“ONLY 4 OF 10 U.S. HOUSEHOLDS PAID 2020 FEDERAL INCOME TAXES: BURDEN FELL ON WORKERS MAKING OVER $75,000,” Ernie Goss

More than six out of ten U.S households paid no federal income taxes in 2020 due to declines in income, and boosts in government subsidies that wiped out tax liabilities.

According to the Urban-Brookings Tax Policy Center, 106.8 million households escaped the federal income tax. This was up from 75.9 million in 2019. Brookings estimates the number of families owing no federal income taxes for 2021 will decline only slightly to 101.7 million, or 57.1%, owing a net $0.00.

And contrary to President’s Biden’s claim that high income workers are not paying their fair share, and should pay more, the data show the opposite. According to the Tax Policy Center, the top 20% of taxpayers paid 78% of federal income taxes in 2020, up from 68% in 2019. Furthermore, the top 1% of taxpayers paid 28% of taxes in 2020, up from 25% in 2019. And the trend over the decades has not been kind to families experiencing improving income levels by requiring them to pay a rapidly rising share of the federal income tax burden.

For example, in 1979, the top one-fifth of income earners paid a tax rate which was approximately three times that of the bottom one-fifth of income earners. But 38 years later, the top one-fifth of income earners paid 20 times the tax rate of the bottom quintile of tax payers.

Did shifting more of the income tax burden on to high income earners reduce income inequality over the period? Emphatically not!

Between 1979 and 2019, the degree of income inequality, as measured by the U.S. Census Bureau’s Gini Coefficient, increased from 0.404 to 0.484 (a higher index indicates greater income inequality). But more importantly, not only has shifting the burden of income taxes from low to high income households failed to reduce income inequality, it has reduced the incentive to increase earnings via higher education/training, higher hours worked, or other work activities linked to income that benefit both the household and society.

Accordingly, President Biden should reconsider his economic plan which punishes high income workers with a greater share of income tax burdens.

Ernie Goss

The Six-Month President: From Ford to Biden

White House press secretary Jen Psaki recently celebrated the Biden Administration’s first six months in office by extravagantly declaring that “……the president has acted to get America back on track by addressing the crises facing this nation.” Continuing, she modestly declared that he had “rebuilt the economy.” But how does Biden’s first six months actually compare to that of his 7 predecessors?

In the table below I rank each of the U.S. presidents beginning in 1975 to today according to growth in the overall economy, jobs and in inflation adjusted wages for the first 6 months of their presidency. Also to gauge whether each president got “America bank on track,” I compare each’s growth rate to the last 6 months of their predecessor.

GDP growth estimates listed in Table 1 indicate that President Carter experienced the top first 6 months with President Biden occupying a very close second. However, GDP growth under Biden suffered the largest negative turnaround with GDP declining by 5.6% between the last 6 months of Trump and the first 6 months of Biden.

Job growth estimates listed in Table 1 indicate that Biden experienced the top 6 month beginning with Carter capturing a close second. Additionally, Biden’s job growth was second only to Carter in terms of increases over the previous 6 months of the Trump by 0.59%.

Average inflation adjusted wage growth estimates listed in Table 1 show that Biden suffered the worst experience in the first six months among the 7 presidents with Trump experiencing the top average inflation adjusted wage expansion in the first 6 months of occupying the White House.

Despite the fact the president lacks even modest control over national economic measures in the first six months, pundits and the median continue to gauge and compare the president’s effectiveness by economic metrics over which it is argued that he and his predecessors have had little control. On these measures, President Biden has clearly not “rebuilt the economy.”

Federal Government & Federal Reserve Supercharge the Economy: When & How Does It End?

The U.S. pandemic, beginning in early 2020, ushered in an unmatched flood of federal government overspending and record Federal Reserve (FED) stimulus.

With a compliant Congress, the Trump Administration increased an already bloated federal deficit by $1.22 trillion in one year. Not to be outdone, the Biden Administration expanded the deficit by more than $2.1 trillion in only six months. During this period of time, the FED slashed short term interest rates from 1.75% to 0.0% and purchased $4.3 trillion of federal debt and mortgage-backed securities in order to reduce long-term interest rates to record lows. During the pandemic, these actions increased the money supply by 28.1% and reduced the value of the U.S. dollar by 3.4%. So, what were some of the other outcomes?

