The Des Moines Sunday Register published a lead article (Page 1) titled, “The rich keep getting richer”. (See link below.) Included were a number of misleading statistics or misleading conclusions based on the statistics. For example, according the think tank, Iowa Policy Project, the median hourly wage in 2016 was $16.04 per hour. 37 years ago, the average wage, adjusted for inflation, which is fair, was $15.91. The Register concluded, “This means a typical wage earner working 40 hours per week for a full year would have seen a real increase of $270.40 over a 37 year span.” While the statistics are technically true, you cannot logically conclude and that any specific person or group of people did not move themselves from a lower wage to a significantly higher wage. I’m sure it is true some people moved down while some people moved up. An interesting study would be to see how wages correlate to the number of years in the employment market. It would be interesting to know the median starting hourly rate for a young inexperienced worker versus and an experienced worker who has been in the labor market to 30 years. The fact that the average stays about the same my be a problem, but almost no one stays at the average wage for 37 years.
Another statistic was that the number of people who earned $1 million or more during specific years increased from 5,031 in 2010 to 8,325 in 2015. Their “slice” of the state’s total adjusted gross income grew 37%. Meanwhile, the number of Iowans claiming gross incomes of $40,000 to $99,999 climbed by 23% while their slice of the state’s total adjusted gross income fell 2%. First, I would venture to guess that a significant majority of the $1 million+ earners are people who sold their businesses or had other one-time income. So, again,there is no logical reason to presume that the $1 million+ club is made up of the same people year-after-year. At the same time, from 2010 to 2015 the Iowa economy was generally continuing to improve, so values and prices of businesses likely climbed. Also, in the case of an “expanding pie”, the fact that any group gets a smaller percentage of the total does not mean that their real income is not increasing.
Finally, the Register reported that their analysis of U.S. Census data showed that the bottom fifth of earners saw practically no growth in household income – going from $13,798 in 2006 to $13,848 in 2016, again adjusted for inflation. Here again, there is no logical reason to believe that the specific group of people who were in the bottom 20% in 2006 are the same people who were in the bottom 20% 10 years later. It would be interesting to know what percent of the people in the bottom 20% in 2006 were still in the bottom 20% 10 years later. My guess is there would be some, but not a majority.
As a society we need to make sure we don’t put hurdles in front of people who are trying to improve their lot in life. In many cases this means removing government created regulatory barriers to entry into certain jobs. The Register has done very good work exposing job licensing regulations that are in place more to protect existing businesses from competition and to protect the profits of licensing education businesses, than to protect the public. Yet, the Iowa Legislature has done precious little to address this real problem for low income workers who are trying to work their way up in our economy.
Link to Register article: https://www.desmoinesregister.com/story/money/business/2017/11/25/most-iowa-wages-have-stagnated-but-rich-keep-getting-richer/818770001/
The title to an essay by A.J. Spiker’s recently published in the Des Moines Register was, “Republicans must ignore pleas to raise our taxes”. (11/262017 – see link below.) The essay advocated for not raising tax rates on carried interest income – bonuses earned by hedge fund managers and real estate development managers. He urged our Senators to make sure the tax bill did not get rid of the special low capital gains tax rate for carried interest. Regular people who earn the same type of bonuses pay taxes at ordinary Earned Income tax rates. For years, carried interest has been tax at this lower special rate and those who benefit from it simply don’t want to lose it. (The same seems to be true for people in every special interest group that gets politically favored tax breaks. The ask our elected representatives to get rid of all the special tax breaks… except for mine… which is vitally important to job creation!)
I thought that a stated goal for tax reform is to simplify our 70,000+ page the tax code. In large part, this means getting rid of the many many special interest tax breaks, and then lowering the tax rates for all. If certain individuals lose their precious special interest tax breaks and actually have to pay more in taxes, so be it. They should feel lucky for what they got in the past. This is part of “draining the swam” that our President has called for. I urge our elected federal representatives to resist the tremendous pressure that they are under from those who received the tax breaks and their lobbyists, and proceed to get rid of the carried interest and many other special interest tax breaks, and lower general tax rates for all.
