Gaps and Gaping Holes

You’d never believe it because of  all the noise  from the Something For Nothing Crowd, those “over-taxed, over regulated” denizens of the right wing wailers club on talk radio, and LTEs, BUT “Federal Income Taxes on Middle Income Families Remain Near Record Lows.”  For those who aren’t inclined to accept the proposition — there are numbers to back this up from the Brookings Institution in chart form.  Thus the “Taxed Enough Already” assemblage are essentially bellowing that they would prefer to have their public services like military protection and transportation systems paid for by someone else, anyone else, everyone else.

OK, if Burdensome Income Taxes aren’t holding back the recovery from the 2007-8 Recession back, how come the economy feels sluggish? There’s an interactive map which shows which states are still struggling, hint — Nevada’s in a deep green, and in this instance that’s not a good sign.

Nevada’s down 6.4% in terms of employment since December 2007, Arizona is down 4.8% in the same time period, New Mexico is off 4.6%, Mississippi is down 4%, and Alabama is down by 5%.  Nevada and Arizona have the dubious distinction of being a member of the Sand States which experienced a housing bubble. which also serves to explain why Florida’s employment is 2.4% off of December 2007 levels.

Let’s assume, once again, that capitalism works, and we might further agree on the notion that making things matters.  Manufacturing creates the goods which we exchange with one another; someone is paid to make the products, someone is paid to transport the goods, someone else is paid for wholesaling them, and someone is paid to sell them.  There is a glimmer of hope in this sector given the last report from FRED.

Future Capital ExpendituresThe line represents the percentage of manufacturers who expect to make capital expenditures (read expand) their capacity, and as of now the number stands at 31.63%.

Of course, all this depends on the pesky little intrusive concept of Aggregate Demand.  How many people need or want ‘stuff’ and are willing and able to pay for it to keep this merry-go-round moving? One of the factors which may very well be keeping the situation sluggish is the Aggregate Demand Gap.  What we do know is that demand lines track with the unemployment rate.

We can play with numbers related to regulation levels, or to taxation, or to labor quality concerns until B0ssie comes home to be milked, but the most consistent tracking between aggregate demand and sales figures is, was, and will be, employment and wage levels.

Here’s where the economic inequality factor comes into play.  Income inequality isn’t a left wing conspiracy theory about the rich getting so rich the other 99% need income redistribution to reduce the inequities.  It’s about generating the aggregate demand necessary to sustain and grow our economy.

For example, in Nevada the average income between 1979 and 2007 grew by 8.6%.   Income for those categorized in the top 1% increased by 164% while the incomes for those in the lesser brackets actually declined by 11.6%.  What we’ve ended up with is a state economy in which the average income of the top 1% is some 29.5 times greater than the remaining 99%. [EPI]  In fact, Nevada is among the top five states in which the income gap has widened, joining Alaska, Wyoming, Michigan, and Arizona. [MSN]  These facts would be meaningless without some context that serves to describe what they mean in terms of aggregate demand.

The last year for which online data is available by state (pdf) from the IRS is 2007.  During that filing year there were 1,280,234 tax returns filed by Nevadans.  Of those returns 841,451 or 65.7% were filed by people reporting $50,000 annual income or less.  189,079 were filed by those earning between $50,000 and $75,000 (14%), and another 105,870 reported earnings between $75,000 and $100,000 (8.27%). 108,548 reported income between $100,000 and $200,000 annually (8.48%) and 35,339 reported income over $200,000 (2.76%).   Here’s where the income gap rubber meets the aggregate demand road.

Some 79% of Nevadans were earning $75,000 annually or less.  If we add in those making between $75,000 and $100,000 the percentage is 87.97%.  When between 79% and 88% of the income earners in a state are looking at potential income declines the aggregate demand drops accordingly.  If income for the majority of earners can be expected to decline by about 2.41% each year over a 28 year period, then the aggregate demand gap should come as no surprise.

The generalized “1%” becomes 2.76% of Nevada’s income earning population.  Their income increased to almost 30 times the income of the remainder, by about 164%.  It’s a fine thing they are doing well, but there aren’t enough of them to sustain and grow the commerce necessary for long term, state wide, economic growth.

Thus we have a situation in which middle income earners in the Silver State are paying less in federal income taxes, but are hardly in a position to expect significant economic growth in a state in which income increases are being siphoned off to the top 2.76%.  How much more elevated might the line in the capital expenditures graph be if more people could afford more goods? Especially in those ‘sand states’ which were hardest hit in the last Great Recession?

Comments Off on Gaps and Gaping Holes

Filed under Economy, Politics, tax revenue, Taxation

Comments are closed.