Thursday, August 30, 2012

Chart round-up

Chart #1:

(click to enlarge)

Why aren't politicians serious about deficit reduction? Perhaps because voters aren't serious about deficit reduction. According to this chart, which is based on Gallup polling data, the only two measures a majority of voters favor for reducing the deficit are increased taxes on those making over $250,000 and corporations. Yes, these same people who are overwhelmingly against paying a few hundred dollars more per year in tax themselves have no problem raising taxes on others (actually, raising taxes on corporations is the same as raising taxes on those who work for those corporations, only those calling for the higher taxes likely don't realize that). As the saying goes, "Don't tax you, don't tax me, tax that fellow behind the tree!"

More importantly, increased taxes would only go a relatively small way towards eliminating the deficit. To place matters in perspective, consider that even if every taxpayer with an income of at least $1 million were taxed at a rate of 100 percent it would only raise something in the neighborhood of $730 billion, still leaving a deficit of at least $300 billion.

The proper response here is for political leadership, and a politician willing to explain the truth about our fiscal reality to the public. Leadership, however, is difficult while pandering is easy.

According to this chart the middle-class is being hollowed out, and the biggest reason behind it is that more people are moving into the upper class. This is plainly good news, and something one rarely hears about. The other reason, however, is that the percentage of people in the lower income class has also increased. While this would seem to be a worrying development, it's not so cut and dried and one might think.

One possible factor explaining this trend is a demographic shift, with the country becoming older. Those at retirement age (65 for Social Security purposes) typically have low incomes as they shift towards living off of savings rather than making money (notice the distribution is by income and not wealth). Thus, a greater percentage of people at retirement age or older should translate into more people in the lower income category. Indeed, according to the Congressional Research Service, the percentage of those aged 65 or older in 1975 was 10.5 percent but has risen to 13.1 percent by 2011. While the Pew report notes gains among this age group since 1971, it notes that it still remains "the least likely to be upper income and the most likely to be lower income."

Another factor that may skew the income distribution is immigration. Immigrants, for all their virtues, typically arrive in the country poorer than the average citizen, and are thus more likely to end up in the lower income category (although this will change over time as they take advantage of new opportunities and increase their income). In 1970, immigrants accounted for 4.7 percent of the US population, but that figure has now risen to 12.5 percent.

Lastly, one must also consider the percentage of adults enrolled in institutions of higher education, who are also likely to have low incomes as they concentrate on studies instead of making money. According to the National Center for Education Statistics, the number of students enrolled an institution of higher education increased from 8.6 million in 1970 (4.2 percent of the population) to 20.4 million in 2009 (6.6 percent of the population).

While these factors certainly do not explain every person who may have shifted between the middle and lower income categories, the explanatory power is likely non-trivial, and the news on the income front appears to be much more positive than negative.

As these charts demonstrate, the amount of health care paid for by third parties has steadily risen while the amount paid for out-of-pocket has steadily declined. The result, as illustrated in the final chart, is inflation in the health care sector that has vastly outpaced the consumer price index. This is exactly as economic theory would predict: when people spend other people's money, instead of their own, the incentive to control costs is vastly reduced.

This makes it all the more bizarre that the centerpiece of the Democratic party's health care reform effort was not to control costs, but to expand the very mechanism (insurance) that continues to drive them higher. Expanding supply through deregulation and increased competition, was barely part of the conversation, if at all. This will not end well.

1 comment:

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