Saturday, May 10, 2008

Elections, Policies and how these are determined

GS Don Morris, Ph.D.

According to the surveys, pundits and political parties, Americans are ready for change. Why? It is postulated that most of us are very concerned about the economy-it is our number one issue that drives us daily. Furthermore, we are told that the disparity of income within the American society is responsible for many of our upsets. Notice how we are being “told” what to believe and we are so “upset” that we happily accept what the news “talking heads” tell us or what our favorite cable program or blog tells us. Never mind that the facts portray a different story, you see, avoid the facts if they don’t enhance your position. I do not know why I continue to be amazed at our willingness to not research something so important-we make decisions regarding our next President, our next Congress and future economic policies based upon incomplete, inaccurate and downright deceitful statements made by individuals driven by a political agenda. Why are we willing to do the research when we are thinking of buying a car, a new home or even a new HD, flat screen television? We don’t accept THE word of the salespersons or the stores whose job it is to sell us; rather, we do the proper thing and study all of the buying details and come to a decision that is in our best interest-we want to get the best deal. Yet, when it comes to an issue like income distribution, we accept without question what we are told. Let us look at the facts regarding income today.

You are led to believe that the rich are getting richer, the poor are getting poorer and the rest are in a period of stagnation. Some pundits even produce Census Bureau data to make their case. The problem with this is we have other data from the Internal Revenue service that demonstrates the opposite of this conclusion. For example, were you aware of the following (IRS data):

· People in the bottom fifth of income tax filers in 1996 had their incomes increase by 91% by 2005.
· The top 1% saw their income decline by 21%.
· Meanwhile, the average taxpayers’ real income increased by 24% between 196-2005.
Given that this data is accurate, how can this be explained? Thomas Sowell wrote a piece a year ago that offered several explanations.1 He suggested that “wild cards” exist in data and we should be aware of them as pundits dispense them freely-of course, these good monitor readers are clueless with their understanding of such data points. Upon examination of but two of these wild cards, the truth emerges. What are the two wildcards?

· Most Americans do not stay in the same income brackets throughout their lives-millions of people move from one bracket to another in just a few years.
· Income statistics are about households or families-these vary over time, they vary between one racial or ethnic group and another and they vary between one bracket and another.

Knowing this information, have you figured out why the Census Bureau data and the IRS data are at odds with one another? Let’s examine the first wild card. Prof. Sowell suggests that when one compares the top income bracket with the bottom one over some years tells you NOTHING abut what is actually happening to real people who are moving between the income brackets during this time. Thus, The IRS data (tracks the same individuals over time) finds those in the bottom 20% of income-tax filers almost doubling their income in a decade. Ah huh, this also explains why the share of income going to the bottom 20% bracket can be going down (Census Bureau data) while the income going to the people who began the decade in that bracket is going up in large amounts. The truth is the only way to follow income levels in people is to follow actual people, not trend analysis across income brackets!

Let’s now examine the second wild card. Family households do vary in size overtime. This is why household income seems to remain unchanged for decades while per capita income is going up by very large amounts. Simple, the number of people/household and per family is declining. Finally, understand that differences in the number of people per household from one ethnic group to another explains why Hispanics have higher household incomes than blacks, while blacks have higher personal incomes than Hispanics.

Taxes certainly impact everyone’s income. Dependent upon the state in which you live, you have more or less total taxes and thus total dollars being taken from your wallet each month. Again, instead of laying “the blame” on one party r person, take a moment and understand some facts. In California we pay a state tax on every gallon of gasoline-is it a fixed amount oh no, it is a percentage. Do you think the California politicians are truly concerned with gasoline prices? California makes more money every time the price of a gallon of gas rises-and the little secret no one wants you to know? Governments, local, state and federal are making more money per gallon of gasoline than the oil companies. Do you hear anyone suggesting we should investigate the governments? Anyone complaining about the “windfall” profits the states are making? Yet, as gas prices increase all you hear is the “outrage” everyone has for the oil industry. You want more of your money you earn each day? Reduce taxes!! This can be done in a moment.

Of course this will not happen because one Party has you believing a myth, “the only way out of debt problem is to increase taxes. Huh? Take a moment and just think about this idea. Hw do you take home more money? You, work more hours, secure a second/third job or get another job that pays more or you reduce your expenses. Taxes are like any other expense you have, reduce the tax liability and you have more in pocket money. To tell me that you want to increase my taxes is necessary for our country is pure nonsense. One other little fact a certain Party will not tell you is the lower the tax rate, the more actual taxes are collected. Our local, state and Federal governments need to operate as many responsible American households operate-on the plus side. Many Americans have learned wanting some thing and affording that same thing are not the same. Save money and pay cash for those “must have/I want” items like iphones, flat screen televisions and the latest designer clothes.

Yes, we are a consumption-oriented economy. Institutions dedicated to make it easy for us to spend surround us. From easy to secure credit cards, to advertisers bombarding us from morning to night that we must have, need to possess, and can’t live without items. We are our own worst enemies! No one is forcing us to spend more than we make but we have learned otherwise. This is a major contributor to the conditions that exist today in our own economy and it also helps to explain why certain of us think the economy is awful. Perhaps looking into a mirror is the first step to resolution.

End Note
1. Sowell, Thomas, ”Income Confusion”, Townhall.com, Nov 21, 2007

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