the Clinton/Bush/Obama legacy of exporting jobs and debt
Income Slides to 1996 Levels Median Household Earnings Fall for (no coincidence) Third Year, Census Says
By CONOR DOUGHERTY The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said.
The poverty rate clicked up again this year. WSJ's David Wessel, DJ Newswires' Neal Lipschutz and MarketWatch's David Callaway discuss on The News Hub whether the government needs to intervene to the rising number of Americans affected. The Census Bureau's annual snapshot of living standards offered a new set of statistics to show how devastating the recession was and how disappointing the recovery has been. For a huge swath of American families, the gains of the boom of the 2000s have been wiped out.
Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993.
CloseTo be sure, there are other measures of American financial health that are more positive. The nation's per capita net worth, for instance, hit $169,691 at the end of 2010, according to the Federal Reserve, up from $147,889 in 2007. Much of that gain is in the form of stocks, retirement accounts and other investments. The biggest asset of most American families is their homes, and those have declined in value in recent years.
And there are those who argue the Census report offers a flawed gauge of living standards. For example, the Census Bureau adjusts for inflation using government measures that attempt to reflect the improving quality as well as price of goods. But these inflation adjustments are imperfect and don't reflect advances in medicine, the wonders of the Internet or the improvements in air quality.
U.S. household incomes fell for the third straight year in 2010, driving up the poverty level to the highest level in nearly 20 years. WSJ's Conor Dougherty has details. Photo: Spencer Platt/Getty Images Deborah Bagoy-Skinner and her husband, Chester, are among the faces behind the numbers. Four years ago, the Tucson, Ariz., couple owned their home and had a combined income of around $100,000, much of which came from Mr. Skinner's job conducting safety training classes for a heavy-equipment maker.
They lost their three-bedroom home in 2007 during a two-year spell of unemployment, and have since downgraded to a two-bedroom rental. Through 2008 and 2009, the darkest days of the recession, they sold everything from golf clubs to antique nickels to pay rent and bills. Today the couple is well above the poverty line: Mr. Skinner makes about $65,000 a year doing contract safety classes. But with their savings wiped out it will be a long road back, and likely they won't own another home or ever make as much as they once did. "We've pretty much accepted that that probably won't happen," she says.
The Census report, viewed as a key gauge of American prosperity, comes at a time of growing anxiety about the health of the U.S. economy and is likely to play into the political dialog this election year. With more than 14 million unemployed, many of them out of jobs for extended periods, the recovery is faltering and the administration and Congress are debating how to respond. Consumers account for some 70% of demand, so thinner pay checks are a major problem for anyone trying to boost growth and get the unemployed back into jobs.
The Census report was studded with data that underscore the economic strains across society in the aftermath of the worst recession in more than half a century. Poverty rates among people younger than 18 grew to 22%, compared with 20.7% the year before, while the percentage of Americans lacking health insurance edged up to 16.3%. Echoing a longer-term trend that is in part a reflection of an aging population, the share of people covered by private insurance fell last year, while the share of people on government programs such as Medicare and Medicaid increased.
More How to Accurately Measure The Poor Remains Elusive More Americans Are Doubling-Up to Avoid Poverty Fast Facts From the Report As families struggle to make ends meet and young workers navigate the moribund labor market, many have turned to each other. According to the Census report, 5.9 million Americans between 25 and 34, or 14.2% of that group, lived with their parents in spring 2011, compared with 4.7 million before the recession, or 11.8%.
Meanwhile, the gap between the best-off and worst-off Americans remained largely unchanged. The top fifth of households accounted for 50.2% of all pre-tax income; the bottom two-fifths got 11.8%. In 1999, the top fifth claimed 49.4% and the bottom got 12.5% of the income.
The Census Bureau said 15.1% of Americans were living below the poverty line, set at $22,314 for a family of four in 2010. That's up from 14.3% last year and from 12.5% in 2007, before the recession. The official poverty rate overestimates the number of people living in poverty because it doesn't count many government anti-poverty programs, such as subsidized housing, food stamps and the Earned Income Tax Credit.
