Almost Classical

My wife and I have been in the top ten percent off and on for a few years. We've even made it, briefly, into the top five percent. And, like most people in those "upper-class" categories, we quickly fell back out of the top tier of households.  Why is that?  For one thing, high incomes tend to be temporary "blips" related to "good years" for some professions. The highest earners are not salaried workers with steady, predictable incomes. Instead, the highest earners are glorified freelancers: doctors, lawyers, consultants, and other specialists.  Some years are great for professionals. You might have an unusual number of surgeries if you're a doctor. Maybe you win a windfall case if you're a lawyer. A consultant lands one great contract. The money flows in for that year and you stash some away. Because, as the upper-middle knows, that one year is pretty rare.  Eleven percent, slightly more than one out of every ten adults in the...

I'm not a huge fan of the minimum wage, but I also admit it isn't going away. It's a feel-good public policy that some nations embrace with complex brackets (Australia indexes for age of worker) and others simply don't have at all. There's little economic correlation between the minimum wage and job creation, because the wage tends to trail earned wages in skilled trades. Which nations don't have legal minimum wages? How about Denmark, Iceland, Norway, Sweden, and Switzerland! Germany has regional minimums, handled by local governments, just as many states in the United States set their own minimums. How can it be that social democracies don't have minimum wages? They have a history of employee ownership, through unions with board seats at companies. The United States lacks a similar history of corporate-union or even government-union cooperation. Our unions are more adversarial. (Maybe they should try another approach; it might increase wages and influ...

A September 2015 report from the Brookings Institute demonstrates that significant increases in top marginal tax rates would have minimal effects on both income inequality and the federal budget. This report was prepared by William G. Gale, Melissa S. Kearney, and Peter R. Orszag. It should be stressed that Orszag was Pres. Obama's director of the Office of Management and Budget and a former director of the Congressional Budget Office. Nobody can claim Orzsag is a conservative or libertarian — he is an excellent analyst. Read the report here: http://www.brookings.edu/~/media/research/files/papers/2015/09/28-taxes-inequality/would-top-income-tax-alter-income-inequality.pdf A larger hike in the top income tax rate to 50 percent would result, not surprisingly, in larger tax increases for the highest income households: an additional $6,464, on average, for households in the 95-99th percentiles of income and an additional $110,968, on average, for households in the top 1 perc...

The Georgetown University Center on Education and the Workforce ( cew.georgetown.edu ) tracks the return on investment (ROI) of college and specific college degrees. Though going to college is better than not, assuming the individual graduates on time and from a good school, what you study also affects earnings. What we know about college and income: Obtaining a four-year degree is worth about $1 million over a lifetime compared to not earning a college degree. Obtaining a degree from one of the 20 most elite universities is several times more valuable than earning a degree from a non-elite undergraduate university.  Obtaining a science, technology, engineering, or math degree from any respected school is better than a liberal arts degree, by an average of $3.4 million in lifetime earnings! Obtaining a liberal arts degree from a low-ranked school is similar to not having attended a college! The following charts are from the CEW 2015 report, based on 2014 data....

Middle-class families have found themselves stagnating for the last two decades (at least). The Washington Post has published an outstanding series on the issues affecting the middle-class. The stories are long and well researched. ABOUT THIS SERIES: The American middle class is floundering, and it has been for decades. The Post examines the mystery of what's gone wrong and shows what the country must focus on to get the economy working for everyone again. Chapter 1: Why America's middle class is lost http://www.washingtonpost.com/sf/business/2014/12/12/why-americas-middle-class-is-lost/ Chapter 2: The devalued American worker http://www.washingtonpost.com/sf/business/2014/12/14/the-devalued-american-worker/ Chapter 3: The college trap that keeps people poor http://www.washingtonpost.com/sf/business/2014/12/15/the-college-trap-that-keeps-people-poor/ Chapter 4: A black hole for our best and brightest http://www.washingtonpost.com/sf/business/2014/12/16/a-black-hole-f...

