Fed: Almost Half of US Households Have Under $400 Saved
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
May 31, 2016
IN THIS ISSUE:
1. Fed Report: “Economic Well-Being of U.S. Households in 2015”
2. Americans Making $100,000+ Pay 80% of Federal Income Taxes
3. Be Sure to Read Today’s SPECIAL ARTICLES at the End
We begin today by looking at the recently released Federal Reserve study on the economic conditions of 50,000 randomly-selected US households. This annual survey attempts to capture a snapshot of the financial and economic well-being (or not well-being) of US households. Let me warn you upfront that some of the findings are really bad.
Following that discussion, I will reprint a recent study by FORBES which concludes that Americans who make over $100,000 pay almost 80% of all federal income taxes. That’s right. According to IRS data, Americans earning over $100,000 paid 79.5% of federal income taxes for 2014. This proves that top income earners pay more in income taxes than those who earn less.
Finally, I have two great opinion pieces in SPECIAL ARTICLES at the end that everyone should read, regardless of who you will be voting for in November.
Fed Report: “Economic Well-Being of U.S. Households in 2015”
Last week the Federal Reserve Bank released the findings of its third annual report on the economic and financial conditions of American households. The report is based on a comprehensive survey of over 50,000 individuals representing randomly selected US households.
The survey’s goal is to capture a snapshot of the financial and economic well-being of US households, as well as to monitor their recovery from the recent recession and identify any risks to their financial stability. It collects information on household finances that is not readily available from other sources.
US Households – The 2015 household survey focused on a range of topics, including:
- the personal finances of US adults;
- income and spending;
- economic preparedness and emergency savings;
- banking, credit access and credit usage;
- housing and living arrangements;
- auto lending;
- education and student debt; and
- retirement issues.
The findings of the 2015 household survey include some positive developments last year, as well as some very disappointing results. I will summarize them for you below.
Overall, individuals and their families continued to express mild improvements in their general well-being relative to that seen in 2013 and 2014. However, a number of adults still indicate that they are experiencing financial challenges, and optimism about the future declined modestly in 2015. For example:
- 69% of adults reported that they are either “living comfortably” or “doing okay,” compared to 65% in 2014 and 62% in 2013. However, 31%, or apprx. 76 million adults, are either “struggling to get by” or are “just getting by.”
- Individuals were 9 percentage points more likely to say that their financial well-being improved during 2015 than to say that their financial well-being declined.
- 22% of employed adults indicated that they were either working multiple jobs or doing informal work for pay in addition to their main job, or both.
- Only 23% of respondents expected their income to be higher in 2016, down from 29% who expected income growth in 2015 in the previous survey.
Over two-thirds (69%) said they are ‘living comfortably’ or ‘doing okay.’ I find that number very dubious. No other survey I know of puts the number remotely that high. It probably has to do with how the Fed asked the question.
Next, the Fed survey gets to a different round of questions, and the responses go downhill in a major way. For example, the survey asked how prepared for an emergency expense were the respondents. This is really bad:
- Nearly half (46%) said they did not have enough saved to cover an emergency expense costing $400, and would have to cover it by selling something or borrowing money.
- 22% of respondents experienced a major unexpected medical expense that they had to pay out of pocket in the prior year, and 46% of those said that they still owe debt from that expense.
The survey also asked respondents about several specific aspects of their financial lives, including their income and savings. Most respondents reported that they saved at least some of their income in the prior year. Income volatility/uncertainty, however, represented a major concern for many lower-income families.
- 68% of non-retired respondents said they saved at least a portion of their income in the prior year.
- 32% of adults reported that their income varies to some degree from month to month, and 43% reported that their monthly expenses vary to some degree. 42% of those with volatile incomes or expenses said that they have struggled to pay their bills at times because of this volatility.
The Fed survey also asked questions about household levels of education debt/student loans. Over half of adults under age 30 who attended college took on at least some debt (student loans, credit card debt and/or other forms of borrowing) while pursuing their education. The likelihood of falling behind on student loan payments varied depending on the type of institution attended and the level of education completed.
- In addition to any student loans, 21% of adults have education-related credit card debt. The median outstanding education-related credit card debt for those under 30 was $3,000. [This is lower than any other similar survey I have seen.]
- 21% of those who borrowed to attend a for-profit institution are behind on their student loan payments. Among those who borrowed to attend a public or not-for-profit institution, 7% and 5% are behind on their payments, respectively.
The Fed survey also asked questions regarding housing and living arrangements. Most respondents said they are satisfied with the quality of their house and neighborhood, although this varies based on the income level of the community. Additionally, most homeowners feel that their house appreciated in value in the prior year.
- 70% of all adults surveyed said they are ‘mostly or completely satisfied’ with the overall quality of their neighborhood, although only 35% of those in high-poverty areas report this level of satisfaction. [Here, too, I find this result dubious.]
- 51% of homeowners believe that their home value increased in the 12 months prior to the survey. 43% expect that home values in their neighborhood will increase in the next 12 months.
The survey also asked questions about retirement planning. Many individuals reported that they have no retirement savings, and – among those who are saving – a large number of respondents indicated that they lack confidence in their ability to manage their retirement investments.
- 31% of non-retired respondents reported that they have no retirement savings or pension at all, including 27% of non-retired respondents age 60 or older.
- 49% of adults with self-directed retirement accounts are either ‘not confident’ or only ‘slightly confident’ in their ability to make the right investment decisions.
- Just over 25% of adults with self-directed retirement accounts do not seek out any financial advice when investing these funds. 52% of those who do not seek out advice say they either cannot afford assistance or would like help but do not know where to get it.
These annual Fed surveys often raise more questions than they answer. The bottom line is that most US households are living on the edge financially. The fact that almost half of households do not have enough saved to cover a $400 surprise expense tells it all.
Now let’s move on to our second topic for today, a surprising new report from FORBES.
Americans Who Make More Than $100,000
Pay 80% Of Federal Income Taxes
by Kelly Phillips Erb May 18, 2016
Here’s the dirty little secret that we don’t like to talk about: when it comes to income tax, top earners really do pay more in federal income taxes. According to recent Internal Revenue Service (IRS) data, Americans earning over $100,000 paid 79.5% of federal income taxes in 2014.
The preliminary data… indicates that 148,686,586 Americans filed individual income tax returns in 2014. Of those, only about 112,831,339 taxpayers reported taxable income (adjusted gross income less deductions). Of those, 96,612,233 taxpayers filed individual income tax returns showing $1.358 trillion in total income tax due. Total income tax is the sum of income tax after credits plus the infamous Net Investment Income Tax (NIIT). It does not include any of the other taxes that make up total tax liability including uncollected FICA (or Social Security) tax on tips, additional tax on income from nonqualified deferred compensation, and repayment of advance payments of the health coverage tax credit; those additional taxes would bump up the number of taxpayers to 101,021,848 owing $1.419 trillion in total tax.
Using that math, the effective tax rate for all taxpayers in 2014 is 19.6%. The effective tax rate for taxpayers making more than $100,000 in 2014 is just a bit higher: 23.6%. Here’s how it breaks down: