDL-12-2072
Technical information: (202) 691-6378 • cpsinfo@bls.gov • www.bls.gov/cps
Media contact: (202) 691-5902 • PressOffice@bls.gov
USUAL WEEKLY EARNINGS OF WAGE AND SALARY WORKERS THIRD QUARTER 2012
Median weekly earnings of the nation’s 103.6 million full-time wage and salary workers were $758 in the third quarter of 2012 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported today.
This was 0.7 percent higher than a year earlier, compared with a gain of 1.7 percent in the Consumer Price Index for All Urban Consumers (CPI-U) over the same period.
Data on usual weekly earnings are collected as part of the Current Population Survey, a nationwide sample survey of households in which respondents are asked, among other things, how much each wage and salary worker usually earns. (See the Technical Note.) Data shown in this release are not seasonally adjusted unless otherwise specified. Highlights from the third-quarter data are:
- Seasonally adjusted median weekly earnings were $765 in the third quarter of 2012, little changed from the previous quarter ($773). (See table 1.)
- On a not seasonally adjusted basis, median weekly earnings were $758 in the third quarter of 2012. Women who usually worked full time had median weekly earnings of $685, or 82.7 percent of the $828 median for men. (See table 2.)
- The female-to-male earnings ratio varied by race and ethnicity. White women earned 83.4 percent as much as their male counterparts, compared with black (93.2 percent), Hispanic (87.5 percent), and Asian women (73.1 percent). (See table 2.)
- Among the major race and ethnicity groups, median weekly earnings for black men working at full-time jobs were $633 per week, or 74.1 percent of the median for white men ($854). The difference was less among women, as black women’s median earnings ($590) were 82.9 percent of those for white women ($712). Overall, median earnings of Hispanics who worked full time ($556) were lower than those of blacks ($606), whites ($780), and Asians ($915). (See table 2.)
- Usual weekly earnings of full-time workers varied by age. Among men, those age 45 to 54 and 55 to 64 had the highest median weekly earnings, $976 and $980, respectively. Usual weekly earnings were highest for women age 35 to 64; weekly earnings were $740 for women age 35 to 44, $754 for women age 45 to 54, and $766 for women age 55 to 64. Workers age 16 to 24 had the lowest median weekly earnings, at $437. (See table 3.)
- Among the major occupational groups, persons employed full time in management, professional, and related occupations had the highest median weekly earnings—$1,300 for men and $948 for women. Men and women employed in service jobs earned the least, $530 and $440, respectively. (See table 4.)
- By educational attainment, full-time workers age 25 and over without a high school diploma had median weekly earnings of $464, compared with $648 for high school graduates (no college) and $1,170 for those holding at least a bachelor’s degree. Among college graduates with advanced degrees (professional or master’s degree and above), the highest earning 10 percent of male workers made $3,448 or more per week, compared with $2,311 or more for their female counterparts. (See table 5.)
Revision of Seasonally Adjusted Usual Weekly Earnings Data The Usual Weekly Earnings news release for the fourth quarter of 2012 will incorporate annual revisions to seasonally adjusted data for the number of full-time wage and salary workers and median weekly earnings in current dollars. (See table 1.) Estimates for constant (1982-84) dollar median weekly earnings also will be affected by revisions to the current dollar series. Seasonally adjusted estimates back to the first quarter of 2008 will be subject to revision.
Go to Tables: http://www.bls.gov/news.release/pdf/wkyeng.pdf
A 99 Year History of U.S. Income Tax Rates
SPECIAL NOTE: Our US progressive tax structure [or whats left of it] will turn 100 years old on October 3rd. We should plan a celebration!
OUR TAX STRUCTURE USE TO BE MUCH MORE PROGRESSIVE THAN IT IS TODAY.
