“Bill” Board Day 11 – Feel Poorer? It’s because you are poorer.

Four years after the new era of “hope and change” started are you feeling poorer?  Maybe, it is because you are.

In June 2012, the Federal Reserve released its 3-year Survey of Consumer Finance.  The median family net worth in 2010 was $77,300, down from $126,400 in 2007 –levels last seen in 1992. A drop in home prices is a big reason behind this loss.

Moreover, the forced shift to unwilling part time work has contributed to declining real family incomes.  So has the shrinking labor force, with more and more people giving up the search for work.  In August, the labor force participation rate for men was the lowest on record, which goes all the way back to 1948.  The overall labor force participation rate was the lowest since September, 1981, before the Reagan recovery.

In addition, jobs being created are not replacing the incomes of the jobs being lost.  As economist John Lott reported at FoxNews.com on October 3, “Mid-wage occupations accounted for 60% of the jobs lost during the recession, but low-wage occupations accounted for 58% of hiring during the recovery.”

As a result, since President Obama entered office, annual median household income has declined by $4,019, or 7.3%.  Moreover, the decline has been greater since the recession supposedly ended in June, 2009, than it was during the recession.  In the three years from June, 2009, until June, 2012, median household income declined by 6%.

Closer to home, in Virginia Beach where I live, using publicly available data for a Virginia Beach family-of-four^[1], over the period 2009 to 2011 (this is the last period for which I did a detailed analysis of the Virginia Beach City budget (2011-2012)), the average Virginia Beach family saw its annual disposable income decrease by $9,500 (14%) and its home’s value decline by up to 17%:^[2]

·       Median Virginia Beach household income decreased from $65,776 to $59,298,^[3] a decrease of approximately $6,000.

·       Gasoline prices increased from $1.88 per gallon to $3.71,^[4] an increase of $1,400 per year. ^[5]

The monthly food budget for a family of four has increased from $770^[6]  to approximately $950 per month,^[7] an annual increase of $2,160. In May 2011, the last month prior to my analysis, food prices soared 3.9 percent, the biggest gain since November 1974.

So, while the median wage earner is struggling, what is the government doing?  The federal government is in gridlock and the Bush Tax cuts look like they will expire. On top of this, the City of Virginia Beach has passed a 2012-2013 budget that raises personal property tax $0.06 per $100 of assessed property value.

If the federal payroll tax break expires this December, and the Bush tax cuts expire Jan. 1, new, higher rates will take effect the following year. Since payroll taxes are deducted from wages every week, the effect there will be immediate, whereas the income tax rate increases only affect income starting in 2013. If employers adjust withholding, the effects could come sooner.

In addition, proposed sequestration cuts will take effect starting in January too, meaning their impact, like the payroll tax cut’s expiration, will be more immediate. The cuts are evenly split, with $27 billion each in 2013 for defense and non-defense spending, plus $12 billion in cuts to Medicare.

Using the Tax Foundation tax calculator, for the average Virginia Beach family (2 wage earners earning about $32,000 each and 2 dependents under 17), expiration of the Bush tax provisions, with no action by the President or Congress, will result in an increase of the family tax bill by $2,200 per year. For a small business owner (S-Corp) making $300,000 per year in business income, the additional tax bill will be an additional $11,000 per year.  Add to this the effect of sequestration on the military in Hampton Roads – fewer jobs – and the effect would be divesting on the economy.

So if you are feeling poorer, you are.  And while you are making cuts to make ends meet, the government is raising taxes and borrowing more to make their ends meet.  When the government taxes and spends, it reduces the capital available to business.  Without capital, business cannot grow.  When businesses do not grow, they do not hire.  Without  jobs, there is nothing to tax.

Vote November 6^th.

---

[1] Assumes $12,500 tax burden: federal Income tax (estimated at $4,000), state tax (estimated at $1,500), and employee’s portion of payroll tax (estimated at $3,500), Virginia Beach City Tax ($3,500).  This data was obtained from online tax calculators, federal state, and local websites.

[2] Case Schiller Home Price Index, January 2011

[3] Virginia Beach 2011 – 2012 Proposed Budget Executive Summary

[4] 24 Month Average Retail Gas Prices in Virginia Beach, GasBuddy.com

[5] Assumes 1.5 vehicles in a family, at 10,000 miles per vehicle-year or 15,000 miles at 20 miles per gallon.

[6] Official USDA Food Plans: Cost of Food at Home at Four Levels, U.S. Average, February 2008

[7] USDA Center for Nutrition Policy and Promotion.