The Self-esteem movement runs through our University system, but it is not from the students. University administrators need to stop patting themselves on the back. This is a MAJOR disconnect.

In a survey employers, providers (fancy way of saying educational institutions) and youth were asked to respond the questions at the bottom of the graphic.
 
Which entity is the odd-man out? Good Self-esteem runs through the halls of educational institutions throughout the land.

Maybe Denial IS a river and some really bad "stuff" flows through it.


Source: The Business Insider

Short explanation of why the Social Security Tax is a "regressive tax" and negatively impacts lower income people. Kinda important to know when discussing taxes in a larger context...

One of the discussions regarding tax policy pertains to "fairness" in the tax code.  One of the issues is that fact that it is possible for lower income people to have a higher "effective tax" rate on income than someone who makes lot of income.  I will use just one example to show how this works---the Social Security Tax.

The Social Security tax that an individual pays on earned income is 6.2%(note: RIGHT now that rate is 4.2% as a result of recent "stimulus plans" BUT this reduction is considered temporary, so I will just use the  6.2% for our  purposes here).  Also, keep in mind the individuals employer pays the same 6.2% of income on behalf of the employee, but we will ignore that as well.

This 6.2% tax is levied on all income up to $110,000.  The tax is NOT levied on the income ABOVE that amount, nor is it levied on dividends or capital gains from the sale of assets (physical or financial). This is an important point!

So, the maximum amount an individual would have to pay in Social Security Tax in a given year would be $6,820 ($110,100 X 6.2%).  Read that again. 

Let's do the math for someone who earns $50,000 and $200,000 per year and see the impact on effective tax rates for both of these people.

The person that makes $50,000 per year would pay $3,100 in Social Security taxes.  The "effective tax rate" for this individual (just for THIS tax only) would be 6.2% of income ($3,100/$50,000 X 100). Makes sense, right?

The individual who makes $200,000 would have the FIRST $110,100 of that income subjected to the Social Security tax BUT the remaining $89,900 would NOT be subjected to the tax. 

We already established at the outset, this would result in an maximum tax of $6,820.  As a percent of this individuals income, this would represent 3.4% of income earned ($6,820/$200,000 X 100).

So, while the higher income worker pays more in nominal dollars ($6,820 vs $3,100), the lower income worker pays a higher effective tax on their income (6.2% vs 3.4%).

This tax is termed a "regressive tax". Meaning the lower your income, the higher the impact the tax has on your total income (in percentage terms).

Is this "fair"? Not sure, but it IS the way it is---at least for now.

Now you know. Go dazzle your friends, family and teachers with this new found knowledge

Nice graphic showing where a majority of new jobs have been created in the last year. Is this a "Do you want fries with that?" economic recovery???

The graphic below shows the sectors where a preponderance of job growth has taken place in the last year.  The color key for each job category in along the bottom and the number of jobs created is on the vertical axis. The job categories are stacked to show the total jobs created in each sector.

""Leisure and hospitality, health care and social assistance, retail and temporary jobs — all low wage sectors — have been responsible for over half (51%) of the private sector job growth the last year.""---The Big Picture Blog

I ask my students to "go deeper" when confronted with a published headline statistic (whether it is a govt or private sector stat) reported in media.  It often does not tell the whole story.

It is not only the quantity of jobs created, but the quality of those jobs as well. 

I am not smart enough to know if this a good ratio---51% low wage jobs to 49% everything else. It is good for the workers who get those jobs, but what does it say about the overall health and longer-term outlook for the economy?  I don't really know. What do you think?

Source: The Big Picture Blog

Quick look at today's just release Employment Report. Unemployment rate decreased but probably for the wrong reason...

Basic data from the Employment Report for November that was just released today by the Bureau Labor Statistics (BLS.gov).

The first graphic below (clipped from the actual report) shows the overall numbers used to calculate the Unemployment Rate. 

The primary reason the unemployment rate decreased from 7.9% to 7.7% is from a decline in the "Civilian Labor Force" (highlighted in yellow) of 350,000 people.  This means 350,000 people left the labor force for some reason.  It could have been they gave up looking for work altogether, they returned to school full time, or retired.  This last reason is probably a big mover of that number, but that is hard to parse from the avalable data.  It appears the rate is decreasing not because of significant job creation, but because of a smaller labor force as a result of people exiting the work force.

The civilian labor force is the sum of the number of EMPLOYED and UNEMPLOYED in the economy. 

Be careful! When I say "Unemployed" I mean the number of people OFFICIALLY classified as unemployed by the BLS according to their definition. 

