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Thursday, January 28, 2021

Trends in U.S. Spatial Inequality: Concentrating Affluence and a Democratization of Poverty

Patrick Kline National Bureau of Economic Research

Date Posted:: January 28, 2021
Is Database:: Database

The rise in American geographic inequality is primarily driven by the concentration of affluence, with top income quantiles diverging significantly across states since the late 1970s.

The rise in American geographic inequality is primarily driven by the concentration of affluence, with top income quantiles diverging significantly across states since the late 1970s. While median household incomes have shown a gradual increase in dispersion across counties, the divergence in top income quantiles has been more pronounced. In contrast, poverty rates and bottom income quantiles have converged across areas, reflecting a democratization of poverty. This convergence is supported by the equalization of poverty rates and means-tested transfers across locations, indicating that geographic inequality is not primarily due to the migration of less educated workers. The dispersion in county-level fortunes, particularly in the West and Northeast, underscores the growing spatial inequality driven by affluent households.

Takeaways by Macro Roundup^® AI

The rise in U.S. geographic inequality is driven primarily by the concentration of affluence, with top income quantiles diverging significantly across states since the late 1970s while median household incomes across counties show only gradual dispersion.
Poverty rates and bottom income quantiles have converged across U.S. areas, a democratization of poverty supported by the equalization of poverty rates and means-tested transfers across locations.
The equalization of poverty rates and means-tested transfers across locations indicates that U.S. geographic inequality is not primarily due to the migration of less educated workers, with dispersion in county-level fortunes evident in the West and Northeast.

Trends in U.S. Spatial Inequality: Concentrating Affluence and a Democratization of Poverty: Extended Excerpt Image 1

Cecile Gaubert, Patrick Kline, Damián Vergara and Danny Yagan, "Trends in U.S. Spatial Inequality: Concentrating Affluence and a Democratization of Poverty," National Bureau Of Economic Research, January 2021, https://www.nber.org/papers/w28385

The paper document two broad patterns, first, "... a “democratization of poverty” across U.S. counties, with both adult and youth poverty rates converging across counties in recent decadeThis pattern is also reflected in a substantial deconcentration of means-tested transfers across counties. Likewise, in survey data, the bottom quantiles of post-transfer household income have been converging across states since the early 1990s. While this trend has not, to our knowledge, been directly remarked upon in the past, it is broadly consistent with Autor...observation that the urban wage premium appears to have declined for less skilled workers..."
Second pattern, ".... we find that spatial trends in per capita income inequality reflect an increasing “concentration of affluence.” While median household incomes have exhibited a gradual rise in dispersion across counties since 1990, top income quantiles, measured either in survey or administrative data, have diverged markedly across states since the late 1970s...."
Snapshot of “concentration of affluence,”“…The upper panels of Figure 3 display estimates of dispersion within Census regions along with the between region component of variance. Between region income inequality has remained remarkably stable over the past 40 years. In contrast, dispersion across counties in the West and Northeast has risen dramatically. The lower panels of Figure 3 reveal that much of this increase took place in the Middle Atlantic, Pacific, and New England Census divisions.Cross-division inequality has remained remarkably stable, indicating that inequality patterns are not driven by coastal states drifting apart from inland communities. Rather, dispersion in the fortunes of counties within these states is driving the steady increase in county level inequality….”

New Yagan the rise in geographic inequality has been almost entirely driven by the divergence in the top income quantiles since the late 1970s. At the same time bottom income quantiles and poverty rates have converged across areas in recent decades. Their key takeaway, “.. Mean incomes are diverging across areas but those means give outsize influence to individuals with especially high incomes. In contrast, median incomes, which arguably provide a better measure of the well-being of a typical household, exhibit more muted divergence over the past thirty years. The equalization of poverty rates across space we document aligns closely with independent evidence that bottom income percentiles and means-tested transfers are converging across locations. Given that the migration flows of less educated workers are only weakly related to area income (Ganong and Shoag, 2017), we suspect this democratization of poverty is not driven primarily by a reshuffling of households…”

Ed Comment, “What is the difference between graph a and c, and graphs b and d? The paper seems to say the super-rich have moved to the coasts while everyone else is converging.”

The convergence in poverty rates, “….First, poverty rates have equalized both within and between Census regions (Figure A.2). The between region component has played a dominant role in this equalization post-2000 as poverty rates rose in the Northeast and Midwest relative to the South and West(Figure A.3). Second, counties that were very poor in 1990 had large reductions in poverty by 2018, while those that were less poor had substantial poverty increases (Figure A.4). Finally, the poverty dissimilarity index also fell dramatically between the 1960 and 1980 Censuses (Figure A.5)….”