Inflation and asset bubbles sprouted. The year-over-year consumer price index (CPI) climbed from a pre-pandemic 2.3% to the most recent reading of 5.5%, well above the FED’s pre-pandemic target of 2%. Additionally, the record high spending, low interest rates, and surging inflation have pushed investors into riskier bets. For example, in only 12 months, the Case-Shiller national home price index soared by 14.0%, the S&P stock index rocketed by 38.6%, bitcoin ballooned by 270.1%, and gold increased by 12.6%. Meantime, the overall U.S. economy barely nudged with the inflation-adjusted GDP actually down by 0.9%.

So, what’s the problem? The FED cannot sit idly by as inflation rips through the U.S. economy. Higher Inflation and interest rates will degrade U.S. stock prices forcing stocks to a more reasonable price to earnings ratio. Meanwhile, inflation will be supportive of cryptocurrency, gold and silver prices, even as higher interest rates moderate their gains.

Despite the evidence, the FED continues to plead their case that year-over-year CPI growth was just as high in July 2008. However, they fail to also acknowledge the FED’s short-term interest rate was 2.0% in July 2008 compared to today’s 0%.

Thus, there is currently much more FED stimulus for even higher inflation. To quote Eisenhower Administration economist Herb Stein, “If something can’t go on forever, it will stop.” So, what will stop or thwart these Goldilocks investment gains? Higher interest rates as early as Q4, 2021, that’s what!

Many economists, including yours truly, expect these out-sized gains to be flattened or even reversed when the FED begins raising long-term interest rates (tapering) as early as Q4, 2021. Strap on your financial seat belt-the economic landscape will get bumpy. Ernie Goss

Biden’s 'War on Work' Doubles LBJ’s 'War on Poverty': Who Pays for It? Today’s Youth!

Much like President Lyndon Baines Johnson’s 1964 launch of his “war on poverty,” President Biden, since his inauguration, has authorized $1.9 trillion in stimulus spending, and released his fiscal 2022 budget for $6.0 trillion in what could be termed his “war on work.”

In 1964, LBJ pushed the United States Congress to pass the Economic Opportunity Act, which opened the floodgate of 40 federal programs targeted against poverty. Much like LBJ’s explosive federal spending expansion, the New York Times portrayed Biden’s spending foray as "an attempt to expand the size and scope of federal engagement in Americans' daily lives." In his 4 years in office, LBJ advanced federal spending by 14% per year, and expanded welfare outlays by roughly $800 billion per year. Biden has almost doubled that growth in his first budget year alone by boosting federal spending by 26% compared to pre-pandemic levels.

Biden’s 2020 so-called stimulus spending of $1.9 trillion added $300 per week in unemployment pay on top of regular jobless benefits, plus $1,400 per individual in stimulus checks, and $3,000 per child in financial assistance (all discouraging work). In a recently completed study, Mulligan, Antoni, and Moore concluded that in 19 states, a household of four with two unemployed workers can receive $100,000 in equivalent pay without working (Committee to Unleash Prosperity, White Paper #8).

And who pays for this fiscal indulgence? Between 1964 and 1968, LBJ funded his War on Poverty by raising the nation’s federal deficit as a percent of GDP from 1.0% to 1.5%. Biden, to fund what is termed here as his War on Work, has proposed raising deficit spending as a percent of GDP from pre-pandemic 4.8% to approximately 9.9%, the highest since World War II.

Furthermore, Biden’s Plan would also push the debt held by the public (not counting internal debt) to 111.8% of GDP eclipsing the level suffered in the wake of World War II.

Ultimately the nation’s youth will pay for this overspending via either higher inflation, advancing interest rates and soaring taxes, or a combination of all three.

Ernie Goss

China’s GDP Surpasses U.S.’s: Who Loses and When?

In 2010, China’s gross domestic product (GDP) was approximately one-fourth that of the U.S. Since then, China’s overall economy has advanced at an annual compound growth rate of 10% compared to the U.S.’s much slower expansion of 4.1%. Should this trend persist, China’s GDP will surpass the U.S.’s in 2027. Other than bragging rights, what are the impacts? Could the U.S. dollar lose its reserve status?

At the 1971 Bretton Woods Agreement, the U.S. dollar was officially crowned the world’s reserve currency. Even without this official designation, due to the size of the U.S. economy, and its debt markets, the U.S. dollar was, and is, the global reserve currency. As a result of this status, other countries accumulate reserves of U.S. dollars equivalents instead of gold. But rather than holding U.S. dollars, these nations purchase and hold interest earning U.S. Treasury bonds. These purchases have the impact of reducing U.S. interest rates. Furthermore, these bond purchases strengthen the U.S. dollar making purchases of foreign products such as Paris vacations and German automobiles cheaper in price for U.S. consumers.

