More KISSing the income inequality

by Divorced one like Bush

So, I’m listening to Saturday Night Fish Fry as I’m composing. It’s the blues, though the station is a jazz and folk station. Public broadcasting at it’s best! Maybe if the economy sinks enough, we’ll return to the big bands and swing. No more solo acts of Rockband. And, maybe I’ll be supplementing my income playing rent parties.

You have all heard about the IRS release of the top 400 income earners (pdf) stats? Yup, $105.2 billion combined taxable income.

In the first posting, I showed that, all things being equal, as income share goes down for 99% of the population, there is overall less greenbacks (great tune)in the hands of the Many. The astute AB readers said: What about the fact that there is more water in the pool over time? Yes there is. But is it not six to one, half dozen to the other? Did not every numerical factor that acted to raise the pool of greenbacks in the income pool also act on everything else? Well, of course it would be foolish to think the force of economic nature rains equally on all species of greenbacks.

Just a little aside with the band (stepping aside, laying down the Les Paul, black with a maple finger board for those interested), we (Angry Bear) recently discussed velocity as a factor in giving the thumbs up or down to the stimulus package. I forgot about this money concept. It is part of what I’m trying to relay in my model to the average voter. Being that velocity has to do with how many hands a greenback moves through in a given unit of time or over time, I thought with showing that less greenbacks in the hands of the Many over time, the effect would become evident. I mean, how is it we can be talking about the effectiveness of a stimulus package in terms of it’s multiplier effect which jams with velocity and miss that the chance of increasing how fast money moves and/or how much money will move and/or how many times it moves increases when you have more people moving more money than when you have more people moving less money? Why are we talking about giving tax cuts to the greatest number of people instead of the fewest this time as part of the stimulus? Why did we give everyone $600 last year?

Ok, the LP is slung and the Ampeg is cranked.

All things being equal is not so much. From 1976 (the low point of the top 1% share of income) to 2005 the disposable income increased by a factor of 6.94. The $1000 in the model is $6940 in 2005. Unfortunately the per capita income (how much for each person) only increased by a factor of 5.13. So people, we just plain have less to begin with. Thus, the $1000 to be true to my model of a never increasing population of 100 is now $5130 in 2005. What do you think this does for velocity? I bet it explains the “historically” low inflation thus “historically low” interest rates.

Let me keep playing. In 2005 using a constant income, the One gets $230, (23%) the 99 get $7.77 each. It is a ratio of 29.6 to 1. But income increased. I’m going to use the increase that mattered, per capita. Per capita income in 2005 is $5130. The One has $1179.90. The Many get to share $3950.10 for a per capita of $39.90. 99people get to have $39.90 each. 5.13 times more than my constant income model. A ratio of 29.6 to 1. How about that! The only thing not equal in my constant income model is the population.

The drums are pounding a driving blues now. If the income share percentages had remained constant to what they were in 1976 the One would have $446.31 (2.6 X less) and the Many would share $4683.69 for an amount of $47.31 each (1.2 X more).

What do you think works better as a jam for velocity and multiplier effects, 99 people sharing $3950.10 or $4683.69?

Solo time.
From the Center for Housing Policy 2006 report (pdf) I learned that 62.9% of income for all families based on 28 metropolitan areas is spent on housing, transportation, food and medical. Now what would help velocity more, 62.9% of $3950.10 leaving $1465.55 for everything else or $2199.14 for everything else because the 99 had more income? (The $2199.14 is assuming people did not just spend more on housing, transportation, food and medical because they had more.) Or hold the expenditure percentage constant to the income increase, you still have more extra greenbacks to riff with. $272.14 to be exact. In the same report, those earning $20,000 to $50,000 are spending 80.1% of their income on housing, transportation, food and medical. Your turn to solo with the numbers.

Ending riff of tax cut squeals.
Using actual, nominal numbers, the dollar amount that would need to be made up to play a tune as in 1976 by a tax cut to the 99 in 2005 is: $1,493,418,800,000. (1.2 of the nominal 2005 99% income – 2005 99% nominal) One trillion, four hundred ninety three billion, four hundred eighteen million, eight hundred thousand dollars. All in one year (not many are into the long 1/2 hour jams any more). Still thinking the stimulus is just right or too big or not enough tax cuts?
Who played that sour tax cut note? Get them out of the band!

Next time, we’ll play some jazz and see what various inflation factors do to the Many.