Key findings, “…..Our findings paint a more nuanced story than the common refrain that American communities are growing apart. Mean incomes are diverging across areas but those means give outsize influence to individuals with especially high incomes. In contrast, median incomes, which arguably provide a better measure of the well-being of a typical household, exhibit more muted divergence over the past thirty years. The equalization of poverty rates across space we document aligns closely with independent evidence that bottom income percentiles and means-tested transfers are converging across locations. Given that the migration flows of less educated workers are only weakly related to area income (Ganong and Shoag, 2017), we suspect this democratization of poverty is not driven primarily by a reshuffling of households. An interesting question for future research is the extent to which changes in labor market institutions such as the minimum wage or transfer programs such as disability insurance are driving these trends. The increasing geographic concentration of high income households we document is broadly consistent with the well known rise in top incomes across individuals. Perhaps influenced by these trends, coastal states including New York and California have recently enacted or increased “millionaire taxes” on households with high incomes. Assessing whether place based millionaire taxes will be subverted by income shifting or real migration responses is a priority for future research….”

Steve Comment: “So in Figure 3 the left two Figures (A,C) are pre-tax income, the right two figures (B,D) are pre-tax income including transfers. They are using them to prove your takeaway, the increase took place in the Middle Atlantic, Pacific, and New England Census divisions driven by high earners disproportionately relocating there. Here is how they describe Figure 3, “The upper panels of Figure 3 display estimates of dispersion within Census regions along with the between region component of variance. Between region income inequality has remained remarkably stable over the past 40 years. In contrast, dispersion across counties in the West and Northeast has risen dramatically. The lower panels of Figure 3 reveal that much of this increase took place in the Middle Atlantic, Pacific, and New England Census divisions. Cross-division inequality has remained remarkably stable, indicating that inequality patterns are not driven by coastal states drifting apart from inland communities. Rather, dispersion in the fortunes of counties within these states is driving the steady increase in county level inequality…”…”

Why Biden Shouldnt Let the Federal Debt Deter a Spending Spree

Matthew Klein Barron's

Date Posted:: January 28, 2021
Is Database:: Database

@M_C_Klein: Since 2008, net debt is ~ unchanged as private deleveraging has offset the rise in public debt. Federal debt has gone from 50% to 100% of GDP, while private debt has dropped from 290% to 240%.

Since 2008, the net debt level in the U.S. has remained relatively stable as private sector deleveraging has counterbalanced the increase in public debt. Federal debt has surged from 50% to over 100% of GDP, while private debt has decreased from 290% to 240%. This shift suggests that despite a $15tn rise in federal debt, the overall indebtedness of Americans has not increased significantly, even during the pandemic. The larger economy and reduced private debt levels have mitigated the impact of rising government borrowing. This context provides a rationale for continued public investment, as the economic environment remains conducive to managing higher federal debt levels without exacerbating total indebtedness.

Takeaways by Macro Roundup^® AI

U.S. federal debt has risen from 50% to over 100% of GDP since 2008, while private debt has fallen from 290% to 240%, leaving the net debt level relatively stable.
Despite a $15tn rise in federal debt, the overall indebtedness of Americans has not increased significantly, even during the pandemic, as a larger economy and lower private debt offset government borrowing.
Private sector deleveraging and a larger economy offer a rationale for continued U.S. public investment without exacerbating total indebtedness.

Matthew Klein, "Why Biden Shouldn’t Let the Federal Debt Deter a Spending Spree,"Barrons, January 22, 2021, https://www.barrons.com/articles/why-biden-shouldnt-let-the-federal-debt-deter-a-spending-spree-51611346201

Why Biden Shouldnt Let the Federal Debt Deter a Spending Spree: Extended Excerpt Image 1

“Financial Accounts Of The United States,” Federal Reserve, Accessed Fabraury 1, 2021, https://www.federalreserve.gov/releases/z1/20200611/html/introductory_text.htm

Good factoid/graph from Matt Klein, "...While the level of federal debt has soared by some $15 trillion since the end of 2008, Americans’ total indebtedness has not—even with the pandemic. Rising government borrowing has been offset by a much larger economy and by lower levels of private debt. Thus, while the ratio of federal debt to gross domestic product has risen from about 50% to over 100%, the ratio of private debt has dropped from about 290% to about 240% over the same period, leaving overall indebtedness roughly unchanged...."