My wife and I are fortunate, and we are hard working. Which of these traits should be first? I cannot answer with certainty. We moved to our current home in 2011 for what seemed like a perfect job. It wasn't. Yet, I was "lucky" because we ended up in a region with several great universities, a wonderful performing arts community, and many other benefits. These institutions, however, require that you be prepared to take advantage of their existence. I worked hard for my doctorate, and my wife worked hard for her master's degree. We prepared ourselves for opportunities, when they might appear. Only a few years ago, we had nothing. We lost everything and I received the earned income tax credit (EITC), which I still believe was odd, since I didn't request it. I read a study that claimed in simulations, with everyone starting equal, the successful outside the simulation end up successful in the game. The theory is, that some people just rise to the top, even...

This is both depressing and, sadly, understandable. Poll: Most say redistribute wealth - Kevin Robillard - POLITICO.com Nearly 6 in 10 Americans say wealth is distributed unfairly in the United States, and a majority want the federal government to play Robin Hood to fix the problem, according to a poll released Thursday.  Only 33 percent of Americans think the current distribution of wealth in this country is fair, according to the Gallup Poll, while 59 percent say it is not. Fifty-two percent said the United States should redistribute wealth through heavy taxes on the rich, while 45 percent disagreed. What is "fair" income distribution? How can the government make things "fair" when most of the elected leaders (and many of the bureaucrats) are in the upper-class? States with high taxes on the highest income earners, such as New York and California, have cities with some of the greatest wealth gaps. If the most "progressive" places cannot make thi...

As people debate into Lean In: Women, Work, and the Will to Lead  by Sheryl Sandberg, the topic of pay inequality often arises. President Obama has also made the issue of "fair" compensation a political issue. But, is there really a problem with inequality within the same job, or is there something else at work? Based on research, it seems that if you want to study comparisons of apples to oranges, examine the "income inequality" debate. The differences in pay are more the result of career choices than differences within identical job positions. Why Women Earn Less According to a new report (PDF) by the American Association of University Women, the man would be earning a salary of $51,300. The woman's pay would be $39,600—about 77 percent of what her male counterpart earns. The AAUW report compared the earnings of men and women just one year out of college across various sectors of the economy. The report controlled for different factors that tend to impa...

The most popular (and unpopular) post on Almost Classical is on the 90 Percent Tax Rate Myth . In that post, I attempt to explain the obvious: When there was a 94% top rate in 1944-45, there were so many deductions and exclusions that the taxable income was not comparable to someone's entire income. First, the top rate started at $200,000, which today is equal to $2,413,059.90 — so the maximum EMTR would apply only to incomes of $2.5 million. But, that's still taxable income, not earned income.  In 1944, you could deduct business meals, all business travel, all forms of interest payments, and much more. You could even deduct spousal travel expenses on a business trip! (Why travel alone?) Companies could also "loan" or "provide" almost anything to an employee, from an apartment to standard benefits. It was possible to shelter tens of thousands of dollars from taxable income. Three-martini lunches and expense accounts were important realities, skewing tax ...

This column by Thomas Sowell  (http://www.tsowell.com/) has some points that need to be clarified, but the general concepts are important.  Those With Education Credentials In A Soft Field Can Breed Disaster - Investors.com First, Sowell is not  suggesting you should not be able to study whatever you want, as long as you  and your family  are paying for the degree. If the federal government (read: "taxpayers") are paying for an education, however, we need to consider promoting specific fields.  When institutions of higher learning turn out highly qualified doctors, scientists, engineers and others with skills that can raise the standard of living of a whole society and make possible a better and longer life, the benefits are obvious. What is not so obvious, but is painfully true nonetheless, is that colleges and universities can also turn out vast numbers of people with credentials, but with no marketable skills with which to fulfill ...

I've been reading a lot about the end of the American Dream. Class mobility? A myth. The idea that hard work and good choices lead to success? A lie meant to placate the masses. Yet, as I've written before, there is ample evidence that hard work, a stable family, and some relatively simple choices do lead people in the middle class. See: http://almostclassical.blogspot.com/2011/03/wealth-disparity-myths-and-realistic.html As I wrote in that post: 86% of the wealthiest households are married couples. 20% of the poorest households feature a married couple. $56,000 is the median income for a person with a bachelor's degree. $19,000 is the median income for someone without a high school diploma. $36,000 is the median income for someone with a two-year college degree or technical certification. The basic formula for reaching the upper-middle class (or better): get a degree, get married (and stay married), exercise, and avoid "bad" habits (smoking, drugs,...

