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$ 250,000 per year sure is rich by US standards

It appears that someone (who I am sure has family income under $250,000 per year and is just interested in social science) contests my view that families with income over $250,000 per year are rich. He or she notes that two earner families can be rich by working real hard and that price levels are high in some parts of the country, so $250,000 doesn’t buy as much as it buys in other parts of the country.

One can look at two earner families only. $250,000 will be huge compared to the income of most two earner families. The vast majority of two earner families have incomes under $250,000 / year. This remains true of a very large majority after making an absurdly generous correction for local price levels.

Calculations after the jump.

Let’s see. In 2006 44.9 % of married couple families had two earners

The Wikipedia claims that, according to the US census bureau, in 2004 51.35% of households were married couple families.

According to the same source, 1.5% of households have income over $250,000. If they are all two earner married couple families, then roughly 6% of households are two earner married couple families with incomes over $250,000 per year.

Non family households typically contain two or more families and, in fact, there are more families than households. I won’t bother to look it up, but 6% is being very generous to those who claim that families with incomes over $250,000 per year are not all that rich by US standards.

According to this study (the first I found) the highest bicoastal local price indices are about 1.3 times the national average.

The highest price index was for Honalulu, which I will ignore as it is not on the West or East coasts.

2.67% of households had income over 200,000 in 2005. 250/1.3
Being insanely generous and assuming that all households with income over 250,000 live in the very costliest areas, and that they are all two earner married couple families, and that there are no more families than households, I get to a two earner married couple family with income of $ 250,000 is only richer than 86% of two earner married couple families given the correction for the local price level.

This is very very far from the average Joe married to the average Jane and both working.

There is no way that any numerate person who is willing to google for 10 minutes can believe that a family with income over 250,000 per year is not rich by US standards. All of the corrections are already considered when getting from an income most people consider rich up to $250,000 per year.

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Americans want to Soak the Rich MMCCLXXVII

Robert Waldmann

Jeff Sachs proposed higher taxes on the rich.
Felix Salmon wrote

I don’t think this is possible, politically, in either the US or the UK. In the US, the middle classes are implacably opposed to tax hikes on people making more money than they themselves will ever make.

Kevin Drum agrees with Salmon about US public opinion and asks.

“Why are Americans so unsympathetic to higher taxes on zillionaires?”

The answer is that Americans are sympathetic to higher taxes on the rich, as has been demonstrated by every poll on the question in the past two decades.

Matt Yglesias noted one recent poll which shows majority support for higher taxes on the rich. I just add that I know of no poll in US history which doesn’t show majority support for higher taxes on the rich.

Somehow this absolutely striking, dramatic, undeniable feature of US public opinion has been overlooked. I think the reason is that policy makers and pundits agree that soaking the rich is un-American, and the fact that most citizens disagree must therefore not be conceded.

In the elite debate it is definitely agreed that Americans hate class warfare and are not willing to soak the rich. I firmly believe that this is agreed, because it serves the group interest of the elite. I don’t think Drum, Salmon or many others are influenced by their personal self interest (Drum and Salmon clearly wish things were as they really are). I think the fact that the US public want to raise taxes on the rich isn’t transmitted from pundit to pundit the way the alleged fact that Americans want Obama to show more anger at BP is transmitted, because critical links are broken by people who just hate the fact and won’t accept it.

I add that admitting that Marx had a point makes me feel ill.

Kevin Drum and Felix Salmon ignore not only massive evidence but also my many posts pointing to that massive evidence. My feelings are hurt. Not to boast, but just to boast, I have actually corresponded by e-mail with Drum and by some kind of instant messenger with Salmon.

As I mentioned before the jump, Matthew Yglesias pointed out that their perception of public opinion is totally inconsistent with public opinion. Here’s the link again. The very best fact is that 64 % of polled American adults with annual household income over $250,000 think that “raising income taxes on households making more than $250,000 should … be a main part of any government approach to the deficit”*.

Drum and Salmon’s amazing disconnect from reality is not based on the inflation of the concept of “middle class” which now seems to mean “upper class but not super rich” and goes from the 50th percentile up to the 99th or something. By that definition, most middle class respondents agree with rich respondents that taxes on the rich should be increased (perhaps conditional on there being spending cuts and other tax increases).

*In plain numbers this would seem to be 16 out of 25 rich respondents favor increasing their own taxes. That gives a standard error of the estimate of 9.6% so the two standard deviations interval would be from 44.8 % to 83.2%. This calculation makes no sense with such a tiny sample. The null that 50% or less of the rich support higher taxes on the rich is not rejected at the 5% level, p = 8%. The null that 40% or fewer of the rich support higher taxes on the rich is rejected at the 5% level the p level for the null of 45% is almost exactly 5%.

The rich want to soak the rich.