Ed Comment 1/2:“Add to db. Note this has a shelf life. I find it hard to believe that the private sector has reduced its level of indebtedness by 50% of GDP. The last time we saw the fed graph that I recently ask you to check to see if they had updated it (plz send it to me for perspective) company debt had risen while mortgage debt had fallen. But now people are building and buying houses like crazy. Prices have risen so I would have guessed debt has also risen as a result. Somin’ don’t smell right. BTW, I thought Klien was a never trump conservative. With debt above 100% of GDP, I’m surprised he is encouraging more spending even though rates are low. Rates are low in large part because of covid—people all over the world are saving like crazy (although I would still be surprised if Americans saved enough to reduce debt by 50% of GDP). If they spend that money when the economy recovers, rates my not stay low. That said, long rates are still very low too. He says: But America also faces significant challenges in the decade ahead—whether it’s shifting to renewable-energy resources to reduce carbon emissions, reviving the manufacturing base, or confronting an increasingly aggressive China—and meeting them will probably require substantial public investment. If that’s true, why would we borrow and redistribute/consume which is what biden is proposing with his $1.9T? He says: “investments that boost growth—whether in infrastructure, pollution control, scientific research, education, or public health—effectively pay for themselves.” NO. theycanpay for themselves if they grow the economy enough, but the data says they rarely do because government does such a poor job of managing them effectively. Worse he says CBO say our economy could have been 12% bigger. I’m highly doubtful the kind of investment the government makes with risk-averse savings are the kind of investment that produce that growth. Those are risky equity bets that luckily payoff….”

Ed Comment 2/2:“I think matt Klein might be an unreliable interpreter of the data. I think financial debt is double counted with private sector debt (since all financial sector debt eventually is borrowed by the private sector. It may also be the case that as the banks hold reserves it reduces their net debt (debt-cash). But in today’s f-up monetary policy regime, bank reserves are just “federal reserve debt” financing treasury debt. So he may be seeing an offset that he doesn’t account for—as public debt rises and is being financed by (the fed paying interest on) bank reserves, net financial sector debt may appear to be declining, even though financial sector loans to the private haven’t changes (and never should have been included in the first place, since they were included in the private sector). I also know from Waters that, unlike the bond markets, the bank market has not fully recovered. Financial sector debt is often counted multiple time as one link in the chain of intermediation lends to the next that lends to the next, etc. before it get lent to the end user. (the repo market is an example of banks lending to banks and not to end users. It may be the case that the number of steps in the chain of intermediation has declined as bank lending has backed up. So financial sector debt (which can be “double” counted many times inside of the financial sector before it is then again double counted when it is lent to the private sector) may have declined for this reason. My guess is your chart is more accurate than his. And what I surmised is true, namely, that there has been no offsetting private sector decline. …and that cash saved and not spent in the pandemic is likely to be consumed when the pandemic is over.”

Wednesday, February 3, 2021

The Truth About Income Inequality

Phil Gramm and John F. Early Wall Street Journal

Date Posted:: February 3, 2021
Is Database:: Database

Average bottom-quintile household receives $45,389 in government transfers, which constitute 89% of their total resources, highlighting the significant role of public assistance in mitigating income inequality.

The average bottom-quintile household receives $45,389 in government transfers, which constitute 89% of their total resources, highlighting the significant role of public assistance in mitigating income inequality. Despite earning only $4,908, these households have $50,901 in available resources after accounting for private transfers and taxes. This redistribution compresses the income disparity between the top and bottom quintiles from a 60:1 ratio in earned income to 3.8:1 in net resources. Government transfers, which are not fully captured in official income statistics, play a crucial role in this adjustment, as they make up more than 70% of all government transfer payments to the bottom two quintiles. This data underscores the importance of considering both taxes and transfers when evaluating income inequality and suggests that the current debate may be based on incomplete information.

Takeaways by Macro Roundup^® AI

Government transfers of $45,389 make up 89% of the average bottom-quintile household's total resources, which reach $50,901 after private transfers and taxes despite earned income of only $4,908.
Accounting for taxes and transfers compresses the top-to-bottom quintile gap from 60:1 in earned income to 3.8:1 in net resources.
More than 70% of all government transfer payments go to the bottom two quintiles, and these transfers are not fully captured in official income statistics.

John Early estimate of poverty spending, “The Census Bureau also fails to count $1.9 trillion in annual public transfer payments to American households. The bureau ignores transfer payments from some 95 federal programs such as Medicare, Medicaid and food stamps, which make up more than 40% of federal spending, along with dozens of state and local programs. Government transfers provide 89% of all resources available to the bottom income quintile of households and more than half of the total resources available to the second quintile. …The average bottom-quintile household receives $45,389 in government transfers. Private transfers from charitable and family sources provide another $3,313. The average household in the bottom quintile pays $2,709 in taxes, mostly sales, property and excise taxes. The net result is that the average household in the bottom quintile has $50,901 of available resources….”

