IRS Data on 2009 Incomes

August 5, 2011
Posted by Jay Livingston

The gist of yesterday’s post was that while retailers that serve the rich are doing very well, those that serve the rest of us are not. The obvious reason is that the rest of us aren’t spending money, and we’re not spending it because we don’t have as much of it.

Tax figures from 2009 give some of the bleak details. (But in the comparisons, remember that 2007 was the last good year, the year before the recession.)

(Reuters) - U.S. incomes plummeted again in 2009, with total income down 15.2 percent in real terms since 2007, new tax data showed on Wednesday.
Average income in 2009 fell to $54,283, down $3,516, or 6.1 percent in real terms compared with 2008, the first Internal Revenue Service analysis of 2009 tax returns showed. Compared with 2007, average income was down $8,588 or 13.7 percent.

In various comments on this blog and elsewhere, some people have complained about the many earners who pay no income tax. Now there’s even more of them to complain about.

While the number of people who earned enough income to file a tax return fell, the share of those filing who paid no income tax rose to 41.7 percent of tax returns, up from 36.4 percent in 2009.

The Wall Street Journal has referred to these nonpayers as “lucky duckies.” Here’s how lucky they are:

The average income of those filing but paying no tax was $14,483.

Not all nonpayers are poor, just most of them. But there were some truly lucky duckies, and there were more of them as well.

No income tax was paid by 1,470 of the 235,413 taxpayers earning $1 million or more in 2009, compared with the 959 taxpayers with million-dollar-plus incomes who paid no income taxes in 2007.

There was really bad news, at least for those who believe that’s what’s best for the country is what’s best for the wealthy

The number of Americans reporting incomes of $10 million or more also plunged even more than the steep drop in income for the population as a whole.

Just 8,274 taxpayers reported income of $10 million or more in 2009, down 55 percent from 18,394 in 2007. Compared with 2007, total real income of these top earners in 2009 fell 58.6 percent to $240.1 billion, but average income slipped just 8.1 percent to $29 million.

Things are tough all over. If you want to read the whole grim Reuters story, go here.

HT: Global Sociology

Expensive Shoes, Good News

August 4, 2011
Posted by Jay Livingston

The Times this morning has a reassuring front-page story – the rich are spending, and prices don’t seem to matter all that much.

“If a designer shoe goes up from $800 to $860, who notices?” said Arnold Aronson, managing director of retail strategies at the consulting firm Kurt Salmon, and the former chairman and chief executive of Saks.

For the record, the negligible increase from $800 to $860 (a 7% increase) is actually larger than the 5% income tax increase Obama proposed on incomes over $250,000 (from 37% to 39%). This 5% increase would have wrought such disaster that Republicans, in the words of one of their leaders,* held the economy hostage to ensure that it would not happen.

Nordstrom has a waiting list for a Chanel sequined tweed coat with a $9,010 price. Neiman Marcus has sold out in almost every size of Christian Louboutin “Bianca” platform pumps, at $775 a pair. Mercedes-Benz said it sold more cars last month in the United States than it had in any July in five years.

Here’s why we should all be cheered up by the good fortune of those with large fortunes.

“This group is key because the top 5 percent of income earners accounts for about one-third of spending, and the top 20 percent accounts for close to 60 percent of spending,” said Mark Zandi, chief economist of Moody's Analytics. “That was key to why we suffered such a bad recession - their spending fell very sharply.”

You might think that the rich account for more spending because they have the bucks. The top 5% that accounts for one-third of spending also accounts for about one-third of income. Now Mark Zandi is a very smart economist, so I’m sure there’s some reason that it’s better for the economy when rich people buy luxury German cars than when the other 95% of us buy the things we buy.

So it’s good that the money is flowing to the top. It’s certainly not flowing to the rest of us.

The success luxury retailers are having in selling $250 Ermenegildo Zegna ties and $2,800 David Yurman pavé rings - the kind encircled with small precious stones - stands in stark contrast to the retailers who cater to more average Americans. [emphasis added]

How about shoes? One of these shoes is the Nieman Marcus $750 Louboutin Bianca mentioned above. The other is a Viviana by Mossimo, available at Target for $29.99

(Click on the image for a view large enough that you can read the writing inside the shoe
and see which one costs 30 times more than the other -- as if you really had to look.)

Apparently, it’s better for one rich woman to buy the Bianca than for twenty-five women of average income to buy the Viviana. But I’m not sure why.

*GOP Senate leader quoted in WaPo: “I think some of our members may have thought the default issue was a hostage you might take a chance at shooting,” [McConnell] said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming.”

Open-minded or Just Outnumbered?

August 3, 2011
Posted by Jay Livingston

Tyler Cowen links to a Financial Times article about Match.com and gives the money quote, which quotes the Match.com engineer:

“Conservatives are far more open to reaching out to someone with a different point of view than a liberal is.” That is, when it comes to looking for love, conservatives are more open-minded than liberals.

The article provides no data or details, but I wonder whether the Match brains take into account the numbers of liberals and conservatives in the pool. If conservatives are in the minority, it may be simple math that makes them appear more open minded. If they remain closed-minded, compared to their liberal counterparts, they will have less chance of success.

In addition, if the liberal-conservative ratio is way out of balance, even a random matching will make the conservatives seem more open minded. By analogy, suppose that a population is 90% orange and 10% purple. No matter how many orange-purple matches occur, the rate of linking up with someone of a different color will be much higher for the purples. Unless all matches are same-color, the purple minority will seem more “open-minded.”

The Match.com president herself says something that supports this idea that those with fewer kindred spirits wind up becoming more open-minded.

I might come in and say I’m looking for a nice Catholic guy between 30 and 40 who is non-married. But after weeks of looking at people, I might get an e-mail from a guy who has kids, and I might accept that.

Going to Extremes

August 1, 2011
Posted by Jay Livingston

In a recent post (here), I referred to George Packer’s short essay on the current standoff in Washington. Packer used Max Weber’s distinction between an “ethic of responsibility” and an “ethic of ultimate ends.” Or, in Packer’s words, “between those who act from a sense of practical consequence and those who act from higher conviction, regardless of consequences.”

Packer said that the Republicans came down on the side of ultimate ends and that they were now extreme in their emphasis on principles regardless of consequences.

A commenter objected to Packer’s choice of words and dismissed his take on conservatives as “caricature.” . But a recent Economist/YouGov poll (here, July 23) suggests that although Packer’s diction may have been undiplomatic, he was essentially correct about the difference between the Republicans and others, a difference that holds not just in Washington but in the electorate generally.

The poll asked.

If you had to choose, would you rather have a congressperson who...

• Compromises to get things done
• Sticks to his or her principles no matter what

Here are the results.

(Click on the graph for a larger view.)

No other variables produced such large differences. Region, sex, age, and education yielded differences of at most a few percentage points. There was an 11-point gap between blacks and whites, High income respondents ($100K and up) were 17 points more likely to want compromise than were those with incomes less than $40K. These differences are dwarfed by the 36-point gap between Democrats and Republicans and the 45-point gap between Liberals and Conservatives. It’s also worth noting that the Independent/Moderates were much closer to the those on their left than to those on their right.

Readers of a certain age or readers of history may remember Barry Goldwater, GOP candidate for president in 1964, and his defense of principled “extremism.” Despite the reverence for Reagan that Republicans often proclaim, it’s Goldwater who may be their true guiding star.