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Class War; Appropriateness of the Wealthy’s strategy

A research review by: Divorced one like Bush

Introduction: This review was initiated after reading the report linked at the 25 indicators post. A review of the data regarding accepted economic performance indicators for business cycle peaks of year 2000 and 2008 is presented along with a discussion of the relevance to the strategy of the Wealthy in winning the War of Class. In short, the Wealthy are irrational in their strategy in fighting the War of Class and are in fact losing the war for everyone.

The data:

The growth rate in median family income, however, was slower between the business-cycle peaks of 2000 and 2007 (0.1 percent per year) than it had been between the two earlier peaks in 1989 and 2000 (0.9 percent per year).
Labor productivity, meanwhile, grew more rapidly in the 2000s business cycle (2.5 percent) than it did in the preceding cycle (2.0 percent).
Economic growth was faster over the 1990s business-cycle (3.1 percent per year) than it was over the 2000s cycle (2.3 percent).
…but the 1990s cycle still produced a higher personal savings rate (5.6 percent of disposable personal income) than the 2000s cycle (1.8 percent of disposable personal income).

Another way to view the data is to align each point with the year of origin.
Early years: 2% productivity growth with 0.9% income growth, 5.6 savings, 3.5%economic growth
Versus Bush years: 2.5% productivity growth, .01% income growth, 1.8% savings, 2.3% economic growth.

Analysis: Going forward I will refer to two groups fighting in the Class War. The subject of this study will be called the Wealthy. The Wealthy survive by making money from money. That is the accepted opinion. Though this report suggests that even the top 1% were earning more from wages each year until it reverses in 2000. Quote:

The lower end of this group is not seeing an increase of income from wages. But look at the change in the top 1% and the top 0.1%. They have the greatest increase of their income coming from wages. The entire top 5% sees this, but it is the very top that is seeing a doubling (32 to 63% for the top 1%) and tripling (18.1 to 58.2 for the top 0.1%) of the percentage from wages. (see chart)

The group the Wealthy are fighting will be called the Enemy. The Enemy survive by making money from selling their labor which is tied to productivity.

For all the people who are fighting a class war, looking at the means by which both sides make money and thinking that both want to win it for the long haul, it appears that each side has been losing under the Wealthy’s strategy and tactics used for winning the war. For the Wealthy who make money from money, I assume a higher annual average economic growth would be more beneficial as it means more wealth being created over time, but they have produced lower growth. They appear to have won when the Enemy was able to sell their labor for a higher share of productivity. In fact, it appears that the important factor to the Wealthy winning the war is how much of the productivity gains go to the Enemy instead of how much more work the Wealthy can get out of the Enemy. There appears to be an inverse relationship of income and productivity to the success of the Wealthy in the war. As the share of productivity going to income of the Enemy goes down, economic activity declines. That is, as the Wealthy take more of the productivity gains as a means to win the war, they are in actuality hurting their war efforts. A decline of the economic activity is a war losing results for the Wealthy.

Conclusion: The Wealthy are closer to winning what they want when they let the Enemy win. That they have continued the same strategy during declining indicators and have seen similar battle results in the past (the battle known as the Roaring 20’s comes to mind) suggests that they are not being rational. For the Enemy of the Wealthy, well I guess there is some solace in the thought that the Wealthy are ultimately beating themselves in that they are driving down economic growth. I am reminded of the great wisdom of the infamous class warrior Billy Ray Valentine:

“You know, it occurs to me that the best way you hurt rich people is by turning them into poor people.”

Of course unexpected events can change the momentum and ultimately the strength of either side. For example, a banking crisis. (An event for which I can find no research that supports one has ever been caused by the tactics of the armies of the Immigrant or Indigent. ) Such an event changes the emphasis of the theater of the war from the broader, larger operation of the market place which requires an understanding of the rules of economic theory and historical economic data to the limited and smaller theater of the halls of government with the need to understand the rules of political theory and historical political data. For either side, the most successful campaign would take into consideration the results of the market place war front when fighting in the halls of government war front.

There is a paradox to the Wealthy winning any battle in the halls of government theater. That they do not heed the historical record of battles within both theaters leads to poor tactics. The Wealthy institute tactics based on non-rational analysis moving them further from their desired goal. Thus, a possible strategy for the Wealthy’s Enemy could be to focus on the Wealthy’s lack of rational analysis. It might be possible for the Enemy to make the Wealthy aware of their self defeating results. Showing the Wealthy that they were more successful when the Enemy received approximately 50% of the productivity gains could be a basis for a treaty. There is data available to the Enemy that suggests when they received gains equal to the rise of productivity, the growth of economic activity was even greater than the period of this study.

To summarize: The Wealthy are poor Class War strategists. They are self defeating in such a way that they remove all ability for either side to win the Class War. The Wealthy must let the Enemy win the war in order for the Wealthy to win. I would caution that any approach toward a treaty by the Enemy to the Wealthy must be taken with care. It is not certain as to whether the Wealthy have the strength of character to accept that they are failures. By evidence of their tactics in the face of the data, forming a treaty with the Wealthy who act irrationally will be met with great frustration by the Enemy.

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