The Truth About Income Inequality

Never in American history has the debate over income inequality so dominated the public square, with Democratic presidential candidates and congressional leaders calling for massive tax increases and federal expenditures to redistribute the nation’s income. Unfortunately, official measures of income inequality, the numbers being debated, are profoundly distorted by what the Census Bureau chooses to count as household income.

The published census data for 2017 portray the top quintile of households as having almost 17 times as much income as the bottom quintile. But this picture is false. The measure fails to account for the one-third of all household income paid in federal, state and local taxes. Since households in the top income quintile pay almost two-thirds of all taxes, ignoring the earned income lost to taxes substantially overstates inequality.

The Census Bureau also fails to count $1.9 trillion in annual public transfer payments to American households. The bureau ignores transfer payments from some 95 federal programs such as Medicare, Medicaid and food stamps, which make up more than 40% of federal spending, along with dozens of state and local programs. Government transfers provide 89% of all resources available to the bottom income quintile of households and more than half of the total resources available to the second quintile.

The Truth About Income Inequality: Extended Excerpt Image 1

In all, leaving out taxes and most transfers overstates inequality by more than 300%, as measured by the ratio of the top quintile’s income to the bottom quintile’s. More than 80% of all taxes are paid by the top two quintiles, and more than 70% of all government transfer payments go to the bottom two quintiles.

America’s system of data collection is among the most sophisticated in the world, but the Census Bureau’s decision not to count taxes as lost income and transfers as gained income grossly distorts its measure of the income distribution. As a result, the raging national debate over income inequality, the outcome of which could alter the foundations of our economic and political system, is based on faulty information.

The average bottom-quintile household earns only $4,908, while the average top-quintile one earns $295,904, or 60 times as much. But using official government data sources on taxes and all transfer payments to compute net income produces the more complete comparison displayed in the nearby chart.

The average bottom-quintile household receives $45,389 in government transfers. Private transfers from charitable and family sources provide another $3,313. The average household in the bottom quintile pays $2,709 in taxes, mostly sales, property and excise taxes. The net result is that the average household in the bottom quintile has $50,901 of available resources.

Government transfers go mostly to low-income households. The average bottom-quintile household and the average second-quintile household receive government transfers of some $17 and $4 respectively for every dollar of taxes they pay. The average middle-income household receives $17,850 in government transfers and pays an almost identical $17,737 in taxes, while the fourth and top quintiles of households receive government transfers of only 29 cents and 6 cents respectively for every dollar paid in taxes. (In the chart, transfers received minus taxes paid are shown as net government transfers for low-income households and net taxes for high income households.)

The average top-quintile household pays on average $109,125 in taxes and is left, after taxes and transfer payments, with only 3.8 times as much as the bottom quintile: $194,906 compared with $50,901. No matter how much income you think government in a free society should redistribute, it is much harder to argue that the bottom quintile is getting too little or the top quintile is getting too much when the ratio of net resources available to them is 3.8 to 1 rather than 60 to 1 (the ratio of what they earn) or the Census number of 17 to 1 (which excludes taxes and most transfers).

Today government redistributes sufficient resources to elevate the average household in the bottom quintile to a net income, after transfers and taxes, of $50,901—well within the range of American middle-class earnings. The average household in the second quintile is only slightly better off than the average bottom-quintile household. The average second-quintile household receives only 9.4% more, even though it earns more than six times as much income, it has more than twice the proportion of its prime working-age individuals employed, and they work twice as many hours a week on average. The average middle-income household is only 32% better off than the average bottom-quintile households despite earning more than 13 times as much, having 2.5 times as many of prime working-age individuals employed and working more than twice as many hours a week.

Antipoverty spending in the past 50 years has not only raised most of the households in the bottom quintile of earners into the middle class, but has also induced many low-income earners to stop working. In 1967, when funding for the War on Poverty started to flow, almost 70% of prime working-age adults in bottom-quintile households were employed. Over the next 50 years, that share fell to 36%. The second quintile, which historically had the highest labor-force participation rate among prime work-age adults, saw its labor-force participation rate fall from 90% to 85%, while the top three income quintiles all increased their work effort.

Any debate about further redistribution of income needs to be tethered to these facts. America already redistributes enough income to compress the income difference between the top and bottom quintiles from 60 to 1 in earned income down to 3.8 to 1 in income received. If 3.8 to 1 is too large an income differential, those who favor more redistribution need to explain to the bottom 60% of income-earning households why they should keep working when they could get almost as much from riding in the wagon as they get now from pulling it.

Mr. Gramm is a former chairman of the Senate Banking Committee. Mr. Early served twice as assistant commissioner at the Bureau of Labor Statistics.

