Cross Posted at Blog For Arizona
On "Real Time" last night, Bill Maher made a comment that went to something I've been ruminating about since Romney's 47% remarks went viral, something I've given a lot of thought to over the last five years. The focus of our discussion should be why the income of 47% of Americans is so low that they pay no income tax.
Essentially, we are experiencing what I'll refer to as bracket creep upside down. Up until the '80s, Americans faced a phenomenon known as bracket creep. Although their incomes in real dollars were not increasing, but merely keeping pace with inflation, they'd feel as if their taxes were increased, because they would "creep" into higher tax brackets, because the brackets were defined in nominal dollars, not real dollars. For the most part, bracket creep was eliminated by the indexing of tax brackets to changes in the consumer price index. So, if your income simply kept pace with inflation and nothing more, your marginal tax bracket would stay the same.
Since 1980, however, and especially since 2000, the incomes of most Americans have not kept pace with inflation (while the income of those at or near the top has skyrocketed). As a result, we're experiencing the opposite of bracket creep or "bracket creep upside down." As the tax brackets adjust to account for changes in the cost of living, the income of most Americans is not keeping pace with inflation. Thus, most Americans are creeping down the tax brackets over the years. Prior to 1980, nominal incomes increased due to inflation, while tax brackets remained constant, resulting in bracket creep. Since 1980, tax bracket inflection points have increased due to inflation, while incomes have not kept pace with inflation, resulting in bracket creep upside down. And, by the way, the stated level of inflation we've experienced, based on the consumer price index, almost undoubtedly is less than real inflation. For a discussion of this, read "Bad Money," by Kevin Phillips. If tax brackets had kept pace with the real level of inflation, over 50% of Americans would be paying no income tax.
The change truly has been "creeping" in nature, so much so that many Americans are not aware how far we've crept over time. In that respect, we're not unlike the frog sitting in gradually heating water. But the cumulative change has been horrific, no matter how much we've acclimated to it. If you're an oldster like me, think back to the low end jobs you had in your teens and early twenties. Among other jobs, I worked as a caddy at a golf course, as a plumber's assistant, and at a supermarket loading bags of groceries into customers' cars. If I take my pay from any one of those jobs, adjust it for inflation, annualize it based on a forty hour work week, and double it to reflect the income of my wife from another low end job, we would have more spending power than a couple making today's median income of $50,000. Think about that. Half of today's households have less spending power than a couple working low end jobs did 40 years or so ago. Here's another way to look at it: A married couple flipping burgers at McDonalds at minimum wage and working modest overtime can have an income as large or larger than half the households in America.
Given those realities, it should not come as a surprise that 47% of Americans pay no income tax. Of course, if we continue with policies that shove more and more income (and more and more wealth) to the top, it won't be 47% of Americans who pay no income tax, it will be 77% or 87%.
Politicians both left and right tell us that the problem lies in education and training. We're told that the American workforce isn't suited for today's American economy. But is that really true? Whether you take the macro view or the micro view, there's reason for doubt. From a macro perspective, look at the total income of all Americans, or GDP. Over the last three decades, GDP has kept pace with inflation, and then some. The problem lies in the distribution of that income, and there's plenty of evidence that tax policy over the last three decades has caused the increasingly uneven distribution of income favoring those at the top. From a micro perspective, take a look at what a college education does for you today. A week or two ago, Newsweek ran a cover story outlining how a college education generally is not a good investment. Yes, the unemployment is lower for college grads, but that's mostly because of older college grads. More recent college grads are taking jobs that don't require a college education at an alarming rate.
Yes, there are fields where the American workforce does not contain enough workers trained for that field. So, temporarily, those fields have decent paying jobs available. But if you do the math, it's not hard to figure out where things will go. More and more workers will gravitate to those fields. And, eventually, there will be a gult of workers in those fields, the workers will lose whatever semblance of bargaining power they have, and wages will suffer in real dollars going forward. We can't all be health care workers and accountants. Sooner or later, there will be a glut of workers in those fields as well.
The bottom line: Unless and until government implements policies that prevent the migration of income and wealth to the top, the 47% will grow. We're not going to educate our way out of this. We need stronger minimum wage laws. stronger workplace protection laws. and stronger laws protecting the right of workers to organize. We need massive infrastructure projects funded by tax increases on those who can easily afford to pay. And not just the anemic increases Obama is proposing, but increases that tax exorbitant incomes at levels needed to prevent (and reverse) excessive accumulations of wealth. When we had tbose policies in place, the middle class thrived. As we removed them, the middle class has suffered. It really isn't that hard to figure out.