This second graphic shows the general categories of jobs and how many (in thousands---add 3 zeroes to the numbers you see below) were created in each category. I higlighted the significant numbers.

Retail, as expected with holiday hiring, led the way.  The perponderance of these jobs are likely part-time jobs to staff stores and will dissappear in January/February.  These jobs accounted for 36% of the jobs created in November. If one is looking at the quality of jobs, it is open to intrepretation as to whether this is a positive sign or not.

Interesting graphic showing how someone earning $69,000 or $29,000 ends up with the same income (cash and non-cash) after taxes/benefits/subsidies are factored in/out. Enlightening regardless of your politics.

This chart has been bouncing around various blogs. I tried to find something to counter the points made here but could not find anything substantial. I made some edits, just to highlight reference points to make it clearer.

The chart suggests that a single mother (with 2 children and lives in Pennsylvania) earning a gross income of  $69,000 in a year ("D") would have a net income (after taxes and adding in any cash and non-cash benefits) of $57,327 ("C").

IF a different mother earned a gross income of $29,000 ("A") in a year, she would have a net income (after taxes and adding in any cash and non-cash benefits) of $57,045 ("B"). 

Their after tax/after benefits (cash and non-cash) would just about equalize their income.  The mother with the $69,000 income would be a net "loser" of $11,673 and the mother with an income of $29,000 would be a net "gainer" of tax dollars/subsidies of $28,045.


Source: Here

This is interesting BUT there is more!  If this data is correct and this is the system people operate under, there is a GLARING unintentional consequence here.  Can you see it?

Look at the income level and benefit level at point "B", $29,000.  This this mother earns $1.00 more what happens to her level of benefits overall?  Yikes, they decrease by much more than the extra dollar she earned from, perhaps, a raise or a promotion.  This is a significant penalty for someone who is just getting by. 

So, what happens to the incentive to earn more, and by implication to be more productive? Notice the same thing happens to someone when they reach the $45,000 income level. The next dollar earned is VERY costly. 

People trying to get by and do the best they can are going to respond to the real-life, immediate, incentives put in front of them. 

This does not appear to be a system that promotes self-sufficiency as people climb the income ladder. 

Maybe I am looking at it wrong.  What do you think?  Tell me where I am going off the rails.



See the pictures here of how Amazon.com is going to cause a long and painful death for Walmart and other Brick and Mortar businesses.

I have not seen these pictures before of an Amazons.com's "Product Fulfillment Center".  Fancy name for gigantic warehouses around the country that serve a particular geographic area. 

It seems this should be something Wal-Mart fears long-term. 

Technological change advancement, peoples willingness to use that technology, and new patterns of buying behavior will serve to accelerate "creative destruction" in the retail sector. 

A Tax To Die For...Here I briefly explain another "Fiscal Cliff" tax issue: The Estate ("Death") Tax...

One of the least talked about aspects of the "fiscal cliff" is the Estate Tax, sometimes referred to as the "Death Tax".  It is the Federal Tax owed on the value of a what someone leaves behind to their heirs.  Here is how it works, in its simplest terms.

See the graphic below (the left hand potion of the graphic) for the tax rate as it is now, as it might be if the "Bush Tax Cuts" expire and what the President would like it to be. 

You can see the tax rates expressed as a percentage and the amount that is EXEMPT from the tax in BOLD.  Any estate with an assessed value UNDER these threshold amounts would not be subject to the estate tax at all.

Example: at the "Current Policy" if an estate is valued at $6.12 million the first $5.12 million is exempt from taxation, but the Estate Tax would claim 35% of the remaining $1 million---$350,000 tax due.

Under Obama's Policy $2.62M ($6.12M - $3.5M) would  be subjected to a 45% tax = $1.18M tax due.

If Bush Taxes Expire $5.12M ($6.12 - $1M) would be subjected to a 55% tax = $2.82M tax due.

Source: Wall Street Journal

The circles on the right show how much in potential revenue each of these policies my bring into the Federal coffers (color coded to the info on the left) over a 10 year period (divide by 10 to get yearly tax revenue). 

One of the difficulties with this tax is that it can place the heirs of the deceased in a awkward and potentially damaging financial situation.

Refer to the  example I used above.  Assume this was your grandparents situation but ALL of the estates value was tied up in land and a nice house that sits on that land. Assume in their last will and testament they bequeathed it to you because they wanted it to stay in the family. 

Because all of the value is in a "non-cash" asset, YOU would have to come up with the $350,000 (OR the tax under the other alternative measures) to pay the Estate tax. OUCH!  If you could not pay the tax, then you would be forced to sell the property to pay the tax (or borrow it, I suppose)

I tend to think most estates in the US are this way---values are tied up in non-cash physical assets like houses and land and heirs struggle to maintain what they have been bequeathed. 