The Progressive Tax Code
Our progressive, or graduated income tax was signed into law by President Woodrow Wilson On October 3, 1913. The idea was to create a system where those who did well bore a greater responsibility for funding the government. In fact, the original intent was to only tax the wealthiest citizens. The income tax was never meant to burden the majority of wage earners. The new law taxed individuals making $3,000 or couples making $4,000 per year. $4,000 at that time would be equivalent to about $100,000 per year in today’s dollars. What the law did not take into account was inflation. Much the same as is presently the case with the minimum alternative income tax, the original income tax brackets stayed constant every year while inflation and working class wages slowly rose. Eventually, income taxes became a burden to lower wage earners as well as the rich. [ http://www.buzzle.com/articles/the-controversial-history-of-the-graduate-income-tax.html ]
The progressive nature of the income tax is achieved by creating multiple income tax brackets to for rising levels of income. Each tax bracket has a slightly higher tax rate. Between 1913 and 1918 the number of tax brackets that applied to wealthy incomes rose to 56 brackets. By 1940 that number of brackets fell to 24 and there it more or less remained for the next 40 years.
What did rise over this time period were the marginal tax rates. By the 1950’s the top marginal tax rate for the wealthiest earners was 90 percent. The top marginal tax rate was gradually lowered over the next 30 years until it was at 70% in 1980. In 1981 President Ronald Reagan collapsed the top 9 tax brackets to lowered the top marginal tax rate from 70% to 50%. During is second term he eliminated 10 more upper tax brackets dropping the top marginal tax rate from 50% to just 28%. He also raised the tax rates on the lowest income earners, those who were originally not expected to contribute. At the same time, tax breaks for the wealthiest Americans combined with huge jumps in military spending resulted in huge budget deficits and a large national debt that has been with us since.
The top marginal tax rate for wage income was eventually raised back to 35% but not before capital gains income was stripped from the progressive tax code and separately taxed at a rate of just 15%. Capital gains income represents the major source of income for the wealthiest Americans. So the original intent of the progressive tax code, that the tax burden should only fall on the wealthiest American’s, was turned upside down.
For a glimpse of the problem with our current tax structure, see the US states map at the following URL to see how much more the bottom 20% are paying in taxes, as a percentage of income, over the top 1%. http://tiles.mapbox.com/occupy/map/TaxBurden
The graph below shows the 99 year history of tax rates for four incomes levels in the US. The data are adjusted for inflation and reflect the current value of the dollar. Tax rates for those making one-million dollars are in blue, those making $100,000 are in pink, those making $50,000 (approx. median household income) are in brown, and those making $25,000 (half of all American make less than $26,364) are in black. All rates are based on the married, filing jointly category. The tax information begins in 1913 and continue through 2011.
See data source here: http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2011-nominal-and-inflation-adjusted-brackets
What the graphic says to me is that for most of the last 100 years the wealthiest Americans have been paying more taxes than they are today, a lot more. Also, there was a period from around 1932 to 1988 when tax rates were lower for the working poor than for middle Americans.
I also noticed that beginning in the early 1980’s the tax brackets for the wealthy began collapsing until 1987 when a person making a million dollars a year was paying the same tax rate as someone making $117,760 per year. This had the effect of adding millions of tax payers into the same federal tax bracket as the ultra-wealth. From a political perspective, they became a single voting block on the issue of taxation. Also note that the tax rates for the two lower incomes jumped significantly in 1942-1946 and has been relatively steady since, decreasing only slightly during the Reagan administration when taxes on the wealthiest Americans began dropping sharply. Remember that mantra in the 80’s, “It’s not what you make, it’s what you keep.” This was never truer than for the wealthiest among us.
See Raw Data Here
http://www.taxfoundation.org/files/fed_individual_rate_history_nominal&adjusted-20110909.pdf
The Rise and Fall of the US Progressive Tax Structure
Below is a companion chart to the 99 Year History of Tax Rates in America (Click Here to see chart). This graph charts the number of tax brackets into which income was divided over the years. Looking back, it is apparent that our progressive tax structure had many more tax brackets separating rich and poor for most or hour history. There was a peek of 56 income tax brackets in 1918. In 1924 (the Roaring 20’s) that number was compressed to just 23 tax brackets. The number of tax brackets fluctuated over the next 62 years but maintained an average of 25 brackets until the 1980’s.
