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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Tuesday, March 04, 2008

For Class Warfare People....

For all you socialists and Democrats that bleat incessantly about the Bush tax cuts unfairness and of that other unsupported drivel that I have heard derivatives of for decades, have a look at the above chart. As we can see, that the top 25% of earners paid 86% of all Federal income taxes. That means that the bottom 75% paid only 14% of all income taxes but it also important to note, that few mention, that these figures always exclude the deadweight and unrecoverable taxes paid as FICA, also known as Social Security, a program that will bury the United States in around 20 years. Also, I think that all Americans should pay taxes to their government, so I do not like this level of progressivity.

But more importantly, for all of those that are talking about income disparities, when one looks at the topline number, one is not looking a the full picture. Beside migration between groups from year-to-year or over longer periods of time, one also must look at thing other than the top line revenue number as reported by individuals on their tax returns, as written in an opinion piece in the unrepentantly anti-Bush and uber-liberal New York Times...
The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1.
So things may not be as bad as the shrill left makes it out to be. So, the higher paid tax filers that consume less than they spend save for the day when they don;t make as much so that they can continue to consume during these lean years.

Also, a note for all of you that are worried about the state of the US economy. I think that consumption that accounts for around 70% of GDP in recent years up from 60% of GDP in 1980 is destined to drop to around 65% of GDP. Before all of you that are so worried about the middle class, think of these 2006 GDP numbers....
$13.2 trillion x 5%= $651 billion
So, if consumption drops by 5%, this is approximately $650 billion. If one looks at the current account deficit of nearly $800 billion, then one has to see that such a large number, around 7% of GDP is unsustainable. So, the current account deficit is this...
Current account=net balance of trade + net income from investments + net transfers payments received (such as foreign aid)
So, by lowering consumption, less goods will be imported. The theory is that foreign economies may not slow as much as the US and therefore the trade balance may fall. But most importantly, by lowering consumption, savings are increased by a like amount. So that the savings deficit by Americans is eliminated. A much healthier longer term situation. Also, keep in mind, that this shift from consumption to savings will be over a period of years not immediately.

If this post is confusing, it is.


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