Write to Conor Dougherty at conor.dougherty@wsj.com
Corrections & Amplifications The Census Bureau's latest report said 15.1% of Americans lived below the poverty line in 2010. An earlier version of this article incorrectly said 15.1% of U.S. families were below the line.
President Obama to Seek Higher Tax Rate on Millionaires
President Obama on Monday will call for a new minimum tax rate for individuals making more than $1 million a year to ensure that they pay at least the same percentage of their earnings as middle-income taxpayers, administration officials said.
With a special joint Congressional committee starting work to reach a bipartisan budget deal, the proposal adds a populist feature to Mr. Obama’s effort to raise the political pressure on Republicans to agree to higher revenues from the wealthy in return for Democrats’ support of future savings from Medicare and Medicaid.
Mr. Obama, in a bit of political salesmanship, will call his proposal the Buffett Rule, in a reference to Warren E. Buffett, the billionaire investor who has complained that the richest Americans generally pay a smaller share of their income in federal taxes than do middle-income workers, because investment gains are taxed at a lower rate.
Texas Gov. Rick Perry’s Social Security solution is to return the sponsorship of government retirement programs to the states, which he insists can handle the job better than the federal government. (Craig Ruttle, Associated Press / September 18, 2011)
The Galveston County, Texas, retirement plan he touts provides some benefits similar to Social Security, but it falls well short of the federal program's protections in important ways.
By Michael Hiltzik September 16, 2011, 7:28 p.m.
Misinformed and mendacious attacks on Social Security have become such familiar conservative shibboleths that it can be hard to muster the energy to beat them down anymore.
Then along comes Rick Perry, the Texas governor. He's suggested that it's unconstitutional (a notion the Supreme Court disposed of in 1937) and after announcing his candidacy he called it a "monstrous lie."
Perry's solution is to return the sponsorship of government retirement programs to the states, which he insists can handle the job better than the federal government.
As evidence he points to an alternative retirement plan set up by Galveston and two other Texas counties in the early 1980s, when they withdrew their employees from Social Security. (Congress later closed the loophole that allowed localities to do so.)
"Employees in those plans are reaping the benefits," Perry says in his 2010 book "Fed Up."
Like almost everything Perry says, this statement demands close scrutiny. The Galveston plan provides some benefits similar to Social Security, including pension and disability payments, but it doesn't resemble the federal program and falls well short of its protections in important ways. In fact, its designer, Houston benefits consultant Rick Gornto, told me: "I didn't set out to compete with Social Security."
The Galveston program is basically a 401(k)-style defined contribution plan. You get out of it what you put in, along with the employer's match and investment gains on the total.
That means the greatest benefits flow to the best-paid employees, such as the county managers who established the plan. Social Security, by contrast, steers proportionately larger benefits to moderate- and low-paid workers.
Fans of the Galveston plan say that at almost any income level, its members make out better in retirement than under Social Security. (The contribution rates are similar, though Galveston contributions are in pre-tax dollars, so the benefits are fully taxable in retirement; Social Security contributions are in after-tax dollars, but the benefits are only partially taxable.)
But not all the Galveston plan's retirees are as delighted as Perry makes them out to be.
"What they promised with that plan, it did not deliver," says Evelyn Robison, 71, a former Galveston County court clerk who accumulated 20 years of credits under the plan before retiring in 2003. She says that before voting to accept the changeover, employees were plied with visions of 10% annual returns on their contributions. (The actual guaranteed minimum is about 4%.)
Gornto, the plan designer, provided me with sample retirement projections for employees at various income levels, and they show quite generous returns for most workers — on the surface.
For example, he projects that a county employee retiring with a $75,000 salary would have accumulated over a 40-year career a pension nest egg of about $740,000, counting contributions, the employer match, and earnings on the account averaging 4% a year.
