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pecuniumOne 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.
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no subject
Date: 2009-09-08 06:52 pm (UTC)no subject
Date: 2009-09-08 07:09 pm (UTC)And then there's the reverse argument that people just above the poverty level are still charging debt to credit cards while they pay for things like dvds and conventions (personal friends of mine). No one telling them how to live or to save money for rainy days. No one telling them to stop having kids (and the massive amount of expense that goes with having/raising one). No one says, "You brought this on yourself."
I feel like there's a double standard for who should get what. Then again, I'm not certain if the original statement was for a flat 90% tax or progressive.
no subject
Date: 2009-09-08 07:27 pm (UTC)Nobody needs a mansion. Some people choose to buy one. That's their choice, but they need to be able to support their choice on their income even with a tax system that works towards redistribution.
And then there's the reverse argument that people just above the poverty level are still charging debt to credit cards while they pay for things like dvds and conventions (personal friends of mine). No one telling them how to live or to save money for rainy days. No one telling them to stop having kids (and the massive amount of expense that goes with having/raising one). No one says, "You brought this on yourself."
Funny, I read and hear people saying that all the time to poor people. I like your world better.
no subject
Date: 2009-09-08 11:13 pm (UTC)no subject
Date: 2009-09-09 12:50 am (UTC)I suppose I should have said that no one seems to be telling that to my friends and then I ignore the talking heads because they'll say that no matter what when it isn't them. I don't because frankly, it's not my life. But when I was in similar financial stead, I didn't live that way because that's how I was raised. But it seems like that education should come from somewhere external before being in that situation. And honestly, I would have liked some education of how much it costs to raise a child. I lived well within my means before having a baby. Now I check the finances every month to make sure we're not living outside them. It's sucky and I think about how much nicer I *could* have lived before having a baby.
ugh..tangenting again.. okay.. let me sum and send. I don't need a mansion, but I'd sure like to have one because of how it would make me feel coming home to it every day and living in it. And I don't want to take away someone's mansion for the idea of redistribution.
no subject
Date: 2009-09-09 05:08 am (UTC)I've seen it at the County Services Offices, where people were told they had to give up their 401k, because it was an asset. Never mind that they would end up losing more than they gained. They had saved the money (though it had conditions), and by God they had to spend it before the could get any help.
So yeah, I have to agree with Thette, I want to live where you live, and no one tells the poor they deserve their lot.
no subject
Date: 2009-09-09 05:04 am (UTC)I do this by taking a look at my finances, estimating my income (and increases; though conservatively), and then factoring in the value of equity in event of a downturn.
I have some (but not much) sympathy for someone who is suffering from a contraction, but when they are complainging because the bonus they got this year was only 3 million, and they were used to five... well sorry charlie, that's like buying a car because the overtime won't stop.
And then there's the reverse argument that people just above the poverty level are still charging debt to credit cards while they pay for things like dvds and conventions (personal friends of mine). No one telling them how to live or to save money for rainy days. No one telling them to stop having kids (and the massive amount of expense that goes with having/raising one). No one says, "You brought this on yourself."
Nonsense. The entire argument of the Bankruptcy Bill was, "No one goes bankrupt because the system is broken; they do it because they buy plasma screens and a new car every three years. They bring it on themselves."
Why tax someone to the point of not being so rich that the pocket change they don't worry about isn't more than I made in any of the last five years?
Because that level of wealth is bad for the economy. It's bad for the polity. If I'd had Bill Gates breaks, I'd be set too. A hundred grand to set up shop and I'd be a happy camper as a professional photographer.
At that level, it's not a big deal, it's even arguable that people being able to give their kids a solid grubstake is beneficial.
But when the kids are getting the grubstakes of tens of thousands of people, well that's not so beneficial.
Add the distortions it makes to the political scene (esp. where money = speech) and the gulf gets wider. When the gulf gets too wide, bad things happen. It's probably not unrelated that the big depressions (1870, 1929,, 2008) were all preceded by huge examples of wealth disparity, and the periods of huge growth (like the 1950s) were times of narrow gaps (and high taxes on really large incomes).
no subject
Date: 2009-09-09 12:21 pm (UTC)The 1950s were also a unique time in history. The US was the only industrialized nation whose industrial base wasn't devastated by the war. We were the practically monopsonistic high-end supplier to the entire world - goods pouring out, money pouring in. Historial and economic consensus is that the US monopsony was a greater factor in the prosperity of the 1950s than the tax profile. Keep in mind, too, that it wasn't that the rich weren't getting richer, it was also that the poor and middle class were getting richer at a faster rate (since they started at a lower base).
Now that I've set the economic record straight... I'm a big fan of the estate tax. I think it's great that people can make themselves rich and they should have the benefit of that.
What's not great is that this wealth persists. It's bad for the community and the polity for permanent gulfs to open between the haves and the have-nots. Wealth that persists down generations tends to do that.
no subject
Date: 2009-09-09 07:48 pm (UTC)None of which addresses the levelling factor of strong unions (and the herd immunities which competition with a strongly unionized workforce provided).
There was a lot of intentional social levelling in the 50s tax-code, which subsequent administrations and legislatures have been undoing.