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Posts Tagged ‘1%’

$10,000 Government Cash For The Rich: $175K Earners Get Volt Rebates

In Electric Cars, Obama Administration, Tax Breaks, Top 1% on February 28, 2012 at 10:44 am

I hope you enjoy subsidizing the rich because President Obama loves the rebate checks sent to the crème-de-la-crème who can afford ultra-expensive electric cars.  Mr. Obama is proposing expanding the free money to $10,000 per vehicle.  Is this a good idea?

Sure, if you are a rich buyer of an electric car.  The average annual income of a Chevy Volt buyer is $175,000. [1]  By comparison, Nissan Leaf buyers are relative paupers, earning a mere $125,000 a year. [2] No wonder they need the check from Uncle Sam!   It turns out the Leaf isn’t attracting buyers new to hybrids for all that money, either, most Leaf buyers already have owned a hybrid. [2]  But they will get your taxpayer money, anyway.

Electric cars still have problems like short battery lives and high costs, thus the Obama Administration is determined to sell thousands more of these expensive cars through highly expensive subsidies.  I would prefer to have people use their own money to buy their cars; this is doubly so for the rich consumers who buy Teslas and Volts. [4]

[1] http://autos.aol.com/article/why-the-chevy-volt-is-attracting-wealthy-buyers/

[2] http://www.greencarreports.com/news/1049202_just-who-is-a-typical-2011-nissan-leaf-buyer-we-find-out

[3] http://content.usatoday.com/communities/driveon/post/2012/02/president-obama-budget-electric-car-subsidies-chevrolet-volt/1

[4] Rebates were $7,500 from the US Treasury (an additional $5,000 available from the State of California), pending the President’s proposed expansion to $10,000 per car.  http://www.mychevroletvolt.com/chevrolet-volt-tax-incentives-and-rebates

Pictures from Wikipedia Commons.

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Who Are the Top 1%? Most Aren’t In Finance, Fewer Still In Mortgages

In Finance, Occupy Wall Street Protests, Top 1% on November 17, 2011 at 2:17 am

Some chant “We Are The 99%”.  But who are the “1%”? 

The income cut-off for the Top 1% of earners is $343,927 of income, using 2009 IRS data. [1]   The 1% is a rather broad category.  While $344,000 is certainly a good salary, the “1%” metric lumps a $324,000 earner in with a film star earning $30 million each movie.

The Top 5% begins at $154,643.

The Top 10% starts at $112,124.

The Top 25 kicks in at $66,193 and the Top 50% cut-off is $32,396.

We hear often the 1% are Wall Streeters who “caused” the recession.  Occupy Wall Street is specifically organized as the “99%” vs. “1%” (Wall Street).  That is wrong.

A recent paper by Bakija-Cole-Heim show only one out of seven 1%’ers even work in Finance.  [2]  Larger proportions are corporate managers and executives or doctors and dentists.   The chart below shows the breakdown:

Profession Share of the Top 1% of Income: 2005 Data  
Executives, managers (non-finance) 31.0%
Medical 15.7%
Financial Professions (incl. Management) 13.9%
Lawyers 8.4%
Computers, Math, Engineering (non-finance) 4.6%
Not working or deceased 4.3%
Skilled Sales (non-finance, non-real estate) 4.2%
Blue collar or misc. service 3.8%
Real Estate 3.2%
Business Operations (non-finance) 3.0%
Entreprenuers not otherwise classified 2.3%
Professors and scientists 1.8%
Arts, media, sports 1.6%
All Other 2.2%
Chart by Author  
Source: see note [2] below.   

The vast majority of the Top 1% do not work in finance or banking, and of those who do, only a tiny percentage have anything to do with mortgages.   We are long past most people seeing a member of a minority group commit a crime and then extrapolate the crime as if every member of that minority group were somehow involved.  It is just stereotyping when people say ‘the top 1% caused the crisis’.  Surgeons, media celebrities and corporate executives at widget makers are no more guilty of causing the financial crisis than any average American.