However, in 2015, the IMF awarded the Chinese yuan status as one of four reserve currencies with the dollar supreme. The IMF basket of reserve currencies currently includes the euro, the Japanese yen, the British pound, and U.S. dollar. Should China’s GDP surpass that of the U.S., and they abandon currency manipulation, there will be pressure from global investors to abandon the dollar and crown the yuan as THE global reserve currency.

The yuan replacing the dollar as THE global reserve would push U.S. interest rate much higher, increase borrowing costs for U.S. firms engaged in international trade, and boost U.S. consumer/business borrowing costs.

At this time, China’s interest rates on government debt are approximately two percentage points higher than the U.S.’s. Thus, the dollar losing its status as the global reserve currency could increase U.S. federal debt service by as much as two percentage points and cost U.S. taxpayers as much as $600 billion per year in interest payments, other factors unchanged.

Ernie Goss

Since taking office, the Biden Administration has passed a $1.9 trillion stimulus bill to fuel an economy that was already expanding at a very healthy pace. Now President Biden is advancing a so-called $2.0 trillion “infrastructure” bill. To pay for a portion of this exploding spending, the president has called for an increase in the corporate income tax rate from 21% to 28%, and a boost in the income tax rate on households making more than $400,000. The added corporate tax rate is on top of state the assessment of 44 states and D.C. that have corporate income taxes on the books ranging from North Carolina’s single rate of 2.5% to a top marginal rate of 11.5% in New Jersey. An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to an average of almost 34% and would be the highest among the 37 OECD nations which have an average corporate rate of 22% with lowest rates for Ireland at 12.5%, and Switzerland at 8.5%. This increase would harm U.S. economic competitiveness and increase the cost of U.S. firms. The Tax Foundation estimated that the hike would reduce long-run GDP growth by approximately one-fourth, eliminate 159,000 jobs, and reduce wages by 0.7%. But instead of engaging in global competition, the Biden Administration is attempting to coerce OECD members into raising their rates. To quote ex-academic economist, Federal Reserve Chairman, and current U.S. Treasury Secretary Janet Yellen, “Destructive tax competition will only end when enough major economies stop undercutting one another and agree to a global minimum tax.” I guess she only believed in market-based economics and competition when she was teaching macroeconomics at the University of California-Berkley. Welcome to the 21st Century Dr. Yellen. The U.S. must compete in the global economy, not attempt to fix prices, and limit competition. This is not legal for companies in the U.S., and should be verboten for OECD nations.

Biden Taxes Will Reduce Global Competition, Slow Growth: Practice What You Preached Dr. Yellen

Since taking office, the Biden Administration has passed a $1.9 trillion stimulus bill to fuel an economy that was already expanding at a very healthy pace. Now President Biden is advancing a so-called $2.0 trillion “infrastructure” bill.

To pay for a portion of this exploding spending, the president has called for an increase in the corporate income tax rate from 21% to 28%, and a boost in the income tax rate on households making more than $400,000. The added corporate tax rate is on top of state the assessment of 44 states and D.C. that have corporate income taxes on the books ranging from North Carolina’s single rate of 2.5% to a top marginal rate of 11.5% in New Jersey.

An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to an average of almost 34% and would be the highest among the 37 OECD nations which have an average corporate rate of 22% with lowest rates for Ireland at 12.5%, and Switzerland at 8.5%. This increase would harm U.S. economic competitiveness and increase the cost of U.S. firms. The Tax Foundation estimated that the hike would reduce long-run GDP growth by approximately one-fourth, eliminate 159,000 jobs, and reduce wages by 0.7%.

But instead of engaging in global competition, the Biden Administration is attempting to coerce OECD members into raising their rates. To quote ex-academic economist, Federal Reserve Chairman, and current U.S. Treasury Secretary Janet Yellen, “Destructive tax competition will only end when enough major economies stop undercutting one another and agree to a global minimum tax.”

I guess she only believed in market-based economics and competition when she was teaching macroeconomics at the University of California-Berkley. Welcome to the 21st Century Dr. Yellen. The U.S. must compete in the global economy, not attempt to fix prices, and limit competition. This is not legal for companies in the U.S., and should be verboten for OECD nations.

Ernie Goss

March 23, 2021 Misery Indices by State