In 2021 the top 1 percent of taxpayers in the United States paid 36 percent of all federal taxes (they have 21.1 percent of income). This figure had been below 20 percent until the mid-1990s, and as recently as 2019 it was just 24.7 percent (they had 15.9 percent of the income that year).
The increase is primarily due to a large number of high-income households realizing capital gains in 2021. With all the talk lately of potentially taxing unrealized capital gains, it’s important to note that we do tax realized gains, and these change a lot from year to year. Another contributing factor is that the share of the bottom 60 percent of households only paid 1 percent of federal taxes in 2021, a big drop from 2019 due to a big increase in temporary refundable tax credits.
Are you better off than you were four years ago? That question was asked at the Presidential debate last night. But more importantly, we also got a massive amount of new data on income and poverty from Census yesterday. That data allows us to make that just that comparison, although somewhat imperfectly.
The Census data is excellent and detailed, but it’s annual data, meaning that the release yesterday only goes through 2023. We won’t have 2024 data for another year. Such is the nature of good data. (Note: I’ve tried to address this same question with more real-time data, such as average wages). Still, it’s a useful comparison to make. It’s especially useful right now because the new 2023 data on income are (for most categories) the highest ever with one exception: 4 years ago, in 2019.
A reasonable read of the data on income (whether we use households, families, or persons) is that in 2023 the median American was no better off than in 2019, after adjusting for inflation. In fact, they were probably slightly worse off. I fully expect this will no longer be true when we have 2024 data: it will certainly be above 4 years prior (2020) and likely above 2019 too (more on this below). But we can’t say that for sure right now.
So let’s do a comparison of “are you better off than 4 years ago” for recent Presidents that were up for reelection (treating 2024 as a reelection year for Biden-Harris too), using the 4-year comparison that would have been available at the time using real median family income. Notice that this data would be off by one year, but it’s what would have been known at the time of the election.
A recent post from the blogger (Substacker?) Cremieux called Rich Country, Poor Country showed how small differences in economic growth add up over time. Because he used nominal GDP growth rates, I don’t think that post is exactly the right way to analyze the question, but I still think it’s a very important one. So in this post I will offer, not necessarily a critique of that post, but perhaps a better way of looking at the data.
For the data, I will use the Maddison Project Database, which attempts to create comparable GDP per capita estimates for countries going back as far as possible… for some, back thousands of years, but for most countries at least the last 100 years. And the estimates are stated in modern, purchasing power adjusted dollars, so they should be roughly comparable over time (if you think these estimates are a bit ambitious, please note that they are scaled back significantly from Angus Maddison’s original data, which had an estimate for every country going back to the year 1 AD). The most recent year in the data is currently 2022, so if I slip up in this post and say “today,” I mean 2022, or roughly today in the long sweep of history.
Like Cremieux’s post, I am interested in how much slightly lower economic growth rates can add up over time. Or even not so slightly lower growth rates, like 1 percentage point less per year — this is a huge number, because the compound annual average growth rate for the US from 1800 to 2022 is 1.42%. So let’s look at the data way back to 1800 (the first year the MPD gives us continuous annual estimates for the US) to see how changes in growth rates affect long-term growth.
It probably won’t surprise you that if our 1.42% growth rate had been 1 percentage point lower, the US would be much poorer today, but to put a precise number on it, we would be about where Bolivia is today (that is, ranked 116th out of the 169 countries in the MP Database). Note: I’m using a logarithmic scale, both so it’s easier to see the differences and because this is standard for showing long-run growth rates.
What is very interesting, I think, is that if our growth rate had been just 0.25 percentage points lower per year since 1800, we would be about where Spain is. Now, Spain is certainly a fine, modern developed country (they rank 34th of the 169 MPD countries). But Spain’s growth has not been spectacular lately. Average income in Spain is almost half of the US today (purchasing power adjusted!), which is another way to say that just 0.25 percentage points lower over 222 years reduces your growth rate by half.
That’s the power of economic growth.
And if our growth rate had been 0.5 percentage points lower, we’d be about where the big former Communist countries are today (both China and the former countries of the USSR are about equal today — about 1/3 of the income of the US).
What if we perform the same analysis for a shorter time horizon? If we go back 50 years to 1972, the effects are not quite as dramatic, but still visible.
Our cumulative annual growth rate since 1972 has been a bit higher than the long-run average, around 1.68%. Under these four alternative growth scenarios since 1972, the comparable countries don’t sound so bad. It probably wouldn’t be a huge deal if we were only at Australia’s level, losing just about a decade of economic growth. But it would be a huge failure if we were only at Italy’s current level of development. Under that 1 percentage point lower growth scenario, we would have had no net growth since about year 2000, which has roughly been the case for Italy.
