I don't understand how anybody can be surprised by this. You help lower income people, suddenly there's a whole new market for products that were previously out of their reach. You cut back investment in the lower classes (austerity), or implement "means tested" benefits, the economy suffers, and people suffer.
It seems like, idk, maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing.
> It seems like, idk, maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing.
There may never again be a Great Society middle class, regardless of economic policy. Most of the discussion I've seen about how to return to the post-war golden age misses how important the post-war aspect was for US success.
The US was the only industrialized country left intact after WWII, making it an export superpower on top of being a military superpower. Confidence in the American economy lead to the Bretton Woods system, enshrining the dollar as the global reserve currency, giving Americans enormous buying power, and leading to the US controlling over two-thirds of the world's gold by the 1950s. Compared to Europe and Japan, the US also had vastly more room to grow its agricultural and mineral production, and thus its economy.
Those unique advantages have dimished. Other countries have caught up in industrialization and the delta between the US and the rest of the world has shrunk. For the middle class to be rich again, the US would have to get comparatively richer relative to the rest of the world market, but the trend is in the opposite direction. Even significantly reducing the wealth gap wouldn't bring back the comparative wealth of the middle class of previous decades.
You are not surprised, yet your explanation is entirely about indirect effects, even though the cause is removal of tax credits and that $1400 EIP checks were sent out in 2021 but not 2022.
> postwar great society that JFK and LBJ were championing
IMO most of the wealth generation at that time actually came from being (1) the only country manufacturing at scale post-war that was untouched by war and (2) cheap energy (which has the highest correlation with improving the life of the poor).
In economics that's called the marginal propensity to spend! And on the lower rungs of the economic ladder the marginal propensity to spend versus the marginal propensity to save is nearly 100% toward spending there and nearly 0% for any savings. So any extra income given via Tax rebates and other methods of income redistribution for lower income households will almost 100% be assured to be immediately spent for some discretionary products purchases as long as the costs of Housing/Food and other necessaries is not eating up all of that beforehand.
>> maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing
That's the exact opposite of what LBJ was championing. He stated that his "War on Poverty" was meant to shrink the number of people on welfare, not increase it. Referring to poor people, LBJ said he wanted to "make taxpayers out of them instead of tax-eaters".
The war on poverty was not intended to be a forever war.
This was largely due to how cost-of-living adjustments are calculated and implemented in the tax code. Changes are calculated on chained CPI Oct-Sep, and the adjusted brackets and standard deductions go into effect the following January. Because of the timing, the 2022 adjustments were very small, but the 2023 adjustments were very large. On average, everyone got a 1.5 percentage point tax hike to their effective tax rate in 2022, and then the same as a cut in 2023.
How does that explain an 8.8% drop? I get that it's a factor, but I wouldn't call it "largely."
I mean it's right there in the article, "the expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty."
I'm not sure how the top ranked comments, both of them, get things so wrong.
However you are definitely onto something sophisticated so... can you comment on the substance of the article instead of this kind of arcane thing that couldn't be the biggest factor?
It’s a little strange to call the government sending or not sending checks to people that didn’t owe any taxes to begin a change in tax policy. They are changes in social spending policy.
> In 2021, 9.6 million people were kept out of poverty due to refundable tax credits. This number declined to 6.4 million in 2022 as the pandemic era expansions expired. The effect declined for each of the major age groups, with 3.5 million children lifted out of poverty in 2022 compared to 4.9 million in 2021.
Purposefully casting millions of people back into poverty for political purposes is one of those American things I hate.
The virtue signaling put me off as well. Although I'm not sure it's specific to America.
The data is the data, and the way it's phrased with "kept out" and "lifted out" both to say the same thing which as I understand the data is that each of these groups were either over or under the poverty line as a result of the incentives. Adding extra weight and flower to the movement is a distraction with the intent of persuasion.
Student loan payments are kicking in once again and that's going to remove Billions in discretionary spending from the economy! So maybe the Fed/US Treasury Department needs to be taking that into consideration for any possibilities of future Interest Rate hikes, So the money supply after the return of Student Loan Payments will see a large volume of cash flow taken out of any discretionary spending dependent consumer market segments each and every month from now on. And the multiplier effect of that discretionary spending void makes that even more than just a simple dollar for dollar calculation there.
The article explains that the difference is mostly due to tax changes (hence the "After Taxes" qualifier in the title):
This dramatic difference can be attributed to key changes in federal tax policy.
In 2022, several policies enacted by the American Rescue Plan Act (ARPA) expired, including an expansion of the Earned Income Tax Credit (EITC) for filers without children and full refundability of the Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC). ARPA also increased the maximum amount of CTC.
In 2020 and 2021, most households also received Economic Impact Payments (EIP) that were no longer issued in 2022.
The rollback of these tax policies had the largest effect on post-tax income among the nation’s lowest-income households.
In 2021, for example, post-tax income at the 10th percentile, meaning at the bottom of the income distribution, was 17.1% higher than the corresponding pretax income estimate, reflecting the substantial boost that lower-income households received that year from the EIP and expanded CTC.
In contrast, the 2022 estimates of pretax and post-tax income at the 10th percentile were not significantly different (Figure 1).
Stimmies. As per the article, 2021 was anomalous because more than 25% of people had post-tax incomes that were actually higher than their pretax incomes.
[+] [-] Kapura|2 years ago|reply
It seems like, idk, maybe we should do our best to put money in the pockets of the poorest people (regardless of the cost) and create the postwar great society that JFK and LBJ were championing.
