In this second part of the halftime report for Tax Foundation Forum: Making Sense of Profit Shifting, we discuss the key takeaways from the first half of our series on profit shifting (read part I here). In this post, we...
- CBPP Report Longs for a Poorer Country
CBPP Report Longs for a Poorer Country
The Sears catalog has throughout American history represented the dreams and accomplishments of our capitalist system. By 1973, a family flipping through the 1,500 page catalog would find the best-quality items on the market at affordable prices. Among their options were the latest electronic calculator for $89 ("Adds, subtracts, multiplies, and divides, even to negative answers"), a 650-watt microwave oven for $439.95, a "compact" record player with two 4" x 6" speakers for $187.95, and the most colorful, broad-legged, plaid polyester slacks for $15.95 each.
One need not even adjust for inflation ($1 in 1973 = $4.95 in 2008) to know that these products would be considered overpriced and obsolete today. Aside from eBay and estate sales, many of these items are unavailable because no one wants them. They've been replaced with better and less expensive items, and have been joined by products unavailable in 1973 at any price, such as portable music players, computers, VCRs, and cell phones. Throw in advances in other fields and one recognizes that in the last thirty-odd years, we have all benefitted from the vastly more productive and innovative American economy.
This week's release of Census data shows some of this accomplishment. Household income rose, the number of people without health insurance dropped, and the economy continued to grow (albeit slowly). There are, of course, worrisome issues out there, but Americans today can and do access the best economic opportunities, medicine, science, transportation, and virtually anything else, in the history of the world.
For some folks, though, flipping through the 1973 Sears catalog is a wistful look at how great things used to be, how much better off Americans were back then. They see that decade as a time when income inequality was low (focusing on relative differences, rather than absolute improvements in well-being, as if everyone being equally poor was a good thing). If only we could go back to that decade, of double-digit inflation, government-protected monopolies, heavy taxes, and 8 percent unemployment!
Just this week, the Center on Budget and Policy Priorities (CBPP) cast the latest 2008 Census data in stark terms. "Never before on record has poverty been higher and median income for working-age households lower at the end of a multi-year economic expansion than at the beginning." The alarmism echoes Sen. Joe Biden's first speech as the Democratic vice-presidential candidate last week, when he lamented the shrinking wages of American families.
These statements are both true and misleading. The narrow definition of poverty used by CBPP ignores the fact that poverty in 2008 means something very different than poverty in 1973, or even in 2000. Over 90 percent of American households have a color TV, telephone, automobile, microwave, and cell phone, and about 100 percent have electricity, a radio, a refrigerator, and a stove.
Biden's reference to wage income ignores two major measures of well-being. One is the enormous growth in employer-provided benefits since the 1970s, such as health insurance, time off, and retirement plans. When these are included, compensation is much higher today, even in inflation-adjusted dollars. The other major omission is that things are more plentiful, better, and lower priced today. The hours an average person must work to buy things have dropped substantially over the years. A laborer in 1895 had to work 24 hours to buy a cushioned chair; by 1997, it required just 2 hours. Ditto for a dozen oranges (2 hours vs. 0.1 hour), milk (2 hours vs. 0.25 hours), a set of encyclopedias (140 hours vs. 4 hours), a bicycle (260 hours vs. 7.2 hours), and even gasoline.
The CBPP report cherry picks bad-sounding statistics from a rather positive report. Employer-based health coverage dropped from 2007 to 2008, they report, overlooking the fact that Census reported a mild uptick in the number of Americans with health insurance. (It will get worse again "in 2008, and probably in 2009 as well," they reassure us.) They applaud the drop in the number of uninsured children, but reach back to the last year when the number was even smaller (2004) and shake their heads at the "trend." They hack people out of the population until they find some narrow subset where income didn't rise. They highlight the increase in children living in poverty (2008 poverty, not Oliver Twist poverty).
CBPP isn't being a Gloomy Gus for no reason. Their report concludes, "[S]ignificant pain may lie ahead for many Americans.... [T]he next President and Congress should consider setting a national goal to reduce poverty and acting upon it." Maybe digging so hard for worrisome statistics has led them to forget that the only way to end poverty in the long-term is to increase wealth. Instead of emulating the 1970s by using our tax code to pick winners, shift money around, and penalize success, as CBPP often advocates, how about we focus on making our tax code simple, transparent, stable, and neutral?
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