When we think of high pay financial employment, what comes to mind?  Corporate finance managers like Controllers and CFOs, Wall Street stock analysts, investment bankers, stock brokers, venture capitalists, private equity principals, hedge fund managers, financial consultants, investment managers, mutual fund managers, stock market floor traders, commodity brokers and the like.  Not very many ever touch securitized mortgages or supervised the people who do.  Mortgage securitization included a very small group of people, some of whom worked at government sponsored enterprises Fannie Mae and Freddie Mac.   It is very probable some of those who actually worked in that corner of the financial world are unemployed or underemployed today, and a lot less likely to be in the Top 1%, Top 5% or even Top 10% of earners.

Occupy Oakland 99 Percent signs.jpg

The average age of the “1%” is 47.  [2]  This is not surprising as those are typically peak earning years.  It is worth noting some of the “1%” of the Reagan or Clinton boom years are retired or even deceased now because it often takes decades of schooling and experience to reach the upper echelons of income.  The “1%” of a pre-crisis year like 2007 is certainly a bit different than today’s “1%” on account of retirements, 2008-9 downsizing and the fact high earners often have highly variable income.   MC Hammer was a millionaire one year, bankrupt the next.  A full 26% of the Bakija-Cole-Heim sample own a closely held business (a/k/a entrepreneurs). [6] 

It is also interesting to look at the 1%’s marital status.  An atypically high 81% are maried.  About half of those have working spouses. [3]  Of the married top earners, 31% of the spouses are executives, supervisors and managers (non-financial), 21% of spouses are in Medical professions, 17% are blue-collar and miscellaneous service, and 14% work in government, teachers and social services. [2]   This shows very clearly people are marrying people from similar socioeconomic status (doctors marrying each other).  This is one probable cause of greater income inequality in recent decades.  As more women have entered the workforce, they have tended to marry men of similar socioeconomic status.  If workers marry similar workers at each level of income (e.g. $30,000 worker marries a $29,500 worker, $100,000 manager has a $99,000 manager spouse, etc.), it has the impact of doubling the differential between the families because of the second working spouse.  The impact is even more pronounced when comparing married upper earners (e.g. two $250,000 doctors) with a $30,000/year single parent. 

The chant “we are the 99%” rings false.  A $325,000/year lawyer is in the top 2% but honestly can say she is in the “99%”.  Should that $325,000 lawyer really stand at the edge of her cubicle and scream “I am the 99%!” to the (presumably oppressive) $345,000/year lawyer in the next cubicle?  The difference between the 2nd percentile and the 100th percentile is vast; it is the difference between our $325,000 lawyer and a minimum wage teenager who works part-time after school.

Despite claims to the contrary, top earners have actually been getting poorer during the last four years of IRS data.  The Top 5%’s income declined each year 2007 to 2010, dropping by more than 10% between 2006 and 2010 in inflation adjusted dollars. [4]  No surprise here because the wealthier have more variable incomes (e.g. self-employment business income, stock capital gains, bonuses, etc.), doing better than average in economic booms but drop by greater percentages in recessions.

Most of the “1%” do not work in finance.  Even of the 13.9% of  the “1%” who work in finance, most had nothing to do with subprime mortgage lending.   The idea of punishing today’s “1%” for mistakes made by the government and those few who worked in mortgage securitization in the 2000’s is just plain wrong.  The top 1% paid 38% of all federal income taxes and the top 1% paid more than the entire bottom 95% of taxpayers in 2007. [5]  Paying a “fair share” is subjective but it cannot be argued, as it often is, that the rich ‘do not pay taxes’ because they actually pay most of the income taxes.

For more on income inequality in New York City, please see my recent posts https://econscius.wordpress.com/2011/10/28/which-city-has-the-most-inequality-new-york-or-salt-lake/ and https://econscius.wordpress.com/2011/10/21/which-state-has-the-most-inequality-texas-or-new-york-why/.

