Three weeks ago, a recent report by Pew revealed something stunning: one third – the poorest – of US households can no longer afford even the most basic necessities: food, rent and transportation.
The main reason for this: while the median income had fallen by 13% from 2004 levels over the next decade, expenditures had increased by nearly 14%, driven almost entirely by soaring rent costs. “This change in the expenditure-to-income ratio in the years following the financial crisis is a clear indication of why and how households feel financially strained” Pew concluded.
But nobody was more impacted than the one-third of households which the study defines as “low-income.” Pew finds that while all households had less slack in their budgets in 2014 than in 2004, lower-income households went into the red by over $2,300.
Pew also found that the typical household saw its expenditures grow by more than 25 percent, from $29,400 in 1996 to $36,800 in 2014. Mean expenditures grew 27 percent since 1996, rising from $43,200 to $54,800.
And while one can debate the reasons for the decline in household income, the primary reason for this surge in expenses was clear: soaring rental costs.
The conclusion was troubling: most Americans’ savings continue to decline, and millions of US households not only don’t have any money leftover to save away, but are forced to resort to credit to fund day to day expenses.
The amount of slack that families had in their budgets declined for all income groups between 2004 and 2014. This means households had less income to devote to wealth-building investments, such as short- and long-term savings, education, and life insurance. In 2004, the typical household in the lower third had a little less than $1,500 left over after accounting for annual outlays. Just 10 years later, this amount had fallen to negative $2,300, a $3,800 decline. These households may have had to use savings, get help from family and friends, or use credit to meet regular annual household expenditures. The typical household in the middle third saw its slack drop from $17,000 in 2004 to $6,000 in 2014. Of note, because income is measured before taxes, some families will have had even less slack in their budgets than this figure implied.
Then over the weekend, the Tax Foundation, a nonpartisan tax organization, released its latest report on US tax expenditures. What it found just just as striking: In 2016, Americans will pay roughly 20% more for their federal, state and local taxes than they will spend on housing, food and clothing combined.
According to their analysis, in 2016, Americans will likely spend roughly $1.6 trillion on food, $2.1 trillion on housing and $360 billion on clothing, totaling about $4.1 trillion. Meanwhile, their total tax bill will be about $4.9 trillion ($3.34 trillion in federal taxes and $1.6trillion state and local taxes).
The data above needs a big caveat: according to the same analysis, nearly half of Americans don’t have to worry paying any taxes at all: an estimated 45.3% of American households — roughly 77.5 million — will pay no federal individual income tax.
Of this 77.5 million, half pay no federal income tax because they have no taxable income, while the other half get enough tax breaks to erase their tax liability, according to Roberton Williams, a senior fellow at the Tax Policy Center.
So who pays taxes?
The top 1% of taxpayers pay a higher effective income-tax rate than any other group (around 23%, according to a previous report released by the Tax Policy Center) — nearly seven times higher than those in the bottom 50%.
On average, those in the bottom 40% of the income spectrum end up getting money from the government. Meanwhile, the richest 20% of Americans, by far, pay the most in income taxes, forking over nearly 87% of all the income tax collected by Uncle Sam.
Not surprisingly, the richest Americans pay the bulk of US Federal taxes: the top 1% of Americans, who have an average income of more than $2.1 million, pay 43.6% of all the federal individual income tax in the U.S.; the top 0.1% — just 115,000 households, whose average income is more than $9.4 million — pay more than 20% of it.
In total, as the following MarketWatch table shows, the richest 20% pay 87% of all US taxes.
As a reminder, it is part of Bernie Sanders’ overarching plan to tax the wealthy even more.
Perhaps there is simpler answer: in a world in which every unorthodox monetary policy has been tried, where QE, NIRP, ZIRP are everyday features and even helicopter money is being tossed around, why not cut everyone’s tax to zero and let the Fed monetize the entire deficit? After all, for the duration of QE1-3, the Fed did precisely that for a major portion of US funding needs.
If it is the Fed’s intention to stoke inflation what better way than to give the wealthy a carte blanche to buy even more assets, while sparing the middle class any tax spending, opening the door for even more discretionary spending, and thereby boosting inflation. After all, when Helicopter Money arrives the net effect will be precisely that.
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