My wife and I are among what I've heard one economist call "the lesser rich." We are in the top ten percent of households, but we are not wealthy. We don't drive luxury cars, live in a McMansion, or even own a big screen television. My computer is several years old, our phones are not "smart phones," and we've never been on a cruise. Yet, according to the statistics, we are "rich." I'm sure that explains why my last clothing purchase was a $9.99 pair of store-brand Khakis from Target. Where do you fall in the eyes of political leaders (and the public to whom they are pandering): http://www.census.gov/compendia/statab/2012/tables/12s0694.pdf Less than $10,000 7.3% $10,000 to $29,999 23.3% $30,000 to $59,999 27.5% $60,000 to $74,999 10.1% $75,000 to $99,999 11.5% $100,000 to $149,999 11.9% $150,000 to $199,999 4.4% $200,000 to $249,999 1.8% $250,000 and More 2.0% More than half of U.S. households (58.1%) have combined income...

Today, June 29, 2011, President Obama had a press conference to address the U.S. budget mess. During his opening statements and throughout the questioning, the president kept saying that "millionaires and billionaires" needed to pay their fair share. It's a favorite phrase of the president and one Andrew Ross Sorkin addressed earlier this year. Pres. Obama might talk about the "wealthy" but he really means those with annual incomes over $250,000. Problem one with "wealthy" is that many wealthy, especially billionaires, don't have incomes. They earn capital gains and have investments, but they don't get weekly paychecks like the rest of us. Since we have an income tax, those can't be the men and women the president wants to tax. Problem two? The wealthy, at $250,000 a year, aren't all that wealthy in the cities where they are most likely to live. Rich and Sort of Rich May 14, 2011 By ANDREW ROSS SORKIN How did $250,000 become the magic n...

I was watching CNN's "Your Money" Saturday at noon when one of the panelists referred to graduates with various degrees as the "winners" in the economy, while others were "losers." This notion that because I worked on a graduate degree, assuming substantial debt and working part-time, I am now a "winner" is absurd. It is offensive to me that hard work is being equated to mere luck. The source of the discussion was the following report: Georgetown University  Center on Education and the Workforce What is it Worth? The Economic Value of College Majors http://cew.georgetown.edu/whatsitworth/ Anthony P. Carnevale - Jeff Strohl - Michelle Melton We've always been able to say how much a Bachelor's degree is worth in general. Now, we show what each Bachelor's degree major is worth. The report finds that different undergraduate majors result in very different earnings. At the low end, median earnings for Counseling Psychology majors ar...

I recommend: http://www.economist.com/blogs/democracyinamerica/2011/03/middle-class_stagnation While the above is primarily a short summary of other columns and blogs, it makes a great point: Western nations with a widely unionized workforce are still experiencing increases in wage disparity between the top 20 and bottom 20 percent (upper and lower classes). The middle class (usually defined as the middle 40-60 percent) is stagnating, as well. I've written on this blog about the "Superstar Effect" and income. See: http://www.nytimes.com/2010/12/26/business/26excerpt.html Also: http://almostclassical.blogspot.com/2011/01/skills-and-value-concentration.html The reality is that the marketplace is constantly changing. Technology has, for centuries, eliminated jobs and reduced the "value" of the lowest-level, least-specialized workers. Unions are not going to be able to offset the loss in value within some jobs. Quite bluntly, if there is any chance your job can be a...

If you want to know the difference between the ruling class and the rest of us: Obama's Ohio visit points to jobs divide between public, private sector - CSMonitor.com "Republicans have more private sector employment, with 63 percent of households citing at least one members privately employed, compared with 46 percent for Democrats." From an article on the Reason website: Sixty-three percent of "the rich," those in the top 15 income segment (annual income greater than $100,000) are government employees. Among those in the top 1 percent of income($500,000 annually), 85 percent are private-sector. Bureau of Labor Statistics report reveals as of 2010 government workers earn an average of 44 percent more than similar private-sector workers and over 66 percent greater benefits. California taxpayers are already paying pensions of over $100,000 a year to more than 12,000 former government workers… Something is wrong with a system that pays the "ruling class...