[+] [-] slashdev|2 years ago|reply
There’s no free lunch. Inflation was up above 6% and people saw their buying power drop by 8%. That’s about it right there.
[+] [-] ramblenode|2 years ago|reply
There may never again be a Great Society middle class, regardless of economic policy. Most of the discussion I've seen about how to return to the post-war golden age misses how important the post-war aspect was for US success.
The US was the only industrialized country left intact after WWII, making it an export superpower on top of being a military superpower. Confidence in the American economy lead to the Bretton Woods system, enshrining the dollar as the global reserve currency, giving Americans enormous buying power, and leading to the US controlling over two-thirds of the world's gold by the 1950s. Compared to Europe and Japan, the US also had vastly more room to grow its agricultural and mineral production, and thus its economy.
Those unique advantages have dimished. Other countries have caught up in industrialization and the delta between the US and the rest of the world has shrunk. For the middle class to be rich again, the US would have to get comparatively richer relative to the rest of the world market, but the trend is in the opposite direction. Even significantly reducing the wealth gap wouldn't bring back the comparative wealth of the middle class of previous decades.
[+] [-] mortehu|2 years ago|reply
[+] [-] lettergram|2 years ago|reply
IMO most of the wealth generation at that time actually came from being (1) the only country manufacturing at scale post-war that was untouched by war and (2) cheap energy (which has the highest correlation with improving the life of the poor).
[+] [-] Farfignoggen|2 years ago|reply
[+] [-] rufus_foreman|2 years ago|reply
That's the exact opposite of what LBJ was championing. He stated that his "War on Poverty" was meant to shrink the number of people on welfare, not increase it. Referring to poor people, LBJ said he wanted to "make taxpayers out of them instead of tax-eaters".
The war on poverty was not intended to be a forever war.
[+] [-] dools|2 years ago|reply
http://www.jobguarantee.org/
[+] [-] unknown|2 years ago|reply
[deleted]
[+] [-] onlyrealcuzzo|2 years ago|reply
[+] [-] TradingPlaces|2 years ago|reply
This is the average effective tax rate: https://fred.stlouisfed.org/graph/fredgraph.png?g=19545
[+] [-] doctorpangloss|2 years ago|reply
I mean it's right there in the article, "the expiration of expansions to refundable tax credits had a particularly important impact on SPM poverty."
I'm not sure how the top ranked comments, both of them, get things so wrong.
However you are definitely onto something sophisticated so... can you comment on the substance of the article instead of this kind of arcane thing that couldn't be the biggest factor?
[+] [-] NelsonMinar|2 years ago|reply
> This dramatic difference can be attributed to key changes in federal tax policy.
[+] [-] bradleyjg|2 years ago|reply
[+] [-] belltaco|2 years ago|reply
[+] [-] refurb|2 years ago|reply
[+] [-] femiagbabiaka|2 years ago|reply
Purposefully casting millions of people back into poverty for political purposes is one of those American things I hate.
[+] [-] teepo|2 years ago|reply
The data is the data, and the way it's phrased with "kept out" and "lifted out" both to say the same thing which as I understand the data is that each of these groups were either over or under the poverty line as a result of the incentives. Adding extra weight and flower to the movement is a distraction with the intent of persuasion.
[+] [-] refurb|2 years ago|reply
It was a temporary Covid program. It was never intended to be permanent, so there were no "political purposes" to ending it.
[+] [-] belltaco|2 years ago|reply
Correct reading is (Median Household Income After Taxes) Fell 8.8% in 2022
[+] [-] ttymck|2 years ago|reply
[+] [-] Farfignoggen|2 years ago|reply
[+] [-] kelseyfrog|2 years ago|reply
[+] [-] philipkglass|2 years ago|reply
This dramatic difference can be attributed to key changes in federal tax policy.
In 2022, several policies enacted by the American Rescue Plan Act (ARPA) expired, including an expansion of the Earned Income Tax Credit (EITC) for filers without children and full refundability of the Child Tax Credit (CTC) and Child and Dependent Care Tax Credit (CDCTC). ARPA also increased the maximum amount of CTC.
In 2020 and 2021, most households also received Economic Impact Payments (EIP) that were no longer issued in 2022.
The rollback of these tax policies had the largest effect on post-tax income among the nation’s lowest-income households.
In 2021, for example, post-tax income at the 10th percentile, meaning at the bottom of the income distribution, was 17.1% higher than the corresponding pretax income estimate, reflecting the substantial boost that lower-income households received that year from the EIP and expanded CTC.
In contrast, the 2022 estimates of pretax and post-tax income at the 10th percentile were not significantly different (Figure 1).
[+] [-] Rebelgecko|2 years ago|reply
[+] [-] game_the0ry|2 years ago|reply
- different things inflate at different rates (housing faster than laptops)
- corporations pushing pricing for profits
- stimulus checks
- PPP loan fraud that never had to be paid back
- supply chain choke points limiting the supply of stuff
- people borrowing aggressively (high credit card and student loans) at low interest rates
- student loan forgiveness
- government deficit spending accelerating
- probably some more I can't think of at the moment
Basically, it's complicated.
[+] [-] conductr|2 years ago|reply
I really don’t think we ever broadly talked about what should have happened to the economy in that situation.
[+] [-] SubiculumCode|2 years ago|reply
[+] [-] RhodesianHunter|2 years ago|reply
[+] [-] NonNefarious|2 years ago|reply
[deleted]
[+] [-] quickthrower2|2 years ago|reply