Whether that is right  or wrong, well, I don't know and never will.  I don't have any rich people in my family so this is an issue I can only write about and not actually experience.  :)

Could not resist. Low Hanging Fruit. Picture of Romney visiting a McDonalds hours before meeting with the President. See my addition to the photo.

One element of the Fiscal Cliff explained here. This one LIKELY will affect your paycheck in January. Ouch!

One element of the "fiscal cliff" that just about all wage earners, regardless of income, are affected by is the 2 percentage point DECREASE in the Social Security tax that workers have enjoyed since 2010.  (You didn't know you had a tax cut??) .  It is currently at 4.2% from its "normal" longstanding 6.2%.  The tax is applied on your gross pay (wage X hours worked. Or from your salary if you are a salaried worker).

This temporary reduction was implemented as part of a "fiscal stimulus" bill/law. It served as a quick and easy way to get money into the hands of people, and the assumption was that it would likely be spent in the economy and provide a needed jolt for the demand for goods and services.

This reduction seems small for each person, and it is, but in the aggregate it is roughly about $120 billion on an annual basis injected into the economy.

Because it amounts to so little per person the economic thinking is people wont notice it, hence will be more likely to spend it than to give it much thought about saving it.  This is not entirely true for all people, but it does seem a very likely outcome.

The trade-off from this particular tax cut is that the $120 billion is supposed to pay Social Security benefits for current recipients.  Those benefits are going to be paid regardless.  This will necessitate borrowing to compensate for the tax cut.

There is no such thing as a free lunch.

The consensus right now seems to be this tax cut will expire and go back to 6.2%.  But, as with all things political, we will have to wait and see.

Yesterday I showed you how someone with an income of $45,000 can pay NO Federal income tax (47%-er) . Today I use the same household and show you how they are a major tax PAYER. These things are never as easy as they appear...

Yesterday I wrote a blog entry on how a person or household with an income of $45,000 can end up paying no Federal Income tax on that income and can actually be a net recipient of tax dollars (.  See that HERE.

Today, I want to show that this same household DOES pay federal taxes, but not necessarily the Income Tax. The taxes they cannot escape paying are Payroll Taxes,---Social Security and Medicare taxes. These taxes are dedicated to paying benefits for retirees and other eligible recipients.

The Social Security tax is 6.2% of income and it is applied to income earned up to $110,100.  Any income OVER this amount is NOT subject to the Social Security tax.  So the MAXIMUM that can deducted from someones paycheck is $6,826.20 ($110,100 X 6.2%).  For our sample household, they would pay $2,790 ($45,000 X 6.2%) in Social Security taxes.

The Medicare tax is 1.45% of income and it has NO INCOME LIMIT! As with tax policy, it depends of the what the definition of "income" is. Capital gains and dividends are excluded from the Medicare tax (Social Security tax too), which are generally the province of "the wealthy".  So, our household pays $652.50 ($45,000 X 1.45%) in Medicare taxes.

Remember, these are MANDATORY TAXES. 

The total payroll taxes paid by our sample household is ($6,826.20 + $652.50) $7,478.70.

Federal Income taxes AND payroll taxes both go to the same place---the Federal Governments General Budget--the Big Pot o' Money that is spent on all things federally budgeted for. Social Security and Medicare taxes make a stop through their respective Trust Funds, but only for accounting purposes.

If we add this amount to the "negative" income tax  of  $637(refunded) mentioned at the top, then our sample household effectively has a tax rate of 15.2% ($7,478.70 minus $637.00  then divided by $45,000 X 100).

In this light, our household is certainly not a "47%-er" and net recipient/taker of tax dollars, but percent-wise, they are a major contributor. 

These federal taxes are not the only federal taxes paid by our household. There is the Federal gas tax, other excise taxes levied on a variety of goods we consume, and tariffs on imported goods. These other taxes are more difficult to see, but they should be considered in the over all discussion of tax policy, in my opinion.

See here how easy it is too have a pretty good paying job (teacher?) and be a member of the "47%" at the same time. Nice graphic and my explanation of why it is so...

It is rather easy, actually, given the aggregated tax policies enacted over time.

There are some basic deductions  that you are allowed to subtract from your total income. These deductions effectively reduce the amount of income that is actually subject to the income tax.  Deductions reduce your income subject to tax dollar for dollar.

Also...

