The Public Response to an Artificial Disaster

One in Six Floridians Now Depends on Food Stamps (http://articles.sun-sentinel.com/2011-12-21/business/fl-food-stamp-surge-distress-20111220_1_food-stamps-supplemental-nutrition-assistance-program-food-banks retrieved 2011-12-24).

The problem is real. In addition to adults, it affects many children. Half of all food stamp beneficiaries are children


The 1% and the 99%

The Occupy Wall Street movement distinguishes between the 1% (who have a lot of money) and the 99% (who have less). Just how rich are the 1%? Income tax data for the 2008 tax year, published by the Internal Revenue Service, gives us a perspective.

That spike running up the right-hand edge of the graphic is the average income of tax filers in the 1%. 

A quintile is a fifth, 20%. The upper quintile of US tax returns is a set of returns with higher incomes than the other four-fifths of returns. A percentile is a hundredth.

The chart below shows the average incomes by quintiles, with the upper quintile broken into the 19% not-quite-rich and the 1%.

If you lined up 100 people representative of the quintiles and the 1%, and you stacked up their 2008 income in dollar bills, in a nice orderly row, then it would look something like the chart.

The income of the 1% person is bigger than the combined incomes of the 80 people in the lower 4 quintiles. The income of the 1% person is bigger than the combined incomes of half the other people in the 5th quintile.

If you are in the 1%, then your annual income is at least $500,000. The average income for the 1% is a little more than $1.4 million.

If you are in the upper, or fifth, quintile, but not in the 1%, then your annual income is more than $75,000, with an average of $97,000 for this group.

Avg Taxable Inc $000
Min Adj Grs Inc $000
Aggregate Taxable Inc $bil
1% of Aggr $bil
1 %
V ex 1%

If the government increases everybody's overall income tax rate by 1%, then the 1% will pay $13 billion more, and the other 19% will pay $28 billion more, and the other 80% will pay $16 billion more.

(If you are interested, email me and I'll send you a copy of the detailed calculations using the IRS data.)

Tables 1 and 2 for 2008, http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html (retrieved 13-Nov-2011).


How to Really Wreck the Economy

Robert Barro

Dr. Robert J. Barro's prescription for "How to Really Save the Economy" would save it for only 20% of the people, if that many. His standard for a good idea is: if it benefits persons with annual incomes exceeding 2 million dollars, then it's a good idea.

Where Dr. Barro's prescription breaks down is in the definition of what is an economy. If an economy is the thing that produces GDP, and if a growing GDP is a saved economy, then Dr. Barro's prescription may well grow the economy by increasing the incomes of the very wealthy. If the incomes of the wealthy increase fast enough, then the people with incomes less than $2 million can have their incomes stagnate or even decline a bit, because the GDP will still grow, and by this definition the economy will have been saved.

But if the definition of an economy is the engine of production and distribution by which all persons obtain the goods and services they need, then Dr. Barro's prescription is for "How to Really Wreck the Economy", because the poorer 80% of the people would not benefit from his prescription, and many of them would be worse off.

Dr. Barro is wrong or partially wrong on all six counts:


What Did Ben Bernanke Say? - Part Deux

Dr. Ben S. Bernanke (Image: FRS/Wikipedia)

Dr. Ben S. Bernanke, appointed byPresident George W. Bush to the Chair of the Federal Reserve System, spoke in Jackson Hole, Wyoming on Friday, August 26, 2011.

Dr. Bernanke studied the Great Depression extensively (Essays on the Great Depression). Among other insights, he found that the countries recovering most rapidly (Britain, Germany) were those that unlinked their currencies from the gold standard. Those that adhered to the gold standard (France, United States) didn't recover until they unlinked. Today, economists generally acknowledge that economist John Maynard Keynes got it right in urging soft money(abandoning the gold standard) and deficit spending by governments, thereby sustaining the population until economic vigor can return. Today, the world-wide hard money standard is the US dollar. Unlinking from hard money is equivalent to expanding the money supply, that is, QE, "quantitative easing", the current

What Did Ben Bernanke Say?

Dr. Ben S. Bernanke (Image: FRS/Wikipedia)
Dr. Ben S. Bernanke, appointed by President George W. Bush to the Chair of the Federal Reserve System, spoke in Jackson Hole, Wyoming on Friday, August 26, 2011.

When I suggested to a friend that she read the speech, she read a bit of it and said "English, please. What did he say?"

(For a highly condensed summary of the speech, see Part Deux.)

Her comment inspired this glossary of economic and financial terms Dr. Bernanke used in his speech. Almost without exception, these terms are loosely defined in this glossary, as used by Dr. Bernanke, and in general use.


Distribution of Income by Source in 2009

Investment income (mostly dividends and capital gains taxed at a rate of 15% , and interest), is 60% of the income of the wealthiest taxpayers, according to IRS data for 2009. Business income is about 20%. Salaries and wages are about 20%. Other sources of income are insignificant for the wealthiest as a group.

Salaries and wages, taxed at rates up to 33%, are over half the income of people with incomes less than $500,000 per year. Other important sources for these taxpayers are Social Security, pensions and annuities, and business income.


Favorable Taxation for the Wealthy in 2009

The United States Internal Revenue Service has released 2009 tax statistics for individuals. Persons with incomes greater than $10 million pay income tax at a lower rate (22%) than those earning between $500,000 and $10 million (24% to 26%). Also, those with incomes less than $5,000 pay a higher rate (5%) than those with incomes between $5,000 and $25,000. Patterns of taxation in 2009 were similar to 2008.


How Income Tax Rates Affect the Marginal Cost of Job Creation

An employer's marginal income tax rate influences his or her incentives for hiring new employees.

Our Universe Alternate Universe
Marginal Tax Rate of Joe's Employer 25% 75%
Joe Gets a Raise 5,000 5,000
Additional cost of Joe's raise to Employer after tax 3,750 1,250
New Employee Salary 50,000 50,000
New Employee Payroll taxes 15,000 15,000
New Employee Equipment & Real Estate 35,000 35,000
Total Pre-tax cost of New Employee for one year 100,000 100,000
Total After-tax cost of New Employee for one year 75,000 25,000

Lower Tax Rates Apply to Highest Incomes

US taxpayers with incomes greater than $10 million and corporations pay income tax at a lower rate than persons with incomes between $500,000 and $10 million.


Paul Ryan's Budget Proposal

Mr. Paul Ryan is a Republican Representative from Wisconsin and Chair of the House Budget Committee. On April 5, 2011, he released The Path to Prosperity, a document that introduces and defends his proposed budget resolution for the US Federal government. Path selectively ignores the EBS “Extended-Baseline Scenario” of the CBO Congressional Budget Office. EBS, which allows the Bush tax cuts to expire, and which avoids drastic spending cuts, produces no significant future deficits.

With Path, Mr. Ryan plays a complex rhetorical shell game. Path assumes from the start that the Bush tax cuts for the wealthy will continue. That is, Path assumes that Path passes the Congress. If Path doesn’t pass,


Productivity: Who Gets the Benefit?

The chart compares labor output with household income in the United States in the 20 years from 1987 to 2007. We see that the labor productivity increased. The output from an hour of labor increased 55%.

Labor provides the income for most households in the United States. During the same 20 years, median household income increased 10%.

Output per hour of labor increased markedly, but the rewards to labor increased only modestly. We ask:
1. Is it fair that workers didn’t get a share of the increases in the productivity of their labor?
2. Who took the workers’ share?