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One wonders that there haven't been tumbrils in the streets already.
“The Savings Rate Has Recovered…if You Ignore the Bottom 99%”
...there IS some pretty good data on income stratification in the United States, and a few assumptions can help shed some light. Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 14,988 households (0.01% of the population) received 6.04% of income, the highest figure for any year since the data became available. The top 1% of households received 23.5% of income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).
The fortunate 14,988 had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data.
I’ve never actually had an after tax income of $22.9 million, so I couldn’t say for sure whether a 50% savings rate is a reasonable assumption, but I’m going to go out on a limb and say that it is, just based on the pure physics of spending money. Buying cars, clothes, and fancy dinners, even at Masa, won’t get you there…the math doesn’t work. Buying a private jet could get you there, but most people, even rich people, don’t buy one of those every year. The only EASY way to spend more than 50% of $22.9 million on an annual basis is to buy lots of houses…but the definition of “personal consumption expenditure” used by the BEA specifically excludes purchases of real estate. They use an imputed rent calculation instead. So I’m going to stick with my 50% number.
An after tax income of 22.9 million... My mind reels a bit at trying to spend the money when he talks about, the top 1 percent, forget trying to imagine spending 11.45 million, every year for those in the top .01:
we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we’re assuming a savings rate of around 25% of after tax income for the “poorer” 99% of the top 1%)
Why does this matter? because if one makes the assumptions he makes in his numbers you get (as he points out), a savings rate which is actually greater, than the total savings rate for the entire US.
Since we know that some of the 99 percent of us who aren't making more than $900,000 US a year are saving some money, that means those who are making huge piles of cash are doing their bit to keep the economy afloat by actuall spending more than half (and it seems much more).
But most of us... we aren't able to save much at all, and a lot of us are actually in the red, eating our seed-corn, and managing to make ends meet; in the present, by living on credit, and hoping we can make enough money to catch up to the usurious rates being charged.
“The Savings Rate Has Recovered…if You Ignore the Bottom 99%”
...there IS some pretty good data on income stratification in the United States, and a few assumptions can help shed some light. Economists Thomas Piketty and Emmanuel Saez have made careers of studying US income inequality using IRS data, which goes back to 1913. The most recent data available (for 2007) showed that the top 14,988 households (0.01% of the population) received 6.04% of income, the highest figure for any year since the data became available. The top 1% of households received 23.5% of income (the second highest on record, after 1928), while the top 10% received 49.7% of income (the highest on record).
The fortunate 14,988 had an average income in 2007 of $35,042,705. They had an average federal tax burden, according to Piketty and Saez, of 34.7%, leaving them after tax income of $22.9 million. If you assume a 50% savings rate among this group, you get total savings of $171.5 billion. This is nearly ONE HALF of the total savings for the entire country implied by a savings rate of 4.2% ($365 bn) reported in this month’s Bureau of Economic Analysis data.
I’ve never actually had an after tax income of $22.9 million, so I couldn’t say for sure whether a 50% savings rate is a reasonable assumption, but I’m going to go out on a limb and say that it is, just based on the pure physics of spending money. Buying cars, clothes, and fancy dinners, even at Masa, won’t get you there…the math doesn’t work. Buying a private jet could get you there, but most people, even rich people, don’t buy one of those every year. The only EASY way to spend more than 50% of $22.9 million on an annual basis is to buy lots of houses…but the definition of “personal consumption expenditure” used by the BEA specifically excludes purchases of real estate. They use an imputed rent calculation instead. So I’m going to stick with my 50% number.
An after tax income of 22.9 million... My mind reels a bit at trying to spend the money when he talks about, the top 1 percent, forget trying to imagine spending 11.45 million, every year for those in the top .01:
we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we’re assuming a savings rate of around 25% of after tax income for the “poorer” 99% of the top 1%)
Why does this matter? because if one makes the assumptions he makes in his numbers you get (as he points out), a savings rate which is actually greater, than the total savings rate for the entire US.
Since we know that some of the 99 percent of us who aren't making more than $900,000 US a year are saving some money, that means those who are making huge piles of cash are doing their bit to keep the economy afloat by actuall spending more than half (and it seems much more).
But most of us... we aren't able to save much at all, and a lot of us are actually in the red, eating our seed-corn, and managing to make ends meet; in the present, by living on credit, and hoping we can make enough money to catch up to the usurious rates being charged.