There are some basic tax credits that you are allowed to subtract from your total tax bill.  Tax credits reduce your taxes owed dollar for dollar.  Notice the difference between a deduction and a tax credit.  This is important when discussing tax policy.

Both of these are dependent on whether you qualify for them. Some everybody is entitled to and some you get only if you meet certain criteria.

Deductions and tax credits are enacted to further some social, economic, or political goal. Individually,  they are supposed to serve as an incentive to bring about a desired outcome that benefits society.  Collectively, they could serve that purpose OR collectively create problems and/or inefficiencies. 

The following graphic illustrates how a person (or household in this case--a family of 4) earning $45,000 per year in income can owe no Federal Income Tax on that income by using the available income deductions and tax credits.

Source: The Economix

 This assumes the families total income from all sources (wages, interest earned on savings accounts, and "other") is $45,000.

This couples filing status is "Married, filing jointly" (I  assume) and includes both of their incomes combined OR it could be just one of them is the sole income earner.  It does not matter.

Right off the top, they are entitled to take a deduction of $11,900 for just being married. I will keep it at that and do another posting on how your tax bill will be affected by other potential filing statuses.  This deduction ("subsidy") serves to help reduce taxable income in an effort to help defray the cost of running a household with the goal of keeping families together and encourageing couples to stay married. That is/was the intent of the tax policy.

Next, the taxpayer can deduct from taxable income, $3,800 for each person in the household who is legally dependent on the taxpayer. Generally this means children, but it could be a parent, grandparent, or other dependent. You also INCLUDE yourself AND your spouse in the calculation.  This equals ($3,800 X 4)  $15,200.  See how you and your spouse were "double counted" in the calculation, first for being married then as a member of the household.  Assuming no other deductions you are allowed to take, the your income that is ACTUALLY subject to taxation is now ($45,000 - $11,900 - 15,200) $17,900.  This amount is called your "Taxable Income".  It is derived after taking all of your legally available income deductions.

The Federal Income tax owed on $17,900 is $1,813.  If we stopped right there this is how much the taxpayer would write a check to the IRS for ASSUMING they did NOT have any "Federal Withholding" from their paychecks throughout the year.  We will assume that for this exercise, but is likely they would have had some withheld.  Any withholding would off-set the amount of tax owed, either partially or totally.

This  taxpayer now finds they are entitled to a Child Tax Credit of $2,000 ($1,000 for each child). Taxpayers with an adjusted gross incomes of $110,000 or less are eligible for this credit, so this is not necessarily a "gift" to lower income people, however it benefits them a great deal.  Remember, tax credits reduce your taxes owed dollar for dollar.

Now, we subtract that $2,000 from our taxes owed of $1,813 and we now owe -$187.00 in taxes. Sweet!!  The Child Tax Credit is considered a "refundable tax credit" which means if the credit results in a negative number, the taxpayer owes $0.00 in taxes but they are entitled to the $187.00 too!

We are not done with our tax credits yet.  The next one is called the  "EITC", which stands for Earned Income Tax Credit.  This credit is targeted towards low income people--single, married, with or without children.  It is considered a significant anti-poverty policy and enjoys significant bi-partisan support in Congress and the Presidency.  The EITC is WAY TOO COMPLICATED to explain in a few sentences. Wikipedia has a pretty good summary of it here.

This family qualifies for this tax credit too, to the tune of $450.  Because this credit is 'refundable" as well, we subtract it from our tax bill, which currently is a negative $187.00.  So if you add this credit to the the total, this family will receive a tax REFUND check of $637.000. 

This family effectively pays no federal income tax on their $45,000 AND they get an extra $637 to consume or save.

This is certainly a form of income re-distribution BUT as I mentioned earlier, both of these tax credits in particular enjoy bi-partisan support, historically. 

So, now you know how someone earning $45,000 per year can have no tax liability and receive a refund check as well. 

This is a working person (could be a teacher with THAT salary) who would be considered a member of the 47%.  Working and has a good job,  but the net recipient of tax dollars.

Hope this helps with your understanding of the issue.

The baby needs new shoes! Do you want to pay 40% of the purchase price in taxes to do so? Probably not, but you DO. See here why...

Going to buy the baby some new shoes!!

Got this idea from Mark Perry.  Go HERE for more on the subject of Tariffs on imported shoes, which is the crux of this posting.

How much in taxes, that we can actually figure out, goes to purchase a $10.00 pair of basic rubber sole canvas sneakers for a child.  We HAVE to assume these are imported from China because there is NO domestic producer of this type of shoe.

Well, I have to earn the money first. So the first taxes I encounter of payroll taxes--Social Security, 6.2% of what I make and Medicare, 1.45% of what I make. So a total of  7.65% of my income.