In 1981 the first of Ronald Reagan’s tax cuts was passed dropping the top tax rate from 70% to 50%. Five years later his Tax Reform Act of 1986 dropped the top tax rate again to 28% while raising the bottom rate from 11% to 15% where it remains today. The 1986 law also collapsed the number of tax brackets from 15 in 1984 to 5 in 1985. While lowering the top tax rate for the rich from 70% to 28% was a huge boost for the wealthiest Americans, compressing the top 10 tax bracket helped assure that the changes would not be undone. The reduction in tax brackets meant that the number of people in the top earners bracket went from tens of thousands of the riches voters to many millions of voters including those with much more modest incomes. By lumping together people making over $300,000 with those earning many times that amount the change created a large voting block of voters who would oppose future tax hikes.
During these same years the Reagan administration began deregulating the banking and finance industries leading to more and more wealth building opportunities for those already blessed with riches. Ronald Reagan was following the economic path created by the economist, Milton Friedman, who, in turn, was influenced by the Objectivism philosophy of Ayn Rand. Ayn Rand believed that altruism and self-sacrifice for others is evil. See more here]
Some US Census Data on Poverty in America
POVERTY IN THE UNITED STATES – Highlights
• The official poverty rate in 2010 was 15.1 percent—up from 14.3 percent in 2009. This was the third consecutive annual increase in the poverty rate. Since 2007, the poverty rate has increased by 2.6 percentage points, from 12.5 percent to 15.1 percent
• In 2010, 46.2 million people were in poverty, up from 43.6 million in 2009—the fourth consecutive annual increase in the number of people in poverty
• Between 2009 and 2010, the poverty rate increased for non-Hispanic Whites (from 9.4 percent to 9.9 percent), for Blacks (from 25.8 percent to 27.4 percent), and for Hispanics (from 25.3 percent to 26.6 percent). For Asians, the 2010 poverty rate (12.1 percent) was not statistically different from the 2009 poverty rate.
• The poverty rate in 2010 (15.1 percent) was the highest poverty rate since 1993 but was 7.3 percentage points lower than the poverty rate in 1959, the first year for which poverty estimates are available
• The number of people in poverty in 2010 (46.2 million) is the largest number in the 52 years for which poverty estimates have been published.
• Between 2009 and 2010, the poverty rate increased for children under age 18 (from 20.7 percent to 22.0 percent) and people aged 18 to 64 (from 12.9 percent to 13.7 percent), but was not statistically different for people aged 65 and older (9.0 percent).
What? Your in the middle class? How does this relate to you?
INCOME IN THE UNITED STATES – Highlights
• Real median household income was $49,445 in 2010, a 2.3 percent decline from 2009.
• Since 2007, the year before the most recent recession, real median household income has declined 6.4 percent and is 7.1 percent below the median household income peak that occurred in.
• Both family and non-family households had declines in real median income between 2009 and 2010. The income of family households declined by 1.2 percent to $61,544; the income of non-family households declined by 3.9 percent to $29,730.
Income Taxes Then and Now – Why All the Fuss?
I came across a 1963 tax return the other day that belonged to a 63-year-old, self-employed tradesman named Edward. For context, that was the year John F. Kennedy was assassinated. Historically speaking, it wasn’t that long ago. In 1963 Edward’s income was $6,806. He paid $933 in income tax plus $259 in self-employment tax for a total of $1,192 dollars.
My own father was a Sears repairman and my mother a bookkeeper back then. Together they made around $5,000 and paid about $1,020 in taxes. But what struck me most about Edward’s income tax return were the rate tables for that year. The top income listed was only $400,000. The tax on that was a whopping $313,640 while income over that amount was taxed at a rate of 91% . Did the rich really pay that much more back then? (Imagine the stir today if we called for a return to the 1963 tax rate.)
It’s hard to put this into perspective because inflation rose by over 700% since then. What wondered what these numbers would look like in today’s dollars? How does the tax rates today compare with the tax rates back then?
The Inflation Adjustment
When we adjust for inflation, Edward made $ 50,247 in todays dollars and paid $8,800 in taxes. He paid $1,912 in self-employment taxes and $6,888 in income taxes (a 13.7% income tax rate, close to what Presidential candidate Mitt Romney paid in 2010).
My parents, with two children, made $ 36,956 in today’s dollars, and paid $ 7,531 in taxes (a 20% income tax rate).
