Assuming of course, that your neighbor the landscaper and corner restaurant are making eight or nine figures.
No, Sam is right. Economically speaking, being able to add a slice of tomato to a sandwich while keeping customer pricing and profit margins equal is a textbook example of “innovation”, and far, far, far, far far far more common than “we’re going to use our excess junk bond capital to invent the iPhone” or some such foolishness one usually thinks about when reading the word “innovation”.
No. “Innovation” really isn’t ABS breaks. It’s just that extra tomato.
Reagan did his part by starting the slide through gutting Pell Grants and a variety of grant programs, and other unfavorable policies, while pushing loans. He started this slide- I went to college in 1985 and the support offered to me as compared to my siblings ten years prior was dramatic.
From the article:
“At present, parents are expected to contribute 10.5 percent of their discretionary income (typically, total income minus items such as taxes and allowances for family expenses) before their child can qualify for a Pell grant. For 1982-83, the proposed regulations would substitute a sliding scale that would raise the contribution to 40 percent to 55 percent of parental discretionary income.
‘‘It’s a brutal formula,’’ Mr. Leider asserted. The result of the proposal is that most four-person families with adjusted gross incomes over $15,860 would not qualify for aid. Currently, some families with adjusted gross incomes as high as $25,000 can qualify for help, although not the maximum award of $1,670.”
I think “since people keep more of their money” is a bit wonkily written but I think what they mean is that people are keeping more of their pre-taxed income when their taxes are cut, not necessarily that they save more of their money, but I think that, in general, both spending and saving increase (at least in absolute terms) when people get pay jumps, whether through raises or a tax cuts.
Of course, if a tax cut results in many important services and benefits being downsized or privatized, any potential individual or household income (and therefore spending) increases will often not offset the likely reduced standard of living that this may cause for many people, especially those that rely on those services to survive. Indebtedness will probably increase as well since while people are “free” to spend more money, they may still need to spend said money for the same services they used to get for free or very cheaply, but now they may cost more or be of lower quality/scope.
Those are my non-expert understandings, they may be wrong though so feel free to ignore or correct them.
P.S. Random comment on the last paragraph from Investopedia: that seems pretty insidious because tax cuts will (often) require or result in austerity (cutting social and/or government programs) now but those austerity measures will probably not be rolled back (or at least not rolled back by the same people or party that cut them in the first place) even if government revenue would have increased to accommodate the rollback like claimed.
And of course, there are other ways of making up the revenue.
In Ohio, they lowered income taxes, but increased fees for services like for tags and driver’s licenses. They wanted to expand sales tax to services, but fortunately, that was unpopular enough even among the Republicans that it got shot down.
I wish you wouldn’t. The other plots and articles are interesting, but this one is a product of EPI’s price index slight-of-hand and excluding many workers from the income line who are included in the productivity line. Better to stick with Rand and BLS plots.
Total compensation includes far more than base wages and healthcare, rather “wages and salaries, supplements (such as shift differentials, all kinds of paid leave, bonus and incentive payments, and employee discounts), and employer contributions to employee benefit plans (such as medical and life insurance, workmen’s compensation, and unemployment insurance).” Those are EPI’s words btw. I don’t receive all of those, but I absolutely include them when I’m changing jobs and negotiating compensation. They contribute to my standard of living, and there’s nothing dishonest about including these real costs that my employer incurs to keep me around.
Their price index game leads to weird situations; my (self-employed) mother would show a productivity/compensation gap over time using their methods. Which of course is nonsensical. You linked to the Heritage article but skipped over the inflation shenanigans, which IIRC are explained there. Also here:
And here (including sector breakdown, which EPI won’t do for reasons):
https://www.bls.gov/opub/btn/volume-6/pdf/understanding-the-labor-productivity-and-compensation-gap.pdf
Tl;dr: There’s a real problem, but EPI in their enthusiasm is flirting with “stop helping” territory. There are lots of other great sources that you already have on hand.
Thank you JohnT! Very informative and much appreciated.
Sam is a dishonest, chicken-shit coward. I doubt he even acknowledges any of this information when he sticks his head out of the hole in the ground he is hiding in.
He’s busy figuring out how this is all Trudeau’s fault.
Trudeau’s disrespectful handshake troubled Trump so much, Trump simply couldn’t fix everything.
…is that it reminds one of Larry Laffer. 
So, anyone think that Sam has enough decency and strength of character to see how utterly wrong he is and change his stance?
I’m just kidding, he’s not even going to read those posts.
It wouldn’t make a difference. Suppose the employer didn’t contribute anything toward health insurance, and just put the money toward increased wages. The insurance company would still have raised their prices, and the employee would have had to pay more for the same result. No difference, but the wages would show up on your pay graph.
If the actual provided health care is the same in both cases, then what’s happening is inflation. And so we might ask why the CPI isn’t properly tracking health care costs. On the other hand, if the provided care is better, then the employee has gotten some real gain that should be tracked.