 

[1] http://taxfoundation.org/publications/show/250.html

[2] Demographics on page 71 of http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf.  Spouse data on page 52.  Occupation data on page 54.

[3] Page 59 of http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf

[4]  http://cafehayek.com/2011/10/the-top-1.html

[5] http://economix.blogs.nytimes.com/2009/07/30/top-1-paid-more-in-federal-income-taxes-than-bottom-95-in-07/

[6] Sample metrics on page 69 of http://web.williams.edu/Economics/wp/BakijaColeHeimJobsIncomeGrowthTopEarners.pdf

 Pictures from Wikipedia Commons.

Occupy Wall Street Deposits At Bank Under FDIC Consent Decree For Falsifying Books

In FDIC, Financial Fraud, Occupy Wall Street Protests, Top 1% on November 9, 2011 at 12:21 am

Occupy Wall Street has raised over $500,000, depositing the money in a bank operating under a FDIC consent decree for falsifying its books – which is exactly the sort of bad banking behavior OWS claims to be protesting against on Wall Street. [1] [2] [3]

The FDIC enforcement action against Amalgamated Bank of New York, dated August 23, 2011, can be found here: http://www.fdic.gov/bank/individual/enforcement/2011-08-06.pdf.  The FDIC demands Amalgamated “shall take all steps necessary, consistent with provisions of this ORDER and safe and sound banking practices, to eliminate and correct unsafe or unsound banking practices, violations of law or regulation, all contraventions of regulatory policies or guidelines cited in the Report of Examination.” [4] 

OWS chose Amalgamated because it was the only union-owned bank in the United States [1], but Amalgamated recently sold a 40% position to, drum roll please, two billionaire investors, Wilbur Ross and Ron BurkleYes, OWS deposits are benefiting some of the very richest of the top 1%. [2] 

Day 14 Occupy Wall Street September 30 2011 Shankbone 49.JPG

Talking down the money raised thus far, Mr.Pete Dutro of the Occupy Wall Street finance committee said,”People see like $500,000 and they say ‘Wow that’s a lot of money’ but the reality is it’s not that much money.” [2] 

That is an interesting view coming from someone who is protesting the “1%” because many “1%” entrepreneurs would agree $500,00 is “not that much money”.  How much does it take to reach the top 1% of wage earners?  Just $343,927 pre-tax. [5]

Question: if Amalgamated Bank fails because of its bad loans and dodgy books, would Occupy Wall Street stand by its principles and oppose a bail out of Amalgamated depositors, including OWS itself, who hold funds in excess of FDIC insurance limits?

 

[1] http://www.fastcompany.com/1792790/for-some-financial-companies-occupywallstreet-is-a-great-marketing-hook?partner=rss

[2] http://www.teribuhl.com/2011/10/17/occupy-wall-streets-new-bank-under-fdic-enforcement-action/

[3] http://www.cnbc.com/id/44935914

[4] Page 20 of http://www.fdic.gov/bank/individual/enforcement/2011-08-06.pdf.

[5] http://www.taxfoundation.org/news/show/250.html

Occupy pictures from Wikipedia Commons.

Occupy Wall Street’s Forgiving Student Loans Is An Unforgiveably Bad Idea

In College Education, Loan Forgiveness, Occupy Wall Street Protests, Political Rhetoric, Student Loans on October 26, 2011 at 12:36 am

 

University of Chicago Quadrangle, photo by author

One “Occupy Wall Street” idea is across-the-board student loan forgiveness. [1]

It is one thing to offer temporary forbearance or deferment when someone is unemployed, but forbearance is already available to the unemployed. [2]  The “Occupy” concept is a totally different idea of total debt forgiveness.

How bad an idea is a blanket erasure of student debt?  Let us look:

(1) People with college degrees earn ~75% more than people without degrees. [3]   Loan forgiveness means asking lower-income people to write off loans made to their more affluent neighbors.