President Trump has proposed a maximum 25% tax rate on income that individuals receive from “pass through entities”. Pass through entities are businesses that don’t pay corporate income taxes, but rather pass their net income each year through to the owners to be taxed as part of the owners’ individual tax return. These pass through entities include S-Corporations, partnerships, limited liability companies (LLCs), and sole proprietorships. Currently, income from pass through entities is taxed at the same rate as any other ordinary income – up to a maximum rate of 39.5%. (President Trump’s proposal for ordinary income for most taxpayers is a maximum tax rate of 35%.) He justifies the lower tax rate for pass through entities because, he says, these pass through businesses are the job creators.
This begs at least two questions: Do pass through entities really create more jobs than non-pass through entities? Even if so, why should the income of an employer be taxed at a lower rate than an employee if they earn the same amount? Tax fairness would dictate that two people with the same income would pay the same amount of tax, regardless of source.
Regarding job creation, it is important to know that pass through entities are not just manufacturers, wholesalers or retailers, who may or may not be job creators. They are also professionals such as doctors, lawyers, accountants. Most hedge funds and private equity funds are pass through entities. About 95% of all businesses are pass through entities. Of those, about 99% have revenues of less than $10 million. The 1% of pass through entities with revenues of more than $10 million earn about 83% of all profits! So, some pass through entities are very large, and many owners of pass through entities have very high incomes. Is it fair for business owners to pay at a 25% rate while regular workers with the same income pay at a 35% rate? I don’t think so.
I expect to write several blog posts on President Trump’s tax proposal. The idea of reducing tax rates is a good one – especially if the total plan is revenue neutral and doesn’t increase our $20 Trillion debt. This means that tax reform that reduces rates must also reduce special tax breaks for politically favored groups and/or reduce spending. I hope that Congress, which controls all tax legislation, will not “bet on the come” – that is assume future tax revenue will increase due to future growth in the economy. Our government uses a 10 year look forward to determine the deficit/surplus effect of any change in taxing or spending. In recent decades, it seems that all tax and spending changes have significant costs up front with the promise of savings toward the end the the 10 year period. Let’s not keep doing that.
President Trump made the right decision to give a 6-month notice to Congress that the Deferred Action for Childhood Arrivals (DACA) program will be ending. These children and young adults, who were illegally brought into the U.S. as children and have lived here for many years, should be given permanent legal status – and not be subjected to the temporary whims of any President. The vast majority of U.S. citizens agree that these young people should be allowed to stay in the U.S. legally. Even if Congress cannot come to an agreement on general immigration reform, they should be able to come to an agreement to let these kids stay. Contact your U.S. Senators and Representative and let them know that you want a permanent solution to let these young people stay in the U.S.
The Des Moines Register recently reported that Wellmark Blue Cross Blue Shield has been accused of violating federal HIPAA privacy regulations in the case of a patient with severe hemophilia. (See link to Register article below.) As reported, a representative of Wellmark was discussing the high cost of health insurance at a Rotary Club meeting last March. She gave an example of an extreme case that was costing $1 million per month. (ACA – Obamacare – prohibits insurance companies from placing any limit on the amount it will pay for patients.) She did not identify the patient by name, but described him as a 17 year old male with hemophilia. Maybe she should not have mentioned the age or sex of the patient, but that information alone did not identify who the specific patient was, and should not be considered a violation of federal privacy regulations.
Wellmark and other insurance companies must be able to cite specific high cost cases that are causing health insurance premiums to rise to unaffordable amounts. How can we openly debate ways to contain health care costs if we don’t know what is causing the high costs? Can we really afford to require insurance companies to pay out unlimited amounts for any patient? I recently heard that the last remaining company to offer individual health insurance policies in Iowa may charge more than $30,000 per year next year for a couple who are 55 years old. Health care wants are unlimited. Our ability to pay is not. We need to debate whether or not government should prohibit health insurance policies from having limits on how much they pay out for individual patients.