Date: Fri Nov 11 2005 - 08:53:16 EST
The article below from 'MSN Money' by Scott Burns about the US economy concludes: "Bottom line: Unless there are some real wage gains for working stiffs -- soon -- we're heading for a recession." While the statistics cited below are important, I don't quite understand how the conclusion -- the "bottom line" -- follows from those statistics. What have I missed? Aren't there some assumptions by Burns which are unstated? In solidarity, Jerry --------------------------------------------------------------------- MSN Money - Earn under $57,343? Watch out The Basics Earn under $57,343? Watch out Rising inflation and interest rates put the bottom 75% of Americans behind the financial eight ball. By Scott Burns A visit to the glitzy section of any city in America will give you the idea that we don't know what to do with all the money we have. You get the same impression at any high-end mall in suburbia. In fact, income thins out pretty quickly. According to the most recent (2003) IRS statistics on tax returns, households needed at least $295,495 to be in the top 1%, $130,080 to be in the top 5%, $94,891 to be in the top 10% and $57,343 to enter the top 25%. Yes, you read that right. If your household income is over $57,343, you're well toward the front of the line when the checks are handed out. If your income is below $29,019, you sink into the bottom 50%.Don't let retirement sneak up on you. Train wreck Increasingly, those in the bottom 75% -- households with incomes below $57,343 -- are starting to look like a long, slow train wreck. Without recognition of the problem, the entire country could find itself in dire straits pretty quickly. Let me show you why. In the 10 years from 1993 to 2003, income has continued to concentrate. While the bottom 50% of earners had 14.92% of income in '93, they had 13.99% in '03. Similarly, the top 25% have enjoyed an increased share of total income, rising from 62.45% in '93 to 64.86% in '03. This is pretty much what you'd expect over a period of rapid change. Those with leverage increase their incomes. Those without leverage don't. Over this period the dividing line income for the bottom 50% has risen from $21,179 to $29,019, rising 4.3% a year. Had the income line risen only with inflation it would have risen to $26,504. And that's an important fact: Even the bottom of the income scale has gained some purchasing power over the period -- about $2,515 (see table below). Combine that additional income with recent low interest rates on home mortgages, a period of weak-to-declining rents for apartments, a multitude of low-interest and no-interest offers from stores and car manufacturers, and the people who do a lot of the heavy lifting in our society have been getting along. Better to be on top Those with earning power have done a lot better than just get along. Earners at the top 1% line have gained $63,040 in purchasing power. Earners at the top 10% line have gained $12,198 in purchasing power, while seeing the portion of income they spend on income taxes decline from 20.2% to 18.5%. Earners at the top 25% line have gained $5,570 in purchasing power. The vulnerable bottom of the income pyramid Top 1 % Top 10 % Top 25 % Bottom 50 % 1993 Income (1) $185,715 $66,077 $41,210 $21,179 2003 Income (2) $295,495 $94,891 $57,343 $29,019 1993 Income Adjusted for Inflation (3) $232,415 $82,693 $51,573 $26,504 Gain (1)-(3) $ 63,040 $12,198 $ 5,570 $2,515 % of Income Taxes Paid 34.27% 65.84% 83.88% 3.46% Average Tax Rate as % of Income 24.31% 18.49% 15.38% 2.95% Source: The Tax Foundation That isn't the case for those in the bottom 50%. Their entire $2,515 purchasing power gain since 1993 may already be history. Skeptics should consider this brief list: a.. With the typical household consuming about 1,000 gallons of gas a year, an increase from $1.50 a gallon to $3 a gallon means a purchasing power loss of $1,500. b.. Rate increases for electricity and natural gas. c.. Rising medical co-pays and other out-of-pocket expenses for health care, plus rising employee health-care insurance premium costs. Premium costs were up 10% in 2004 alone. Another way to see the same thing is to examine wage gains. In 2004 the average weekly earnings of private, nonagricultural workers rose by only 2.2%. The Consumer Price Index rose by 3.3% over the same period. This year has been a replay -- year-over-year wage gains are running less than 3% while inflation has ramped up toward 4%. And all this assumes we believe the CPI is an accurate reflection of the inflation we experience. Can the politicians work magic with tax reform? No way. If the federal income tax was simply eliminated for every household in the bottom half, it would only liberate about 3.46% of their income -- less than inflation for one year. Bottom line: Unless there are some real wage gains for working stiffs -- soon -- we're heading for a recession.
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