All of these alternative scenarios show the power of economic growth to add up over time, but they do so in pessimistic way: what if growth had been slower. What if we look at the opposite: what if growth had been faster over some time horizon. Sticking with the 1972 medium-run example, if real growth rates had been 1 percentage point higher, our income today would be almost double what it actually is, about $95,000 compared with the current $58,000 (the MPD data is stated in 2011 dollars, so that sounds lower than it actually is now: over $80,000).
What if we went back even further? If our economic growth rate since 1800 had been 1 percentage point higher every year, our average income in 2022 would be an astonishing $517,000 — almost 10 times what it actually was in 2022. That’s a dizzying number to think about, and maybe that’s not a realistic alternative scenario.
But what if it had only been 0.25 percentage points higher since 1800 — that probably is a world that was possible. In that case, GDP per capita would be about double what it actually was in 2022, at over $100,000 (again, stated in 2011 dollars).
Grocery prices are definitely up a lot in the past few years. I’ve wrote about thisseveral times before. But lately there has been a trend on social media to “post your receipts” and show how much your grocery prices have gone up. Unfortunately, very few people actually post the full receipts, often just showing the total, which leads to wild claims like prices being up 250% in just the past 2 years! That’s a huge contrast to BLS “food at home” category of the CPI, which shows an increase of 4.7% from July 2022 to July 2024 (it’s also unclear in the video what the exact date of the receipt is, he just says “2 years”). Depending on the exact base month, you’re going to be in the 20-25% compared with pre-pandemic or early pandemic using BLS data.
What if we actually looked at receipts? I tried such an exercise in November 2023, when there was another round of social media videos claiming prices had doubled in just a single year. My own personal receipt matched the corresponding BLS data pretty closely, but that was just one receipt with only eight items from Sam’s Club (which might not match grocery stores, for various reasons). At the time, I couldn’t find any good receipts from 2019 or 2020 (Kroger and Walmart drop old receipts in your account after about 2 years), but after scouring an old email account, I discovered two more receipts to compare. These are both from Walmart, in 2019 and 2020, and they contain a larger number of items than my Sam’s Club receipt (each with about a dozen and half items that are fairly typical grocery purchases, and I was able to find matching products today).
This morning the Bureau of Labor Statistics released the latest quarterly data for their Quarterly Census of Employment and Wages for the first quarter of 2024. Along with this release is the announcement of their preliminary “benchmark estimate” for March 2024, which will eventually (next year) be used to revise employment data for the Current Employment Statistics program. To keep all of the alphabet soup of programs clear in year head, CES is the more familiar “nonfarm jobs” data that is released each month, usually with some media fanfare.
Benchmarking is an important part of the process for many data releases, because the monthly CES data is based on a survey of employers, a subset of the total. But the QCEW data is the universe of employees — at least the universe of the those covered by Unemployment Insurance law, which is something like 97-98% of workers in the US. So the numbers will never match exactly (CES is supposed to be measuring all workers, not just the 97-98% covered by UI), but they should be pretty close. The media reports the CES monthly data more prominently, because it is more timely and usually pretty close to correct — but benchmarking is the process to see just how correct those initial surveys were.
That brings us to the release today, which is the preliminary estimate of the benchmark adjustment for March 2024 (it will be finalized early in 2025). And that preliminary estimate was a big number, with a downward revision projected of 818,000 jobs. To put this in perspective, the current CES data shows 2.9 million jobs were added between March 2023 and March 2024, so this estimate suggest that the job growth was overstated by perhaps 40 percent. That’s a big revision, though large revisions are not unheard of: the same figure for March 2022 was an estimated 468,000 jobs higher, while March 2019 was 501,000 jobs lower. But this year is a big one (largest absolute number since 2009). Here’s a chart summarizing recent years revisions from Bloomberg:
I’ve covered this topic before, such as an April 2024 post where I noted that as of September 2023, there was an 880,000 gap in job growth between the CES and QCEW over the prior year. So this was not unexpected, and in the days leading up to the report, close followers of the data were forecasting that the revision could be up to 1 million jobs.
As I wrote last November, the question “are you better off than you were four years ago?” is a common benchmark for evaluating Presidential reelection prospects. And even though Biden is no longer running for reelection, voters will no doubt be considering the economic performance of his first term when thinking about their vote in November.
The good news for American wage earners (and possibly Harris’ election prospects) is that average wages have now outpaced average price inflation since January 2021. Despite some of that time period containing the worst price inflation in a generation, wages have continued to grow even as price growth has moderated. Key chart:
For most of Biden’s term, it was true that prices had outpaced wages. But no longer.
