We did see the most positive employment data in a long time last month. I have written previously that I am more focused on the labor particpation rate than the unemployment rate. It tells us how many working age people are actually working. Until last month it had been consistently falling since President Obama took office. Of course, we have also been told that unemployment has been falling so something does not add up. This chart shows the unemployment rate and the labor participation since October, 2009. The Obama stimulus package was passed in February, 2009. Is there any indication here that this $787 billion package produced any visible results?
The increase in the labor participation rate last month from 63.7 to 63.9 is positive news. However, about 5 million fewer people are working today than when President Obama took office based on the labor participation rate numbers.
Some have argued that the lower labor participation rate is a function of the increasing number of baby boomers entering retirement. However, the facts do not back this up. In fact, more individuals age 55 and over are working today than at any time in recent history. This chart from Tyler Durden at Zero Hedge tells the story.
We will have to wait and see whether last month's improvement in the labor participation rate is a trend or merely a temporary blip. However, the trend in this rate over the last couple of years has been very troubling especially when we are being told that unemployment is dropping.
In the last week I came across two other troubling tidbits that are telling me that we still have some serious underlying issues that need to be dealt with.
In February, the United States government had a $232 billion deficit for that one month. That is higher than the February, 2011 total of $223 billion. To put this in further context, in President Bush's last year in office, the deficit for the entire year was $458 billion. We still seem to be heading in the wrong direction.
The news is even worse in California. In February, state revenues in the "Golden State" ( they might need to rethink that nickname) dropped 22% compared to last year. That is a $1.2 billion shortfall in just one month compared to what was collected last year. This is a state in serious trouble. It's top income tax rate is already 10.3%-the second highest in the U.S. Anyone making over $46,766 per year pays a tax rate of 9.3%. The state sales tax is 7.25% but local taxes can make it as much as 9.25%. However, it is still not enough.
Governor Jerry Brown is proposing to take additional tax increases to the voters for approval in November that would increase rates on taxpayers making over $250,000 (those making over $500,000 would see a 12.3% tax rate). The proposal would also increase the state sales tax by .25% across the board.
However, the top 1% of income earners in California already pay about 40% of all income taxes collected in the state. This is about double the perentage of income they earn. The chart below is from California's Legislative Analyst's Office. Note that during the 2000 internet stock boom and in the 2006-2007 stock and housing boom that the share of taxes collected from the rich almost hit 50%. This is the danger of tax systems that rely on heavily progressive tax structures, particularly where capital gains are taxed the same as ordinary income. The share of income of the top 1% is skewed with capital gains that can easily disappear. California is paying the price for that over reliance right now.
If there is any good news in the California story it is that it should be a cautionary tale to the rest of the country and the federal government. We will see how this plays out. However, my guess is that we are going to see things get much worse in California. A good plan for the federal government would probably be to do exactly the opposite of what has been done in California over the last 25 years.
No comments:
Post a Comment