Several of my high school cheerleader classmates got together to compete in a SENIOR pomp competition in response to an internet article. They sent lovely pictures to the classmates of them dressed as Hobart High School cheerleaders (aged 78). When they got to the
competition, it turned out it was for current high school seniors (age 18). The story’s moral is to be careful of what you read on the web.

One of my readers sent me an article citing IRS Aggregate Income Statistics proving the Trump tax reductions benefited the middle class and were progressive. The trouble is the conclusion needs to be corrected. The article states:

IRS data proves Trump tax cuts benefited middle, working-class Americans most.

A careful analysis of the IRS tax data, one that includes the effects of tax credits and other reforms to the tax code, shows that filers with an adjusted gross income (AGI) of $15,000 to $50,000 enjoyed an average tax cut of 16 percent to 26 percent in 2018, the first year Republicans’ Tax Cuts and Jobs Act went into effect and the most recent year for which data is available. Filers who earned $50,000 to $100,000 received a tax break of about 15 percent to 17 percent, and those earning $100,000 to $500,000 in adjusted gross income saw their personal income taxes cut by around 11 percent to 13 percent.

By comparison, no income group with an AGI of at least $500,000 received an average tax cut exceeding 9 percent, and the average tax cut for brackets starting at $1 million was less than 6 percent. (For more detailed data, see my table published here.) That means most middle-income and working-class earners enjoyed a tax cut that was at least double the size of tax cuts received by households earning $1 million or more.

Hill’s Analysis
I computed the tax for 2018 at the average of the stated income levels.
I have also included a graphic I use in class at the bottom of this memo to explain the Federal Income tax system. The government does not see your income as X dollars. It views it as buckets of money and takes different amounts per bucket. The sum of what goes out of the spickets is the amount the government boat collects. The computed amount of taxes paid for each average income level listed in the article
was based on Married filing jointly rates. I then multiplied the taxes paid by the listed Trump savings.

Total tax paid Trump taxes saved AGI Average-
$ 5,245 $ 1,101.45 $ 32,500
$ 14,595 $ 2,335.20 $ 75,000
$ 79,347 $ 8,728.17 $ 300,000
$ 283,737 $ 25,536.33 $ 750,000

The long and short of it is the income saved by the top brackets is ten times the amount saved by middle-class people ($67,521 is the average US income). Nine percent of $25K is a lot more than 21% (average of the savings for the 75K income bracket) of $2.3K.

Additionally, the savings for the top ten percent incomes are around 12% ($90K for $750K income), and the middle-class savings rate is about 3% ($1050 for $35K income). The capital gains tax decreased from 38% to 21%. Guess which class owns the bulk of the stock bought from savings. (Only 49% of us own stock). That means the $750K person gets a Trump
gift that keeps coming on the $90K in savings, investments, and long-term capital gains.

Let us remember the corporation income taxes were significantly reduced too. The money was supposed to be spent on new machines and hiring labor but was spent on increasing dividends and repurchasing stock to increase the price. Obviously, the more dividends the
wealthy receive, the more significant the gap between low-income and high-income groups.

One of the benefits of requiring the Basic Macroeconomics of all students is that they learn the basics. The following graphic is used in my classes for Scrooge McDuck, with an assumed income of $1M and updated tax rates.

I encourage all of you to ask Economic and Investment questions and guarantee you a response in Hill Comments (HillLa@Lewisu.edu).

Current Economic Question Moment

Supreme Court Ruling Effecting Minority Groups Will Have A Negative Economic Impact

The Supreme Court ruled in the 303 Creative case where the website developer owner denied a man who wanted a website for gay marriage. As I understand the ruling, the Court ruled the Designer’s free speech and religious freedom allowed her to refuse. Many believe this opens the door to allowing anyone to start a religion or, worse, use words to discriminate against whatever group they choose. Economically this is a step back to the 1960s or longer.

Do you want to hear a Hill story?

I come from an all-white town in the 1960s. Like most of you, I had to work summers to pay for my college education (tuition was $6 an hour, but wages were $2.38 an hour). During the first two summers out of high school, I was a laborer for United States Steel. My assistant foreman, Earl Washington, was a fifty-plus-year-old African American who had worked at the mill since his teens. He knew that mill forward and backward. Yet, the golden rule was an African American could not be a foreman or higher management.

Assistant foreman Earl had every reason to discriminate against a white teenager from an all-white town working in an all-white summer college student labor gang. Earl never saw me as a white college student and gave me double shifts at increased pay, allowing me to work six days and gave me every break in the books. The man had every right to be bitter, to reduce productivity, take advantage of work conditions, and discriminate against the white kid.

Instead, he took the time to teach me about the mill and see that I had opportunities to fulfill my dreams. The man taught me more about discrimination than any course, book, or seminar (I’ve been to dozens of them over the years). As educators, I firmly believe it’s our responsibility to help everyone that needs it regardless of color, religion, or sex preference. I also received that
training at home but seeing it in the real world makes a difference.

Enough with personal views; what about the economic impacts of discrimination?
Productivity Decreases.

We know that Gross National Product is the sum of the value of all goods made in a given year for the domestic and world economies. The value is equal to the number of goods produced times the real price of the goods.

GNP = Quantity produced times real prices

Where: Real prices are nominal (Current money prices) prices divided into a base year set of prices.

The base year is chosen for steady prices. (I’ll cover this in another
moment due to word limitations).

Quantity equals the worker’s productivity times the number of workers.

Discrimination limits productivity
Discrimination limits the ability of the worker to maximize productivity and lowers the quantity produced. In Earl’s case, he needed to have the authority to maximize the knowledge of the mill.

Wage Growth is Reduced
Since supply is limited by discrimination (reduced by limiting productivity), there will be less income, and discretionary spending will be reduced.

Innovation Impacts
Demand for goods are decreased since there are lower wages and less goods. The need for more innovations is limited. The incentive to invest in research and development at the corporate level is reduced due to reduced profits.

I could go on, but I’m out of words 560+.