Phil Gramm and John F. Early, “The Truth About Income Inequality,”Wall Street Journal, November 3, 2019, https://www.wsj.com/articles/the-truth-about-income-inequality-11572813786

The Surprising Income Equality in America

Red Jahncke CT Examiner

Date Posted:: February 3, 2021
Is Database:: Database

Contrary to popular belief, the real income differential btw the top and bottom quintiles in the U.S. is about 4:1, not 60:1.

Contrary to popular belief, the real income differential between the top and bottom quintiles in the U.S. is about 4:1, not the widely assumed 60:1. This finding by Gramm and Early highlights a more equitable income distribution than perceived. Conventional measures often exclude taxes and in-kind transfers, inflating top quintile incomes and underestimating bottom quintile resources. In 2017, after adjusting for taxes and including government transfers, the top quintile had an average after-tax income of $186,000, while the bottom quintile had $47,200 in available resources. The upper fifth pays over 80% of federal income taxes, while the bottom quintile benefits from programs like SNAP and EITC. This analysis challenges the narrative of extreme inequality and suggests that the U.S. income distribution is more balanced, reflecting a free enterprise system where achievement is rewarded.

Takeaways by Macro Roundup^® AI

Gramm and Early estimate the real income differential between the top and bottom U.S. quintiles is about 4:1, not the widely assumed 60:1, once taxes and in-kind transfers are counted.
In 2017, after adjusting for taxes and including government transfers, the top quintile's average after-tax income was $186,000 versus $47,200 in available resources for the bottom quintile, per Gramm and Early.
The top fifth of U.S. households pays over 80% of federal income taxes, while the bottom quintile receives benefits from programs including SNAP and the Earned Income Tax Credit.

Red Jahncke, "The Surprising Income Equality in America,"CT Examiner, November 15, 2019, https://ctexaminer.com/2019/11/15/opinion-the-surprising-income-equality-in-america/

This is a column about a column.

On November 4, 2019, the Wall Street Journal published a column entitled “The Truth About Income Inequality,” by Phil Gramm, former U.S. Senator from Texas, and John Early, twice Assistant Commissioner of the U.S. Bureau of Labor Statistics.

The column makes a convincing case that the U.S. enjoys remarkable income equality - not inequality.

This reality flies in the face of the almost universal belief that the U.S. suffers from gross income inequality, which notion serves as the foundation of all the extravagant proposals from one side of the political spectrum, ranging from free college and Medicare for All to the wealth tax that Elizabeth Warren and Bernie Sanders advocate.

If the income distribution is only modestly upward sloping from bottom to top, namely those at the bottom have substantially more resources, and those at the top substantially fewer, than previously thought, two natural questions arise. First, can those at the top afford these extreme proposals, and, second, do those at the bottom need them?

Public notions of income inequality range as high as a factor of 60 (income at the top being 60 times that at the bottom). That’s wildly unequal and would be genuinely alarming.

The column authors find a drastically lower differential - a roughly four-times multiple between top and bottom quintiles, a level of relative income equality befitting a free enterprise system, in which achievement is rewarded.

How do analysts arrive at such different results?

We don’t need Sherlock Holmes to solve this mystery. Most conventional measures of income exclude taxes, so income at the top is significantly inflated. The upper fifth pays taxes equal to about one-third of its income. Indeed, it pays more than 80% of all federal income taxes.

At the bottom, most measures ignore a large portion of the safety net which supplements meager income in the lowest quintile. Various official income measures exclude all in-kind transfers, such as the major health care benefit programs Medicare (depressing the measured income of the elderly poor) and Medicaid (reducing the income tally of the poor of all ages) and the $70 billion food stamp program (aka supplemental nutritional assistance program, or SNAP).

Gramm and Early start their analysis with earned income, i.e. wages and salaries (including self-employment), employer-paid benefits, and earnings from savings and investing. The latest year for which comprehensive data is available is 2017, when average household earned income was $296,000 in the top quintile and $4,900 in the bottom quintile. Thus, the 60:1 income differential cited above.

Adjusting the top quintile for $110,000 in taxes paid (federal, state and local taxes of various kinds) leaves after tax income of about $186,000.

The bottom quintile paid virtually no income taxes. Actually, these households received cash from the IRS in the form of the “refundable” Earned Income Tax Credit (EITC). The column’s co-author John Early provided me data showing that the IRS paid an average of $1,900 to each of the 25 million households at the bottom. This offsets most of the bottom quintile’s payment of roughly $2,700 in other taxes, including $1,100 in property taxes and $1,000 in sales and excise taxes.

Clearly, it is impossible to live on after-tax income of less than $5,000. That’s why we have government social welfare programs, aka government transfers plans.