If the employee was paying the full rate themselves out of their wages, then they would be under no obligation to stay with that provider. They’d have the freedom to look for a better deal elsewhere, or opt for a lower level of coverage, options that don’t really exist with employer-provided insurance.
True, but the value of that freedom isn’t equal to the full value of the contribution. It’s hard to judge what the discount should be. In a similar vein, I get stock grants from my employer. They make a significant difference to my income, but they aren’t quite as valuable as dollars, because I have to wait for them to vest over time. Over long periods they’re worth the same, but in the short term they aren’t.
Thank you, I appreciate your measured response.
Please note that the Heritage Foundation used the same dataset for their counter - I don’t think I did anything dishonest in providing both EPI’s data and Heritage’s counter of same.
The problem with the Total Compensation argument is with the datasets: both are comparisons of “average hourly earnings of production and nonsupervisory employees on nonfarm businesses”, not of all employees. EPI, myself, and the Heritage Foundation are specifically addressing the set of employees whom have been hit hardest by this financialization drain, the set of employees to whom “Total Compensation” packages are minimized, if non-existent. Hourly workers. Staff. Part timers. Admins. Not management, executives, professionals, those whom can get TC packages which can be multiples of their base income.
So doing as the Heritage Foundation did and adding the compensation available to the (guess) top 40% to this graph of, I’m guesstimating, the bottom 40%, not only obfuscates the issue, it is an argument which reeks of intellectual dishonesty because it is designed to obfuscate the issue.
A couple of items on the list which I disagree with being defined as “compensation”:
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Unemployment insurance is required by the State and to consider this a “benefit” for the purposes of calculating compensation is, to be nice, disingenuous.
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“Employee Discounts” are tricky. If wearing Ultra makeup is a requirement of working at Ultra (do this with Macy’s clothing, Nordstrom’s shoes, etc), and Ultra gives you a 50% discount… is this compensation? Really?
2.a. Above argument, regarding paying for discounted food during breaks occurring within long (6+ hours, I’ll say) shifts… is that compensation? Paying $5 for my $10 Wendy’s baconator meal so I can work 4 more hours @ $8/per… that’s compensation? Do you think it feels like compensation to the employee?
I completely understand why the accountants and finance weenies are drooling at the bit to call all employee discounts as ‘compensation’, and I myself probably would produce reports showing this if my six-figure job in Finance depended on it, but as a human being with morals… nah. That’s bullshit, requiring me to buy your clothes at 50% off as a condition of my employment, declaring the 50% off is “compensation”, and then using this pathetic state of affairs as an argument as to why it’s OK to keep my hourly pay lower.
No. We can do better than that.
(Oh, another thing which bothered me about the Heritage chart - apparently the conceptual “0” point isn’t the bottom line, it’s the one above it. I also dislike how they indexed it to 2018 productivity = 100, added a vague “log index” for the Y axis, and provided no 1945-1972 historical context for TC ala the other two metrics (likely because the TC data didn’t exist, I’m guessing.) Again, their chart design just seems to be purposely confusing. It’s understandable, but you really have to pay attention.)
Sorry, to be clearer, any benefits one receives via unemployment insurance, etc, is ‘compensation’. The premiums paid by the company to provide this insurance should not be classified as compensation, at least when discussing income equality.
Well, thats a lot of stuff. Starting from your graph of marginal tax rates at the bottom: Have you looked at what marginal rates have done to government revenue? I’ve posted a chart of government revenue as a percentage of GDP many times, and it’s almost completely decoupled from marginal rates. It’s also disconnected from capital gains and business taxes. While those rates you posted in that graph have varied from 91% down to 28%, government revenue has floated between 16% and 21% of GDP. During that time both corporate rates and capital gains have fluctuated all over the place as well.
And when you look at when revenue was lowest, it tends to track recessions, not tax rates. It appears that all high rates do is depress output enough to compensate, or create more tax avoidance actibity. Anyone counting on high taxes on the rich to pay for a laundry list of new entitlements or debt service will be sorely surprised.
Countries which manage to raise more in tax as a percentage of GDP all have national sales taxes and/or high excise taxes. Those are harder to avoid and pay disproportionally by the middle class and the poor. Is that what you’d suggest for America? Perhaps a 25% Value Added Tax like Denmark, Sweden and Norway?
Your graph on poverty: So the poverty rate back when there were high marginal taxes was 23%, but now it’s 15%? I also notice that the drop started when Kennedy dropped the top marginal rate by 20 points. It also fell during all 8 of Reagan’s years. You’re going to have to make a case that falling 8% over the length of that graph is some kind of failure of tax policy.
Life expectancy? Why is that even here? there are lots of reasons for a difference in life expectancy in the U.S. that have nothing to do with economics. Obesity, for example. Your graph shows that Canada has a much higher life expectancy, but we had until recently less progressive taxes than the US and a lower corporate tax. The truth is that life expectancy is complex and full of social factors and a poor proxy for anything tied exclusively to economics.