Someone making only $700 then would make $4,988 in today’s dollars and pay about $28.50 in taxes (a 0.6% income tax rate).
The guy who made $400,000 in 1963 was making $2,850,405 in today’s dollars. He paid $2,235,003 in taxes (a 78% tax rate). That sounds like a lot, yet it seems the rich in American some how always seem to getting richer.
(Bureau of Labor Statistics Inflation Calculator at: http://www.bls.gov/data/inflation_calculator.htm)
The Tax Rate Adjustment
Today, someone making $4,988 is taxed at 10% , or $49.88, That’s $16.88 more than in 1963.
Both Edward, and my parents would be taxed at 15% today. Edward would also pay a 15.3% self-employment tax for a total of $14,087. That’s an increase of $5,287 from the ‘63 tax rates. Edward would pay slightly lower income taxes, $6,384 vs. $6,888, but self-employment taxes rose dramatically. Since 1963, Edward’s self-employment tax jumped from $1,912 to $7,703. So much for helping the small business man.
My folks would have to paid $5,344 in taxes at today’s rate, or $1,924 less than the 1963 rate. That’s surprising. We keep hearing how high our taxes are, yet we are paying less now than we did 46 years ago.
The top income tax rate today is 35%. President Obama wants to raise the top marginal income tax rate on salaries and other ordinary income from 35 percent to 39.6 percent by letting the extended temporary Bush tax cuts expire at year-end. The income tax rates on millionaires has already been cut in half for some. Someone making $2,850,405 pays $997,642 in taxes at today’s rates. That is $1,237,361 less than they would pay at the 1963 rate.
(US 2010 tax rates: http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm)
So what’s the point?
America is still a very wealthy nation. There is plenty of wealth. We can afford to be a much better country than we are. When the income tax code was first implemented in 1913 it was intended to tax only people who were financial well off. Adjusted for inflation, the bottom rate at which a person had to start paying income taxes was about $100,000 in today’s dollars. It was because the income tax rates weren’t indexed to inflation that income taxes eventually reached the middle and lower income households. Our financial crisis has a lot to do with the decline of income taxes for the richest Americans. We are asking those who have benefited most from this great American system to pay a tiny fraction more. It is hard to see how so much resistance to this small ask is justified. What’s all the fuss?
Thank Unions
THANK UNIONS
If you enjoy a weekend off now and then, you can thank labor unions.
If you had a holiday off this year, you can thank labor unions.
If you take a week or two off to relax in the summer, you can thank labor unions.
If you can afford a place to live and can put food on the table, you can thank labor unions.
If you have a pension at your job, you can thank labor unions.
If you are not fired when you are out sick, you can thank labor unions.
If you get paid sick time, you can thank labor unions.
If you are home for supper and can tuck your children in bed, you can thank labor unions.
If your employer tries to keep you safe on the job, you can thank labor unions.
If you aren’t fired if you get hurt on the job, you can thank labor unions.
If you get paid time off after being hurt on the job, you can thank labor unions.
If you aren’t fired when your boss’ nephew needs a job, you can thank labor unions.
If you get extra pay or time off for working extra hours, you can thank labor unions.
Most of us don’t have to be in a union today to enjoy these benefits.
We just have to live in the beautiful parts of American life that labor unions built.
Stop Spanking Unions!
Start Thanking Unions!
Take the Labor Quiz
How much to you know about economic changes in America’s labor force over the last 30 years? Apart from the occasional new article on Labor Day, few of us give much thought to the extraordinary sacrifices that were required of prior generations in order to bring us the level of comfort and dignity so many of us enjoy today. But the blessing our grand parents and great grand parents fought so hard to bring us are beginning to disappear. America, once the leader in raising up the middle class, has fallen behind many other advanced nations.
An article entitled “The Speedup” in the July-August, 2011 edition of Mother Jones, written by Monika Bauerlein and Clara Jeffery, takes a look at this issue. I created a pop quiz based on some of the facts in the article. Take the quiz to see how well you are doing as an American worker. There are only 7 questions, so it won’t take long. The answers are below. If you score very high you should take the afternoon off, maybe.