Gramm and Early find about $45,000 in government transfers to the average household in the bottom quintile ($43,100 excluding the EITC which the authors treat as a transfer rather than a tax adjustment). In aggregate, that’s about $1.1 trillion going each year to the 25 million households in the bottom fifth.

So, those at the bottom have about $47,200 in available annual resources to meet their needs - and then some.

Thus, the column authors conclude that the real income differential ratio is about 4 to 1.

Nevertheless, as Gramm and Early say in their column “The published census data for 2017 portray the top quintile of households as having almost 17 times as much income as the bottom quintile.”

Really? Why is that?

The overall reason is that we are still using official data sets and analytics created a half century ago in the 1960s, when government programs and political issues were vastly different. At that time, the focus was on the War on Poverty then being launched.

Then and now, taxes don’t matter much in analyzing income near and below the poverty line. As outlined above, the poor and near-poor don’t pay significant taxes.

In analyzing income disparity, today’s hot issue, taxes are critically important.

Now, why are in-kind transfers not counted? Because, as John Early explained to me, “Before the War on Poverty, most government transfers were paid in cash. So it wasn’t deemed worthwhile to tally and include minor in-kind transfers.”

Non-inclusion has persisted to the present, despite that in-kind transfers now total over a trillion dollars annually. Ironically, the first shot fired in the War on Poverty was not counted. In 1964, in-kind food stamps were introduced to eliminate hunger, the worst symptom of poverty - and weren’t counted, and still aren’t.

This is not simply a saga about statistics gone awry. As the Gramm-Early column warns, the faulty information fueling the hue and cry about supposed income inequality could wind up altering the very foundations of our economic and political system.

Jahncke Comment:Good Morning Two weeks ago, the Wall Street Journal published a column (attached) of major importance in this election cycle, in which Democrats have proposed policy changes that would change America fundamentally -- imposing huge tax increases upon high-earners and the wealthy in order to fund massive expansion of social welfare programs, such as Medicare for all. The WSJ column suggested that calls for such fundamental change are based largely upon a distorted picture of income inequality. It showed that income after payment of taxes and receipt of income redistributions is already largely equal, despite widespread belief to the contrary. The column revealed that conventional measures of income inequality omit taxes paid as well as all in-kind benefit tranfers, such as food stamps. These omissions overstate income in upper segments of the population and understate income in the lower segments. I have written “a column about a column,” providing more explanation, detail and historical background about the anomaly of these omissions, after extensive conversation with the co-authors of the WSJ column. Attached Spreadsheet:For those with further interest in income inequality, I’ve attached a spreadsheet I prepared based upon the WSJ column analysis and supplementary data provided by co-author John Early. The first five columns derive the 4 to 1 ratio of income at the top to income at the bottom which Gramm and Early presented in their column. Column (6) shows that government transfers constitute the majority of income in the bottom 40% of the population. The next column (7) shows the amount of the increased transfers and taxes that would be necessary to bring about absolute income equality across 80% of the population via increased taxes on the top 20%, as reflected in column (8). Column (9) shows that the tax rate on the top quintile would have to double to accomplish this - from 36.9% in column (4) to 69.7% in column (9), a massive increase, certain to have significant consequences. Also of consequence would be the negative impact upon society’s work ethic as government transfers grew to a majority of income for over half the population, specifically with transfers growing from 55.5% to 73.0% of total income in the lower-middle quintile and from 26.9% to 45.1% in the middle quintile, as reflected in column (10). As Gramm and Early write in their column, “In 1967, when the funding for the War on Poverty started to flow, almost 70% of prime working-age adults in the bottom quintile households were employed. Over the next 50 years, that share fell to 36%.”Radio Interview:I discussed the WSJ column and declining workforce participation in the lowest quintile onWTIC radio with Todd Feinburg on November 5thColumn (11) shows that the upper quintile would be required to pay approximately $2.4 trillion in additional annual taxes to fund income equality across the other four quintiles. This enormous amount is roughly equivalent to the $2.05 trillion cost that Elizabeth Warren has offered as the cost of her Medicare for all proposal, which she claims would entail no tax increases on the middle class.

Biden Wants a 15 Minimum Wage. Heres What People Say It Would Do to the Economy

Eric Morath Wall Street Journal

Date Posted:: February 3, 2021
Is Database:: Database

Raising the federal minimum wage to $15 an hour could lift 1.3m Americans out of poverty but also lead to 1.3m job losses by 2025, according to the Congressional Budget Office. Impact varies by state, with rural areas facing more severe consequences.