That would provide a payout of $4,470 a month, he says. Sounds pretty good, considering that the maximum monthly Social Security benefit, including a 50% spousal bump up for couples, is about $3,550.
Except that Gornto's figures assume that a worker retiring with a $75,000 salary made that very amount every year for 40 years, which obviously would not be the case.
If one assumes instead that the worker reached $75,000 after receiving raises averaging, say, 2% a year, my back-of-the-envelope calculation yields a nest egg closer to about $463,000, which would yield a monthly payout of less than $2,800, using Gornto's formula.
Moreover, Gornto's projected payout lasts only 20 years. After that, the worker receives nothing. Social Security, by contrast, pays for life.
"What happens after those years are up and you still want to have a roof over your head?" asks Robison, the Galveston retired court clerk.
Unlike Social Security recipients, Galveston retirees don't have inflation protection. (Inflation has been quiescent over the last few years, so there haven't been cost-of-living increases for Social Security lately, but plainly that's not a permanent condition.)
That's a huge drawback of the Galveston plan. After 15 years of inflation at 3% annually our sample retiree's $4,470 would have the buying power of about $2,830; after 20 years it would be down to $2,431 — a reduction by nearly half.
Run into a period of double-digit inflation, such as what prevailed in the early 1980s when the Galveston plan was created, and the impact would be even more devastating.
All these niceties help explain why the two most detailed comparisons of the programs, performed in 1999 by the General Accounting Office and the Social Security Administration, concluded that the Galveston plan would be a poor substitute for Social Security for the vast majority of workers and their families. That's especially true when you factor in survivor and dependent coverage.
Social Security's study showed that because of inflation only the benefits of very high-paid single workers (those in the top 10% of all workers ages 60 to 64) would equal Social Security 20 years after retirement.
Married workers, who would want to spread out their payouts to cover their spouses' lives, would receive much lower benefits than under Social Security to begin with, and then would be reamed by inflation.
And families with young children at the time of an early death of the breadwinner would do much better under Social Security.
That finding gives the lie, to use Perry's term, to his claim in a recent interview [ http://www.thedailybeast.com/articles/2011/08/12/rick-perry-newsweek-interview-transcript.html ] that it's impossible to defend Social Security "to a 27-year-old young man who's just gotten married and is trying to get his life headed in the right direction economically." Here's the defense: If he dies young, Social Security will save his family from poverty.
Such inconvenient facts haven't kept Perry from retailing his vision of Social Security with all the cocksure ignorance of a talk show host.
Even before launching his run for the GOP presidential nomination, he showed all the understanding of this vital program that an 8-year-old has for quantum mechanics.
"By any measure, Social Security is a failure," he states in his book, then congratulates himself for his "courage" for making what is, through and through, a fatuous misstatement.
Failure? Tell that to the 54 million Americans who receive Social Security benefits today. For two-thirds of Americans over 65, the program provides half or more of their income. And for more than a third it accounts for 90% of their income — all this with a rock-bottom administrative cost and a scandal-free history.
Perry continues to roll out the malarkey. Last week in an op-ed commentary in USA Today, he offered the "hard fact" that "by 2037, retirees will only get 76 cents of every dollar that is put into Social Security unless reforms are implemented."
Well, no. This appears to be a braiding of several strings of misunderstandings and misrepresentations. At its core is the program's projection that barring some minor fiscal tweaks, sometime around 2036 the program may have only enough money to pay 77% of currently scheduled benefits.
That's not at all the same as how much of their contributed dollar retirees or their families will get back in benefits, which is affected much more by such factors as how long they live in retirement and the number and age of their dependents. Some people will get less than they contributed, some people will get many multiples of what they (or their parents or spouses) contributed.
That's the nature of social insurance programs like Social Security — indeed, any insurance. If you know at the age of 20 how long you'll collect Social Security after you're 65, congratulations: You're a god. But programs like Social Security are, thankfully, designed for us poor mortals.
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