1. What does the USA have in common with Papua New Guinea, Sierra Leone, Liberia, Samoa and Swaziland?
a. We all celebrate the Fourth of July
b. Like us, baseball is their national pass-time.
c. We are the only six nations on earth that don’t have mandatory paid maternity leave.
2. In the last 30 years, American worker productivity (which can be measured as the amount of work we accomplish per hour) has:
a. Declined by 75%
b. Increased by 140%
c. Increased by over 240%
3. Increased productivity means more company profits since the labor costs per item is lower. So, given your answer to question number 2 above, in the past 30 years the average overall wages in the US has:
a. Decreased by 20%
b. Increased by over 50%
c. Increased by only 16%
4. Over this same 30 year period, the average income of the top 1% of Americans:
a. Increased by 20%
b. Increased by 40%
c. Increased by over 80%
5. The number of hours everyone works in a given week is something that impacts our family life, and the nations GDP. Germany has the highest GDP in Europe. So how many more hours per year (actual time on the job) do American’s work compared to German workers?
a. We work 80 hours, or almost two weeks more per year.
b. We work 198 hours, or almost five weeks more per year.
c. We work 378 hours, or almost 10 weeks more per year.
6. In this current recession the GDP of every nation initially plunged, but no nation was hit harder than Japan. Japan’s GDP dropped twice as much as did ours. So when it comes to jobs lost, which nation has the worst unemployment rate?
a. Canada
b. Japan
c. USA
7. One last question. In 1950 nearly 35% of all wage or salary earners in America were in a union. What percentage of this group were union members as of last year?:
a. About 25%
b. Almost 20%
c. Less than 15%
If you answered each of the above question with option C you are well informed. Congratulations!
If you didn’t answer C to any of the questions, you really should read the article in Mother Jones.
In fact, we all need to be better informed so we can come together to restore a measure of economic justice in America. Here are a few additional details regarding each of the quiz questions:
1. Not only is the US only one of 6 countries that don’t have paid maternity leave, we are one of 16 nations that don’t require our workers to have time off each week. We are one of only 9 nations that don’t require businesses to offer a paid annual leave. Every one of our competitor nations provide this for their citizens.
2. While productivity has soared in the last 30 years by over 240%, the real value increase in the minimum wage since 1990 went up by just 21%. The increase in the cost of living rose 67% since 1990. Our output of goods and services in most sectors of the economy far outstrips the employment that most of these sectors create.
3. While income for the wealthiest 1% of American’s rapidly rises every year, the wealth owned by the rest of us actually declined slightly during the Regan years until about 1997. The increase since then is anemic compared to the enormous amount of wealth created by our great American labor force.
4. The rise in income among the wealthy, as large as it is, pales in compared to their rise in wealth. The top 20% of the wealthiest Americans today own almost 85% of everything leaving just 15% of the remaining wealth for the rest of us to share.
5. Not only do American’s rack up more time on the clock than our competitor nations (almost 10 weeks per year more than Germany) this doesn’t include the time we work off the clock. For example, half of us check emails on weekends and 46% of us even check work emails on days we are home sick.
6. Japan was hit twice as hard by the recession in terms of their drop in gross domestic product (GDP), yet our employment rate dropped more than twice their rate. Canada’s decline in GDP and employment initially mirrored our own (not quite as bad) but today their employment rate is higher than it was before the recession while we are worse off than all our competitor nations. Mean while, many American corporations are reporting record high profits.
7. The declining trend in union membership in America is in lock step with the decline of the middle class. The poor have faired even worse. Union workers today make about $10,000 more per year than non-union workers, yet the working public would rather trash unions than join one. The tensions between private sector employees and public sector workers is largely the result of envy by private sector workers who lost higher wages and many of their benefits when they lost their union.
How do you think we are doing as Americans? Most Labor Day articles remind us of the social battles and sacrifices prior generations have faced to bring a little dignity into our lives. We are doomed to repeat the mistakes of history if we don’t learn from them. I hope this quiz highlights where America may be headed and prompts you to consider what it will take to save the middle class. This is the real purpose for celebrating Labor, especially on Labor Day.
Note: First published in 2011, little has changed for the better since.
Data Driven Viewpoints 