The proposal to raise the federal minimum wage to $15 an hour has sparked debate over its economic impact, with potential benefits and drawbacks. Proponents argue it could lift 1.3m Americans out of poverty and increase pay for 27m workers, enhancing consumer spending and reducing reliance on public assistance by $13.4bn to $31bn annually. However, opponents warn of significant job losses, particularly in low-wage sectors like leisure and hospitality, which lost 3.8m jobs last year. The Congressional Budget Office estimates a potential loss of 1.3m jobs by 2025. The impact varies by state, with rural areas like Mississippi, where half of workers earn $15 or less, facing more severe consequences. Some economists suggest that businesses may turn to automation or off-the-books employment to mitigate costs, while others highlight the minimal job loss observed in areas with existing wage increases. The debate underscores the need for a nuanced approach considering regional economic conditions.

Takeaways by Macro Roundup^® AI

The Congressional Budget Office estimates a $15 federal minimum wage would eliminate 1.3m jobs by 2025, while proponents say it would lift 1.3m Americans out of poverty and raise pay for 27m workers.
Supporters of the $15 minimum wage argue it would cut reliance on public assistance by $13.4bn to $31bn annually and boost consumer spending, while opponents warn of job losses in low-wage sectors such as leisure and hospitality, which lost 3.8m jobs.
Economists argue the effects of a $15 federal minimum wage would vary by state, with rural areas such as Mississippi, where half of workers earn $15 or less, facing sharper consequences, and some businesses shifting toward automation or off-the-books employment.

Maybe a useful table, $15 An Hour As A Share Of Median Wage By State

Biden Wants a 15 Minimum Wage. Heres What People Say It Would Do to the Economy: Extended Excerpt Image 1

Note Hassett is quoted, "....“It’s a potentially catastrophic policy error,”Kevin Hassett, former President Donald Trump’s top economic adviser, said of the $15 minimum wage. The pandemic, he said, pushed many small businesses to the brink of bankruptcy, but those restaurants and other firms are holding on, expecting profits later this year when the economy can open up. A minimum-wage increase would cut into those expected profits and cause businesses to close, he said. “It’s going to cost a lot of people their jobs.” Mr. Hassett said low-wage workers have been disproportionately harmed by the pandemic, and that the government should support them through direct payments rather than mandating that private firms raise wages...."

Eric Morath, "Biden Wants a $15 Minimum Wage. Here’s What People Say It Would Do to the Economy,"Wall Street Journal, February 3, 2021, https://www.wsj.com/articles/biden-wants-a-15-minimum-wage-heres-what-people-say-it-would-do-to-the-economy-11612348201

Biden Wants a $15 Minimum Wage. Here’s What People Say It Would Do to the Economy.

President Biden says his proposal to raise the federal minimum wage to $15 an hour will lift many low-wage workers out of poverty, but some businesses and economists warn it could cost jobs as the U.S. recovers from pandemic layoffs.

Mr. Biden endorses a plan to more than double the wage in steps over four years, noting that at $15 an hour, a job could support a family of four and it wouldn’t live in poverty. The president’s advisers also say raising the wage from $7.25 an hour, where it has stood since 2009, would show gratitude to essential workers at grocery stores and warehouses who stayed on the job during the coronavirus pandemic and would boost the economy by allowing low-wage workers to spend more.

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Some large national employers have done well during the pandemic, Bharat Ramamurti, deputy director of Mr. Biden’s National Economic Council, said in an interview. “The compensation for their employees hasn’t necessarily reflected that. Raising the minimum wage is one way of giving workers a more fair slice of the revenues that they help generate.”

Several states, including California, Florida and Massachusetts are already on a path to reach a $15 minimum wage in coming years, but Mr. Ramamurti said the floor should apply to areas with a lower cost of living. A federal minimum-wage increase requires congressional approval.

“No matter where you work in America, if you work full time or 40 hours a week, you should not live in poverty,” he said. “A $15 minimum wage accomplishes that.”

Economists are divided on the effects of the $15 minimum wage. Some have looked at the patchwork of state and local increases and found little job loss relative to nearby areas with lower minimums. But others say jobs losses tied to a $15 minimum wage could be more severe, especially in states with a relatively low cost of living.

The impact would be felt in more rural states, such as Mississippi, the opponents say. Half of all workers there earned $15 an hour or less in 2019, according to the Labor Department. That includes dishwashers, cashiers, firefighters and construction laborers. Nearly half of workers in Arkansas, West Virginia and Louisiana made less than $15 an hour.

The previous high point for the federal minimum wage was set in 1968, at about $12.25 an hour, when adjusting to 2020 dollars. If the current rate were adjusted for inflation since it was set in 2009, it would be just less than $9 an hour.

