The big growth in income over the next decade will be among the richest, those making above the Social Security tax cap. Low- and middle-wage workers will fall further behind.
On pages 93 and 94 of the Congressional Budget Office’s latest Budget and Economic Outlook: 2016-2026, you will find this wonky paragraph:
“Although wages and salaries, the main tax base for payroll taxes, are projected to be a relatively stable share of GDP over the next decade, payroll tax receipts are projected to decline slightly relative to GDP for two reasons. Most important, payroll taxes are expected to decrease relative to earnings (including wages, salaries, and proprietors’ income) because a growing share of earnings is anticipated to be above the taxable maximum amount for Social Security taxes. The share of earnings above the taxable maximum amount is projected to rise to more than 20 percent in 2026, 4 percentage points more than the share in 2015.”
But the implications are truth and bone for millions of working Americans, as the Center for Economic and Policy Research points out: “CBO’s projections imply that earnings above the ceiling will grow 92 percent between 2015 and 2026, while earnings below the ceiling will grow just 48 percent (in nominal dollars).”
At such an enormous differential between the cohorts, “This translates to about a 6 percent wage cut for low- and middle-wage workers by 2026 compared to a scenario in which the wage distribution did not change.”
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That “growing share” at the top would be a slightly widening 1 percent; the highest 10 percent would do OK. The rest — not so much.
The federal Bureau of Labor Statistics uses an index to calculate the share of national income going to labor. At the end of last year, it stood at 100. But it was more than 110 in 1999 and nearly 114 in 1960. It actually overstates how well average workers are doing because it includes salaries of CEOs and investment bankers.
Seen another way, the share of labor compensation as a share of GDP is at its lowest level since this record-keeping began in the late 1940s. It has fallen precipitously since 2001. And the CBO seems to believe the situation can only get worse.
No wonder Sanders and Trump are resonating (even if one believes wrongly) with people who feel they are getting a raw deal from the status quo.
Today’s Econ Haiku:
Sing of China’s debt
Talk about too big to fail
With very red books