Posts Tagged ‘chart’

labor share

The United States is now more than eight years out from the end of the Great Recession and the one-sided nature of the recovery is, or at least should be, clear for all to see.

Even as unemployment has dipped below the so-called “natural rate,” workers are far from recovering all they’ve last in the past decade.

According to the official data illustrated in the chart above, the labor share of national income remains just above the lowest level it reached in the entire postwar period. Using 100 in 2009 as the index value, the current labor share has fallen to 96.5—down from 110.24 in 2001 and 114 in 1960.

The question is, how low can the labor share go?

corp taxes

One of the rationales for the great Republican tax heist of 2017 is that American corporations desperately need tax relief.

However, as is clear from the chart above, the current corporate tax rate is already very low—not absolutely (since it was in fact lower in 2009, when corporate profits fell during the Great Recession), but certainly in comparison to the rest of the postwar period.*

Today, the effective corporate tax rate in the United States is only 20.4 percent, lower almost by half than the much-ballyhooed statutory rate of 38.91 rate and less than half of what it was in the mid-1980s.

One can only imagine, then, how low the effective rate will be if and when the statutory rate is reduced according to the tax bills passed through the U.S. House of Representatives and the Senate. They both cut it to 20 percent, on a permanent basis—which is the biggest one-time drop in the business tax rate ever.

 

*The effective corporate tax rate is defined here as the percentage difference between corporate profits before and after tax (both calculated without IVA and CCAdj adjustments), according to statistics from the U.S. Bureau of Economic Analysis.

Estate

This one is for my students—and everyone else who is unaware of exactly how the current estate tax works and who is affected.

As it is now, the estate tax affects a tiny group of very wealthy Americans, applying only when someone leaves assets worth more than $5.49 million to their heirs. Together, parents can leave $11 million to their children without paying a penny in estate taxes. Thus, according to 2016 data from the Internal Revenue Service, only 5,219—or 0.2 percent of the total—left estates large enough to qualify for the tax.

The total assets in those estates (the left column of the chart above) amounted to $107.8 billion, consisting mostly of stock, bonds, and other business assets. (The rest was cash, real estate, and art.) Of that total, only $2.7 billion—or 2.5 percent—consisted of “farm assets,” that is farm land and other assets used in conjunction with a farm or agricultural business.

After all the adjustments were made (including debts and fees), the taxable estates (the center column) were reduced to $65 billion.

And the taxes on those estates (the right-hand column) amounted to only $18.3 billion.

So, we’re talking about a gross tax rate of only 17 percent on the estates of only 5,219 people, which represents only 0.2 percent of the Americans who died in 2016.

The heirs of the very small group of wealthy people like them are the only ones who in future years will benefit from current Republican plans to repeal the estate tax. The rest of us will pay the bill.

Chart of the day

Posted: 17 November 2017 in Uncategorized
Tags: , , ,

pyramid

On Wednesday, I referred to the wealth pyramid in the United States. But I didn’t really represent that pyramid in the chart I provided.

Here it is, above, with the wealth share of the bottom 50 percent (in red), the middle 40 percent (in blue), and the top 10 percent (in green)—a wealth pyramid for each year, from 1962 to 2014.

wealth-pyramid-2014

Or, here’s another, if you prefer a three-dimensional version of the latest year for which data are available. In 2014, the wealth share of the top 10 percent was 73 percent, while the middle 40 percent had 27 percent of net personal wealth. And the bottom 50 percent? It was exactly zero.

Now that is a real wealth pyramid!

profits abroad

Thanks to the release of the so-called Paradise Papers, and the additional research conducted by Gabriel Zucman, Thomas Tørsløv, and Ludvig Wier, we know that a large share of the surplus captured by corporations is artificially shifted to tax havens all over the world. This, of course, is on top of the conspicuous tax evasion practiced by the individual holders of a large portion of the world’s wealth.

Thus, for example, U.S. multinational corporations now claim to generate 63 percent of all their foreign profits in six tax havens, the most prominent being the Netherlands, Bermuda and the Caribbean, and Ireland. This is 20 points more than in 2006.*

What this means is that, in the tax havens themselves, low tax rates can generate large tax revenues relative to the size of the economies. But it also means large multinational corporations can play off one tax have against others, and shift their profits to those with the most generous laws and regulations—as Apple has recently done, by relocating tens of billions of dollars from Ireland to the small island of Jersey (which typically does not tax corporate income and is largely exempt from European Union tax regulations).

tax loss

It also means that the putative home countries of the multinational corporations lose potential tax revenues, which means a larger tax burden is imposed on others, especially individuals and small businesses.

In the case of the United States, Zucman and his colleagues estimate that the United States loses almost 60 billion euros to tax havens (about three quarters from European Union tax havens and the rest from tax havens elsewhere), which amounts to about 25 percent of the corporate tax revenue it currently collects.

As Zucman explains,

Tax havens are a key driver of global inequality, because the main beneficiaries are the shareholders of the companies that use them to dodge taxes.

