October 20, 2017

Household Incomes Remain Flat Despite Improving Economy

“The poverty and income numbers are a metaphor for the entire economy,” said Ron Haskins of the Brookings Institution. “Everything’s on hold, but at a bad level.”

Over a longer perspective, the figures reveal that the income of the median American household today, adjusted for inflation, is no higher than it was for the equivalent household in the late 1980s.

For all but the most highly educated and affluent Americans, incomes have stagnated, or worse, for more than a decade. The census report found that median household income, adjusted for inflation, was $51,017 in 2012, down about 9 percent from an inflation-adjusted peak of $56,080 in 1999, mostly as a result of the longest and most damaging recession since the Depression. Most people have had no gains since the economy hit bottom in 2009.

The government’s authoritative annual report on incomes, poverty and health insurance, released Tuesday, underscores that the economic recovery has largely failed to reach the poor and the middle class, even as the unemployment rate continues to sink and growth has returned.

Government programs remain a lifeline for millions. Unemployment insurance, whose eligibility the federal government expanded in response to the downturn, kept 1.7 million people out of poverty last year. Food stamps, if counted as income, would have kept out four million.

Since the recession ended in 2009, income gains have accrued almost entirely to the top earners, the Census Bureau found. The top 5 percent of earners — households making more than about $191,000 a year — have recovered their losses and earned about as much in 2012 as they did before the recession. But those in the bottom 80 percent of the income distribution are generally making considerably less than they had been, hit by high rates of unemployment and nonexistent wage growth.

Moreover, economists believe that the report understates the degree of income inequality in the United States, by not including, among other things, earnings from capital gains made on rising stock prices.

In one glimmer of improvement, the number of men working full time year-round with earnings increased by one million from 2011 to 2012, to a total of 59 million. Still, the labor market continues to look weak, in particular for less-educated and lower-income men. The labor force participation rate of men has fallen steadily for the past 60 years. In no small part, that is because the median earnings of men working full time have not increased in real terms since the early 1970s.

For women, the earnings stall started about a decade ago, when the gender pay gap stopped closing. “The wage gap hasn’t budged a penny,” said Fatima Goss Graves of the National Women’s Law Center. “After 11 years of no progress on equal pay, policy makers need to get moving to improve the country’s pay discrimination laws, raise the minimum wage and remove the barriers women face in higher-wage jobs.”

The West was the only region that experienced a statistically significant increase in median income, the Census Bureau said, while all other regions were flat. That most likely reflects the relatively strong growth in Washington, Oregon, California and Utah last year. North Dakota, experiencing an oil and gas boom, is the fastest-growing state, though its population is so small that it barely affects the national statistics.

No racial or ethnic group experienced significant changes in income, but that left the gap between Asians, at the top, and blacks, at the bottom, as wide as before. The median income for Asian households was $68,600. For non-Hispanic whites, it was about $57,000, while the typical Hispanic household had an income of $39,000, and blacks were at $33,300.

Article source: http://www.nytimes.com/2013/09/18/us/median-income-and-poverty-rate-hold-steady-census-bureau-finds.html?partner=rss&emc=rss

Wealth Matters: The End of a Decade of Uncertainty Over Gift and Estate Taxes

For estate and gift taxes in particular, all but the richest of the rich will probably be able to protect their holdings from taxes, now that Congress has permanently set the estate and gift tax exemptions at $5 million (a level that will rise with inflation.)

“You could say this eliminates the estate tax for 99 percent of the population, though I’ve seen figures that say 99.7 or 99.8,” said Rich Behrendt, director of estate planning at the financial services firm Baird and a former inspector for the Internal Revenue Service. “From a policy point of view, the estate tax is not there for raising revenue. It’s there for a check on the massive concentration of wealth in a few hands, and it will still accomplish that.”

And while Congress also agreed to increase tax rates on dividends and capital gains to 20 percent from 15 percent for top earners — in addition to the 3.8 percent Medicare surcharge on such earnings — the rates are still far lower than those on their ordinary income. For the earners at the very top, whose income comes mostly from their portfolios of investments, and not a paycheck like most of the rest of us, this is a good deal.

The estate tax, once an arcane assessment, has been in flux and attracting significant attention since 2001. That was when the exemption per person for the estate tax began to rise gradually from $675,000, with a 55 percent tax for anything above that amount, to $3.5 million in 2009 with a 45 percent tax rate for estates larger than that. Estate plans were written to account for the predictable increases in exemptions.

Then in 2010, contrary to what every accountant and tax lawyer I spoke to at the time believed would happen, the estate tax disappeared. Congress and President Obama could not reach an agreement on the tax. So that year, for the first time since 1916, Americans who died were not subject to a federal estate tax. (Their estates still paid state estate taxes, where they existed, and other taxes, including capital gains, on the value of the assets transferred.)

At the end of 2010, President Obama and House Speaker John A. Boehner reached an agreement that was just as unlikely as the estate tax expiring in the first place: the new exemption was $5 million, indexed to inflation, with a 35 percent tax rate on any amount over that, and it would last for two years. The taxes and exemptions for gifts made during someone’s lifetime to children and grandchildren were also raised to the same level, from $1 million and a 55 percent tax above that.

As I have written many times, this was a far better rate and exemption than anyone expected. It also created a deadline of Dec. 31, 2012, for people who could make a major gift up to the exemption level or above the amount and pay the low gift tax.

Using the gift exemption was enticing because it meant those assets would appreciate outside of the estate of the person making the gift. Even paying the tax became attractive to the very rich because of how estate and gift taxes are levied. Take, for example, someone who has used up his exemption and wants to give an heir $1 million. The amount it would take to accomplish this differs depending on when it is given. In life, it would cost $1.4 million because the 40 percent gift tax is paid like a sales tax. If it was given after death, the estate would have to set aside about $1.65 million after the 40 percent estate tax was deducted. But this presented a conundrum: while it may make perfect sense to give away a lot of money during your lifetime and save on estate taxes, it means ceding control of cash, securities or shares now. What if you end up needing them? It wasn’t an easy decision, and it led to a fourth-quarter rush.

As of this week, this is no longer an issue. The estate and gift tax exemptions are permanently set at the same $5 million level, indexed for inflation, and the tax rate above that exemption is 40 percent, up from 35 percent. With indexing, the exemption is already about $5.25 million per person — double for a couple — and it will rise at a rate that means most Americans will continue to avoid paying any federal estate tax.

Article source: http://www.nytimes.com/2013/01/05/your-money/fiscal-deal-ends-decade-of-uncertainty-over-gift-and-estate-taxes.html?partner=rss&emc=rss