(2) The Census Bureau reports a mere 28% of Americans have college degree. [4]  Not all graduates have student loans, either.  A very small slice of the population would be receiving a windfall from the rest.

(3) The unemployment rate for people with a college degree is half the rate of the non-college educated. [3]

(4) There is a correlation between the cost of an education and the prestige of the offering institution. Degrees from Columbia or University of Chicago are much more expensive than those from smaller privates or directional state colleges.  The University of Chicago will set you back $56,640 a year (full disclosure:  there are several Chicago alums in my family, including me) and the Ivy League’s Columbia University runs $43,815 in tuition and fees alone. [5]   University of Chicago and Columbia graduates also earn more

A mass forgiveness would mean the greatest benefit would accrue to those who financed educations from the costliest (and most prestigious) schools who, on average, will earn more in their careers.  Thanks, but no thanks.

(5) Grants and tuition reductions are widely available to lower-income graduates, so those who take on the most debts generally will not be “poor”.

(6) The programs least likely to offer grants and tuition breaks are professional degree programs.  It also is true people with Masters and Doctorate degrees will necessarily have spent more years in college and take on more debt than an undergraduate.  As a result, many MBAs, doctors and lawyers graduate with huge, even 6-figure, student loans.  I personally took on a serious amount of student loan debt for my MBA.  Any mass forgiveness would disproportionately benefit those with advanced degrees:  lawyers, doctors, professors and MBAs, meaning many of the richest Americans.  The Top 1% of earners is disproportionately doctors, lawyers and business executives, many of whom hold MBAs. [6]  This is quite ironic, indeed, since Occupy Wall Street is so focused on the Top 1%.

(7)  Any mass forgiveness would be extraordinarily expensive at $1 trillion [7] and the federal budget is already deeply in the red. 

(8) It is good for people, who can, to foot some of the cost of their education. I believe things you pay for can be more meaningful. I also am certain a mass forgiveness would send a message of “don’t worry about the cost of college, have fun” to current students. College is fun, but it should not be perceived as free, lest people take even longer to graduate.

(9) A mass forgiveness would be very unfair even amongst college grads. A doctor who graduated in 2000 and lived simply so she could pay off her loans by 2010 would receive no benefit at all, while her profligate classmate who made minimum payments in preference of BMW’s and European trips might enjoy a $100,000 benefit. People who completed school in the 1970s, 1980s or 1990s would receive little to nothing in benefit because their student loans are already paid off, while those who happened to have graduated in recent years would benefit greatly.   Forgiveness is no panacea for all young people, either.  People starting college today would receive no benefit at all.

(10) Lastly, some argue a mass forgiveness would be a huge economic stimulus. [8]  A mass forgiveness would actually be a very inefficient stimulus because the loans are repaid over many years, even decades.  A doctor who was suddenly relieved of all debts would have some extra spending money and could look forward to a lighter burden in the years ahead, but the fact is only a tiny fraction of the total loan is payable in the present.  A 10 year loan with level payments has a mere 1/120th impact this month.

Student loan forgiveness is an idea that might sound good as a populist sound bite but would be patently unfair, concentrate the benefits amongst the rich and soon-to-be-rich, and would be extremely expensive.

Big Loans, Big Future Salaries. MBA Graduates, University of Chicago. Photo from author.

[1] http://www.cnbc.com/id/44879455

[2] http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/postponeloanpayment.htm

[3] http://www.nytimes.com/2010/09/21/education/21college.html

[4] http://chronicle.com/article/Adults-With-College-Degrees-in/126026/

[5] http://www.forbes.com/2010/10/04/americas-most-expensive-colleges-business-most-expensive-colleges.html

[6] http://economix.blogs.nytimes.com/2011/10/17/the-top-1-executives-doctors-and-bankers/

[7] http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1

[8] http://www.cnsnews.com/news/article/educated-liberals-say-forgiveness-student-loans-would-stimulate-economy

Johns Hopkins University photo from Wikipedia Commons.

Comments are welcome below.