I calculate I would (roughly) have to earn $10.85 before taxes.

Minus Payroll Taxes (Social Security (6.2%) and Medicare (1.45%) --Total = $.85 cents

I now have my $10.00 to purchase my babies shoes, right? Sort of. I assume I am driving to the store.  Assume I am going to need gas. Gotta pay gas taxes, State and Federal on each gallon of gas I buy.

In Texas the State Gas Tax assessed PER gallon (Texas it is $.20)
Federal Gas Tax assessed PER gallon (18.4 cents---round down to $.18)

Assume I need half a gallon of gas--Total Gas taxes would be =  $.19

Texas State Sales Tax---8% (give or take depending on your locality) =  $.80

Not done yet...Gotta back track a bit.

The shoe was imported.  Imported shoes of the type (cheap!) I want to purchase have a Tariff of 48% (unless it came from Mexico or Canada---NAFTA).  I am going to round to 50% to make the math a little easier.

Assume the shoe had an assessed value of $4.00 at the point of import at Customs.  The Federal Tariff would be $2.00 (50% of $4.00).  The importer of the shoe would now have that shoe for a total cost of $6.00.  They might add a dollar for good measure and sell it to the retailer you are purchasing it from for $7.00. They in turn sell it to you for $10.00.

So, how much in various taxes have you paid on your way to purchasing a $10.00 pair of shoes.

Tariff----$2.00
Payroll taxes--$.85
Gas Taxes--$.19
Sales Tax---$.80

Total: $3.84 in taxes that I had to encounter in order to get the shoes.  That is an effective tax rate of 38.4% on the $10.00 purchase.  I did not include any Federal Income Tax on the income.  The purchaser could subject to no income tax or a high tax. I just let that go. I also am missing other taxes embedded in the price of the good, other than the tariff, that the retailer pays too. Never ends, it seems.  The effective rate is probably higher.

I am not a math person. Tell me where I am going wrong. I am a willing learner.  Thanks!

The point of this posting is this tariff of nearly 50% is regressive and hurts the poor. There is no domestic industry to protect from foreign competition. Those are LONG gone, but the tariff remains.  If Congress and the President wanted to help the poor, this is easy pickings for repeal. 

Why don't they do it???

Average hourly wages for large retailers. How accurate are they??

I have not worked retail in quite some time. I would appreciate anyone seeing this and have worked for any of these companies (or in similar one) confirming these numbers are about right or if they are high or low. From the source, it seems these are "average hourly wages", so new-hires to experienced workers wages are included. Just curious as to how accurate these are. Thanks!



Source: Quartz

My Black Friday piece of Advice, Dos Equis-Style...

"I don't go to the mall very often, but when I do I know 50% Off might save me money but it is the 50% ON that puts me in debt. Stay solvent, my friends."

I've got too much free time on my hands...

A Thanksgiving Day meal costs 71% more compared to 1986 but it takes the average worker TODAY 45 minutes less to earn the money for that meal. This must mean we are better off, right?

Have to give an economics twist on the holiday. A requirement for an Econ teacher.

Here are a couple of graphics from The Conversable Economist.

The first shows, in inflation adjusted dollars, the change in cost of a shopping basket (literally) of some typical food items needed to prepare a Thanksgiving meal. Not inclusive of everything, but a representation.


Source: The Farm Bureau Federation via The Conversable Economist

Look at the blue line.  Pretty flat over time, with a pretty big dip on the left and an up turn on the right.  This means, after adjusting for inflation, the cost of this basket of goods has remained fairly consistent.  Ok, that is good news, I suppose. 

But what about the average consumers ABILITY to purchase these goods in any given year? 

One measure is to look at how many hours of work, given a persons wage, does it take to purchase this market basket of goodies.

In 1986 the nominal average hourly wage was $8.94 (average for the year--Data HERE--BEFORE TAXES). So in 1986 a worker had to work ($28.74 / $8.94) 3 hours and 15 minutes to pay for the market basket.(the prices for each years market basket are below)

In 2011 the nominal average hourly wage was $19.46 (before taxes).  In 2011 a worker had to work ($49.20 / $19.46) 2 hours and 32 minutes to pay for the same market basket.

The average worker today worked 45 minutes less to earn the money for Thanksgiving dinner than he/she did in 1986. 

Variables to consider: If taxes and/or other deductions are higher today than the nominal wage would certainly be lower, hence take more time to purchase the market basket.  Are the quality of the goods in the basket better, worse, the same?   What else am I missing?  Start a list...

Source: Farm Bureau Federation