Audit Notes: Tax Break, No Wage Pressure, Clowning Schneiderman

Reuters’s David Cay Johnston has a good column today on why tax rates are lower than we generally think: We typically calculate them based on adjusted gross income.

But the Tax Policy Center has numbers on what tax rates would be as a percentage of cash income, which includes tax-exempt income excluded from the AGI. Johnston writes that this means poor folks who get net transfers from the government get less than we think, while taxpayers pay less than we think:

The percentage point discrepancy widens as incomes increase. For the next fifth of taxpayers, those earning between $59,486 and $103,465, the average federal income tax is 8.2 percent of AGI but only 7 percent of cash income, a difference of 1.2 percentage points. For the top fifth, those earning more than $103,465, the average federal income tax is 17.3 percent of AGI but only 14.9 percent of cash income.

For the top tenth of one percent - whose combined income comes close to equaling that of the bottom 50 percent of taxpayers - the disparity is even greater. The tax rate is 23.6 percent of AGI but only 19.8 percent of cash income, a difference of 3.8 percentage points.

— In the-beat-goes-on news, corporate profits continued to expand last year much faster than paychecks (average paychecks for workers, I should say. If I were forced to bet, I’d have to guess executive pay rose at a nice clip, though the numbers aren’t out yet).

Bloomberg News says that in January, average wages were up 1.5 percent over a year earlier, meaning real income growth was negative (core inflation was up 2.3 percent). Meantime, S&P 500 corporate profits were up 5.1 percent.

For example:

“In regards to labor, we currently do not anticipate significant pressure for 2012 for both wages and salary,” Gregory Levin, chief financial officer at BJ’s Restaurants Inc. (BJRI), said on a Feb. 16 conference call with analysts.

The Huntington Beach, California-based company, which owns and operates restaurants in California, Colorado, Oregon, Arizona, Nevada and Texas, said revenue increased 29 percent in the three months that ended Jan. 3 from the prior year, while net income rose 42 percent.

While Bloomberg notes there are cyclical factors at work here, it’s going to be a good long while before unemployment falls enough to put upward pressure on wages.

— FireDogLake’s David Dayen points to this passage buried in a Politico story on HUD chief Shaun Donovan in which Iowa Attorney General Tom Miller laughs at New York Attorney General
Eric Schneiderman for the foreclosure-scandal settlement:

Miller, who clashed with Schneiderman over the releases, said Donovan didn’t make many changes but was artful enough to sell it as a compromise to the New York attorney general, who wanted to seal the deal.

“Essentially what Shaun did was let Eric take credit for shaping the release,” Miller said, “credit that wasn’t factually correct.”

After weeks of negotiations with the banks and the states, a deal emerged and Obama made the announcement of the Schneiderman committee a centerpiece of his new commitment to getting tough on Wall Street and helping out homeowners.


Schneiderman has promised that he would walk away from the task force if he found it insufficient, with his co-chairs slow-walking the investigation. With the task force barely begun, here’s the head of the state settlement and insiders close to Donovan just out-and-out clowning him, alleging that Donovan bait-and-switched him. We’re waiting for that walk-away any time now.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,