Clearly, the existing rules are such that large multinational corporations win twice: first, by capturing more and more surplus from their workers, whose wages have barely budged in recent decades; and second, by using tax havens to avoid paying taxes on a large portion of that surplus, thus shifting the tax burden onto workers at home.

 

*I created the charts in this post based on data that have been made publicly available by Zucman, Tørsløv, and Wier.

Income shares

The latest Federal Reserve Board’s triennial Survey of Consumer Finances (pdf) is out and the news is not good—at least for the majority of Americans. They’re falling further and further behind those at the top.

Sure, on the surface, the results for the latest period of recovery from the Second Great Depression appear to be positive. Between 2013 and 2016, real gross domestic product in the United States grew at an annual rate of 2.2 percent, the civilian unemployment rate fell from 7.5 percent to 5 percent, and the annual rate of inflation averaged only 0.8 percent.

However, data from the 2016 Survey also indicate that the shares of income and wealth held by affluent households have reached historically high levels—and, for the bottom 90 percent, they continue to fall.

For example, examining the chart at the top of this post, the share of income captured by the top 1 percent of families, which was 20.3 percent in 2013, rose to 23.8 percent in 2016. The top 1 percent of families now receives nearly as large a share of total income as the next highest 9 percent of families combined (percentiles 91 through 99), who received 26.5 percent of all income—a share that has remained fairly stable over the past quarter of a century. Correspondingly, the rising income share of the top 1 percent mirrors the declining income share of the bottom 90 percent of the distribution, which fell to less than half (49.7 percent) in 2016.

wealth shares

And the degree of inequality in the distribution of wealth is even worse. The share of the top 1 percent climbed from 36.3 percent in 2013 to 38.6 percent in 2016, surpassing the wealth share of the next highest 9 percent of families combined. After rising over the second half of the 1990s and most of the 2000s, the wealth share of the next highest 9 percent of families has actually been falling since 2010, reaching 38.5 percent in 2016. Similar to the situation with income, the wealth share of the bottom 90 percent of families has been decreasing for most of the past 25 years, dropping from 33.2 percent in 1989 to only 22.8 percent in 2016.

net worth

Another way of illustrating the grotesquely unequal distribution of wealth in the United States is in terms of median net worth (as in the table above). As it turns out, the median net worth of the top decile is more than four times the level of the next highest decile group and more than 230 times that of the bottom two deciles—in both cases, even larger than the gaps that existed in 2013.

No one in charge—whether in the government, at the head of large corporations and banks, or in the discipline of economics—has a single idea or policy to offer to fix these growing income and wealth disparities.

And the rest of us? Once again, we’re learning to appreciate the “Feelin’ Bad Blues.”

adamsmith03

Adam Smith’s Wealth of Nations makes for uncomfortable reading these days. That’s because, as my students this semester have learned, the father of modern mainstream economics—who has become so closely (and mistakenly) identified with the invisible hand—held a narrow theory of money and advocated extensive regulation of the banking sector.

This is contrast to the obscene growth of banking in recent decades, which Rana Foroohar observes “isn’t serving us, we’re serving it.”

According to Smith, the “judicious operations of banking” did nothing more than convert dead stock into active and productive stock—”into stock which produces something to the country.”

The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby to increase very considerably the annual produce of its land and labour.

Moreover, Smith also argued, banks were susceptible to speculative crises. Thus, even in his system of “natural liberty,” the banking sector needed to be regulated, in order to lessen the likelihood of such crises and to minimize the suffering of the poor when they did happen.

To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.

Those warnings and regulations, of course, disappeared from contemporary mainstream economics—even as the financial sector continued to increase in size and significance within the U.S. economy.

finance-profits workers

Today, financial profits (the blue line in the chart above) represent more than a quarter of total corporate profits in the United States, although the financial sector provides only 4.3 percent of American jobs (the red line in the chart).

finance-profits inequality

Moreover, as the profits of the financial sector (the purple line in the chart above) have grown—reaching still another record high of more than $500 billion in 2016—the distribution of wealth has become more and more unequal—such that, in 2016, the share of total wealth owned by the top 1 percent (the green line in the chart) was more than 37 percent.

And it’s not just the financial sector. As Forohoor explains, corporations outside the banking sector are copying the spectacularly successful model:

Nonfinancial firms as a whole now get five times the revenue from purely financial activities as they did in the 1980s. Stock buybacks artificially drive up the price of corporate shares, enriching the C-suite. Airlines can make more hedging oil prices than selling coach seats. Drug companies spend as much time tax optimizing as they do worrying about which new compound to research. The largest Silicon Valley firms now use a good chunk of their spare cash to underwrite bond offerings the same way Goldman Sachs might.

The fact is, financial wheeling and dealing has—after a brief interlude—returned as the tail that wags the economic dog in the United States. It manages to capture an outsized share of profits, even as it creates increased instability and obscene levels of inequality.

It should be clear to all that finance has been fundamentally transformed since Smith’s day, from a highway that was supposed to serve us into a master that we serve.