Opponents of a large increase say policy makers should be especially concerned with job losses in low-wage industries, such as the leisure and hospitality sector, which shed 3.8 million jobs last year.

More than 37% of workers who earned the federal minimum wage in 2019 were employed in restaurants, hotels and other parts of the hospitality sector, according to the Labor Department. Retail workers accounted for nearly 23% of minimum-wage earners, and education and health employees, including home health aides, represented 14%.

“It’s a potentially catastrophic policy error,” Kevin Hassett, former President Donald Trump’s top economic adviser, said of the $15 minimum wage. The pandemic, he said, pushed many small businesses to the brink of bankruptcy, but those restaurants and other firms are holding on, expecting profits later this year when the economy can open up. A minimum-wage increase would cut into those expected profits and cause businesses to close, he said. “It’s going to cost a lot of people their jobs.”

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Mr. Hassett said low-wage workers have been disproportionately harmed by the pandemic, and that the government should support them through direct payments rather than mandating that private firms raise wages.

The nonpartisan Congressional Budget Office found in a 2019 study that raising the federal minimum wage to $15 an hour by 2025 could cost 1.3 million Americans their jobs. The same study found the higher level could boost the pay of about 27 million workers and lift 1.3 million Americans out of poverty.

Many businesses support increasing the minimum from $7.25 but don’t endorse a $15-an-hour level.

“While we continue to support an increase in the federal minimum wage, we believe that the increase should be thoughtfully designed to reflect regional differences in wage rates and to ensure that the increase does not undermine small business recovery,” said Joshua Bolten, president of Business Roundtable, a lobbying group that represents chief executives of large companies.

The U.S. Chamber of Commerce and Walmart Inc. Chief Executive Doug McMillion have made similar statements. Walmart, the nation’s largest private employer, starts workers at $11 an hour.

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Walmart in a statement said its starting-pay rate is “more than 50% higher than the federal minimum wage, which Washington hasn’t changed in more than a decade. We support efforts to raise the minimum wage while we continue to make investments in our associates.”

Some other large employers, including Amazon.com Inc. and Target Corp. have raised their starting wages to $15 an hour.

Paul Flick, chief executive of Premium Service Brands, said more than doubling the minimum wage would cause franchisees for the brands his Charlottesville, Va., firm, operates—including 360º Painting, Handyman Pro and Maid Right—to raise prices.

“I’m not opposed to an increase, but more than a 100% jump is crippling,” he said. “That can’t be absorbed, so it has to be passed on to the customer…and if they can’t afford to buy the service then that means layoffs.”

While 29 states have raised their minimum wages above the federal floor, worker advocates say a higher mandate is also needed because employees in large cities such as Atlanta, Houston and Philadelphia can be paid as little as $7.25 an hour. Georgia, Texas and Pennsylvania follow the federal rate.

Wanda Lavender, 39 years old, said she earns $12 an hour in Milwaukee, Wis., as an area manager at Popeyes restaurants. She took the position because it offered a raise from the $9-an-hour day-care job she held. Wisconsin is among the states with a $7.25-an-hour minimum.

She works 40 to 60 hours most weeks but said it is still a struggle to pay her rent and electric and phone bills. An increase to $15 an hour would give her more breathing room and allow her to spend more time with her children. Like Ms. Lavender, minimum-wage employees are disproportionately women and Black workers.

“I miss the field trips and the performances and the parent-teacher conferences,” she said. “I can’t take a day off to be with them because otherwise I won’t make my bills.”

Arindrajit Dube, an economist at the University of Massachusetts-Amherst, found little impact on employment in his study of minimum-wage increases, but he saw clear poverty-fighting benefits.

“Raising the minimum wage is going to lift millions out of poverty, and those families won’t need to rely on government aid,” he said.

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The Economic Policy Institute, a left-leaning think tank, said a $15 minimum wage would lower expenditures on public-assistance programs by between $13.4 billion and $31 billion annually, in the form of fewer tax credits and less nutrition assistance. Those effects are why some Democrats say a minimum-wage increase could advance through a process known as reconciliation, requiring just a simple majority in the Senate.

Going outside those reconciliation procedures would likely prompt a filibuster, which would require 60 votes to overcome. That is unlikely in the closely divided Senate, given widespread Republican opposition to a $15 minimum wage.

Jonathan Meer, an economist at Texas A&M University, said a $15 minimum wage will push businesses to use self-checkout kiosks and other technology to replace workers and will encourage companies to pay workers off the books.

“In rural areas of the country, people will still be working, but it won’t be for $15 an hour,” he said. “They’ll be paid under the table and therefore forgo unemployment insurance, workers’ compensation and not accrue Social Security benefits.”

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