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America’s Income: Who Has It?

  • Written by Syndicated Publisher No Comments Comments
    November 10, 2013

    America’s tax system and the major social programs (Medicaid and Obamacare) are driven by income. The Social Security Administration has put out a report on income in America. The data covers all wage earners (153.6 million workers and the $6.5 Trillion they earned). The Following is a pic of the report (link), if you’re working, you’re somewhere on this page:

     

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    Let’s start at the top of the pile, those that are making the really big bucks. For example, consider the number of people who made $50m in 2012 (the 0.0001%). There are 166 people in this group. Who are these folks? Basketballer Lebron James made the list, so did actors/performers Robert Downey Junior, Beyonce, Cameron Diaz and Christian Bale. From the corporate side we have Disney’s Robert Iger and Apple’s Tim Cooke.

     

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    Who are the wealthy in America? Anyone making over a million bucks a year is certainly on the list. The plus $1M set totaled 119,400 people (0.08%). These lucky few earned a total of $170b (3% of all income). How much should these folks be paying in taxes? Let’s go hog wild and nail them with a tax of 90%. The incremental revenue (they already are taxed at 39.6%) would be $85b, but sadly, that only covers five weeks of Social Security benefits.

     

    The IRS defines ‘rich’ as an individual with annual income of $200k ($250k per couple). This income level marks the 1%:

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    1.6m workers (1% of total) earned $900b (14% of all income).  This is the measure of US income inequality. The 1% earn 14% of the pie. If the federal tax rate were increased to 75% (double current), it would increase revenue for Uncle Sam by about $150B. That does not fill a $1 trillion bucket, and it would be an economic disaster to set tax levels at French rates. Bottom line – the notion that taxing the rich is a solution is all wet.

     

    Now consider the bottom.  In the case of Medicaid, the cut off for availability is equal to 138% of the Federal Poverty Level (FPL). For a single person the number is $16,600, for a couple it’s $22,000, for a family of four it’s $33,000. The average income for all individuals/families that might qualify for Medicaid is about $25,000. If you look that up on the SS chart you see that a whopping 46% of all income earners can qualify for Medicaid.

     

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    And then there is the Affordable Care Act (AKA Obamacare). To be eligible for Federal subsidies, one must have an income of less than 400% of FPL.  Depending on family size, subsides are available up to $90,000 of income, but the average income where the subsidies are significant is closer to $50K. Again, look up that income level on the SS chart. 73% of all workers make less than $50k! 7out of 10 workers are eligible for subsidies? That blows my mind. No wonder the Democrats love ACA so much – freebies have always translated into votes

     

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    So who is left in the middle? There were 41m workers (23% of total) who made more than $50k and less than $250k. This group earned $3.5T (52% of total income).  So the middle is where the money is; a quarter of all workers earn half of all income.

     

    If Washington needs more revenue, it must come from the folks in the middle. But the reality is that the middle is already taxed from every direction (they also pay state income taxes, Social Security and other payroll taxes, property and sales taxes. So once again, raising taxes as a way of balancing the nation’s ledger seems to be a very difficult task.

     

     

    What to make of all these numbers? Something is clearly wrong when 47% of workers earn a poverty level income. Similarly, there is something wrong when 1% of workers earn 14% of all income. The obvious solution is to tax those on the top and transfer it down to the bottom. But that is what we are already doing; more of the same is not going to change the outcome.

     

    My conclusion is that America is not the ‘rich’ country that people think it is. And there ain’t a hell of lot that can be done about that.

     

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    Images: Flickr (licence attribution)

    About The Author – Bruce Krasting

    I worked on Wall Street for twenty five years. This blog is my take on the financial issues of the day. I was an FX trader during the early days of the ‘snake’ and the EMS. Derivatives on currencies were new then. I was part of that. That was with Citi. Later I worked for Drexel and got to understand a bit about balance sheet structure and corporate bonds from Mike Milken. I was involved with a Macro hedge fund later. That worked out all right, but it is not an easy road. There was one tough week and I thought, “Maybe I should do something else for a year or two.” That was fifteen years ago. I love the markets. How they weave together. For twenty five years I woke up thinking, “What am I going to do today to make some money in the market”. I don’t do that any longer. But I miss it.

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