The real growth in wages, admittedly, is not very robust, despite being slightly positive. How does this compare to past performance under recent Presidents? Surprisingly, pretty well! (Lots of caveats here, but this is what the raw data shows.)
Recently there has been some discussion in the Presidential race about the taxation of parents vs. childless taxpayers. The discussion has been ongoing, but it was kicked up again when a 2021 video of J.D. Vance resurfaced where he said that taxpayers with children should be lower tax rates than those without children. There was some political back-and-forth about this idea, much of it tied up in the framing of the issue, with the usual bad faith on both sides about the fundamental issue (in short: most Democrats and a small but growing number of Republicans support increasing the size of the Child Tax Credit).
Let’s leave the politicking aside for a moment and focus on policy. As many pointed out in response to Vance’s idea, we already do this. In fact, we have almost always done this in the history of the US income tax — “this” meaning giving taxpayers at least some break for having kids. For most of the 20th century, this was done through personal exemptions which usually included some tax deduction for children, and later in the century the Child Tax Credit was added (after 2017, the exemptions were eliminated in favor of a large CTC). Other features of the tax code also make some accounting for the number of children, most notably the size of the Earned Income Credit.
The chart below is my attempt to show how the tax breaks for children have affected four sample taxpaying households. What I show here is sometimes called the “zero bracket” — that is, how much income you can earn without paying any federal income taxes. The four households are: a single person with no children, a married couple with no children, a single person with two children (“head of household”), and a married couple with two children. All dollar amounts are inflation-adjusted to current dollars
The concept of “fiscal illusion” has long existed in public finance, but it is difficult to test. The basic theory is that people will underestimate how much they pay in taxes, as well as underestimate government expenditures. A forthcoming paper in Public Choice by Kaetana Numa uses survey data from the United Kingdom to test the theory, and finds support. From the abstract of “Fiscal illusion at the individual level“:
“providing personalized fiscal information reduces support for higher taxes and spending and increases support for lower taxes and spending. These findings indicate that taxpayers underestimate both their tax liabilities and the costs of public services.”
The paper uses a “novel personalized fiscal calculator” to estimate how much tax an individual would actually owe. It then randomizes which taxpayers get this information, and finds that “the treated respondents… were less supportive of raising taxes and more supportive of cutting taxes than the respondents in the control condition.”
And the results are large. For all taxes, in the treated group that saw their personalized fiscal calculator, 61 percent support cutting taxes, versus just 50 percent in the control group. The differences show up across the major taxes that individuals pay in the UK, including the income tax, national insurance contributions (both employer and employee sides), and the VAT. There is no tax category where the treatment group is more likely to want to increase the tax, though the VAT and the smaller Fuel duty and Council tax are about equal on the percent wanting an increase (but the median response for these last two is to decrease the tax — in both the control and treatment groups).
Do these results from the UK hold up in other developed nations? Possibly. In a 2014 Eurobarometer survey, the percent of EU citizens that could correctly identify their nation’s VAT rate varied widely. The high was 89 percent in Germany correctly identifying the rate, down to 31 percent in Ireland. The average was 65 percent — though the UK was at the low end with only about 47 percent correctly identifying the VAT rate.
Fiscal illusion appears to be a real issue, and probably an important one in the UK.
Among the former G8 countries, Russia has by far the highest cumulative inflation rate since January 2020, almost double the amount of inflation we’ve seen in the US and in most G7 countries. No doubt the effects of the wartime economy are contributing to this, but even in February 2022 before they invaded Ukraine, their inflation still had clearly been worse.
The US is on the high end for this group, but pretty close to the median. Japan looks really good on inflation, but that’s probably not much comfort to them since their economy is still smaller than before the pandemic. By this measure, the US looks pretty good (chart from Joey Politano):
GDP estimates for Russia are a little tricky because of the war, but according to IMF estimates, Russia’s economy in 2023 was about 5.6% larger than 2019 in real terms.
Crime of all forms certainly spiked in 2020 and 2021 in most of the US, and continued to remain high for a time after that. But recent data, especially homicide data compiled by AH Datalytics, suggest that crime is falling. When measured by homicide rates, the worst of crimes and the least likely to be underreported, homicide rates across 272 major cities in the US is down 17.6% in 2024 compared with the same period in 2023. And among the 20 cities with the most homicides in 2023, just one (Birmingham, the 20th on the list) saw an increase from 2023 to 2024.
But is this just coming down from a relative high? Are homicide rates still elevated from pre-pandemic? I went through the cities with the most homicides on the AH Datalytics list, and for those where I could find comparable data pre-pandemic, I created the following charts. As you will see, lots of these cities are down to or below pre-pandemic levels (for the period in 2024 that is comparable to prior years). Not every single city, of course, but most are close to 2019 or prior years.
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