If you are making a case that universal health care is the difference, I would suggest a better metric is life expectancy after people have entered the health care system. And America looks pretty good from that standpoint.
Your next grsph showing the Fed balance sheet makes my point. We are headed for either a financial crisis, or a major policy correction that will be very painful. What can’t go on, won’t.
Does your graph on income growth include non-cash income such as health care, retirement programs, etc.? Also, it seems to me that since taxes and subsidies are a big part of the system, the relevant numbers should include all benefits as well. After all, you could tax employers, lowering their ability to raise incomes, and give the money to employees. Your chart would show stagnant income for employees, but in fact they would be doing better. Taxes have been cut dramatically for lower income people, to the point where most don’t pay federal tax at all. So after-tax income and income including benefits is a more important measure.
Also, it seems to me that income share in an era where the government is heavily interfering in the economy is not so easy to blame on any one thing. For example, the 2008 recession caused goverment interventions that heavily benefited the asset-holding classes while doing very little for anyone else. The rapid rise in income for the very wealthy hasn’t coincided with major tax policy changes, but it HAS coincided with the fed intervening massively in the economy - primarily by bailing out very wealthy people with borrowed money.
Go show me where I have defended the ‘Laffer Curve’. Look, it’s a trivial insight to say that if tax rates are 0, revenue is 0, and if they are 100% and there is no incentive to work they are also zero. So in between those two points must be a local maxima. That’s basically the ‘logic’ of the Laffer curve.
But such an insight is meaningless. For one thing, there could be many maxima, since we don’t know the shape of the curve. For another, because the economy is adaptive, a static curve isn’t going to mean much. It’s entirely possible that raising taxes will slow the economy, then it will adapt and catch up, and at that point cutting taxes could also slow the economy until it adjusts to the new dynamic situation.
Then there’s the problem that even if the Laffer Curve is real, there’s really no way to know which side of it you are on. I could believe that tax cuts from 91% to 70% were self-financing by reducing tax avoidance activity and stimulating the economy, but that an equivalent reduction from 35% to 14% would pretty much be a fiscal disaster.
Then there are delays and hysteresis which also make analyzing tax changes difficult. For example, it could be that lowering taxes causes you to lose short-term revenue, but overall growth increases such that in a few years your revenue is higher than it was before the tax cut. But then we could just argue whether revenue is higher because of the tax cut, or would have been even higher without it. Compounding the analysis is that tax changes are generally not exogenous - they take place in response to some fiscal issue such as a recession or higher growth, which makes it hard to disentangle their effects from what the economy was doing anyway.
Anyone who says the Laffer curve is ‘true’ (or false) is either talking at a very superficial level, or about a very specific historical application such as the wealth tax which lowered revenue, or they are just repeating the talking points of their party.
“After people have entered the health care system”? What does that mean?
Do you mean you’re advocating a comparison of life expectancy at age 65, which is when Americans generally qualify for “universal” health coverage via Medicare? IOW, is this sort of comparison what you mean when you say “America looks pretty good from that standpoint”?
I’ll wait for you to clear up that point before discussing it further. In general, though, Sam, it would be easier on people reading your posts if you would follow JohnT’s example of citing the claims you make via links when you make them, so we have some way of assessing what your claims are talking about and what evidence you’re basing them on.
First of all, how are we getting from disastrous fed policy to ‘trickle down’? In political parlance, ‘trickle down’ has simply meant that if you allow the capitalist class to retain capital, they will invest it in new production, create jobs, and the money and benefits will ‘trickle down’ to the worker and to consumers. This as opposed to taxing the capitalist class more and directly handing the money over to the workers and consumers in the form of lower taxes for them, or enhanced benefits, or better, cheaper products.
‘Trickle down’ is not a blanket term for every hairbrained scheme politicians and the fed may have for manipulating the economy. I happen to agree that most of the interventions we’ve seen from 2008 on have had the effect of increasing the wealth of the richest people. But it’d not because of low taxes.
i don’t think we are in disagreement regarding all the graphs you have posted and the raw facts. Where we disagree is WHY these things happened, and what’s to blame for them. For example, maintaining a regime of near-zero interest rates really hurts people on fixed incomes, but it does wonders for debt-laden corporations and the asset owning class.
I also don’t think you can disconnect worker compensation since the 1960’s from globalization. I’m a free trader, but it’s certainly true that open borders have created massive competition for workers at the bottom, while opening up market opportunities for people at the top. Moving a steel plant to China might be good for the plant owners and Chinese workers, but does a lot of damage to American and Canadian steel workers. This transfer of wealth from the working class to other countries has been going on for three decades.
In the meantime, the working class gains lots of benefits from globalization - primarily better, cheaper products. But that’s not captured in the data. And it can be significant, especially for poorer people who spend a large percentage of their income on such goods. Having a 40" TV drop in price from $2000 to $200 is a huge boon to the poor and lower middle classes, but all we see in the data is income loss.