The typical 1970s family is headed by a working father and a stay-at-home mother with two children. The father’s income is $38,700, out of which came $5,310 in mortgage payments, $5,140 a year on car expenses, $1,030 on health insurance, and income taxes “which claim 24% of [the father’s] income,” leaving $17,834, or about $1,500 per month in “discretionary income” for all other expenses, such as food, clothing, utilities and savings.
The typical 2000s family has two working parents and a higher income of $67,800, an increase of 75% over the 1970s family. But their expenses have also risen: The mortgage payment increases to $9,000, the additional car raises the family obligation to $8,000, and more expensive health insurance premiums cost $1,650. A new expense of full-time daycare so the mother can work is estimated at $9,670. Mother’s income bumps the family into a higher tax bracket, so that “the government takes 33% of the family’s money.” In the end, despite the dramatic increase in family income, the family is left with $17,045 in “discretionary income,” less than the earlier generation.
The authors present no explanation for why they present only the tax data in their two examples as percentages instead of dollars. Nor do they ever present the actual dollar value for taxes anywhere in the book. So to conduct an “apples to apples” comparison of all expenses, I converted the tax obligations in the example from percentages to actual dollars.
In fact, for the typical 1970s family, paying 24% of its income in taxes works out to be $9,288. And for the 2000s family, paying 33% of its income is $22,374.
Although income only rose 75%, and expenditures for the mortgage, car and health insurance rose by even less than that, the tax bill increased by $13,086 — a whopping 140% increase. The percentage of family income dedicated to health insurance, mortgage and automobiles actually declined between the two periods.
Kendal,
It would be nice to read the whole article, but as I’m not a subscriber to the WSJ, I guess I will have to wait until someone replicates the study in Australia. Although I suspect the drift of the article is correct. We are in an age of increasing taxes, with governments which are reluctant to spend money on the infrastructure we elect them to provide.
regards,
Jon R
“…health insurance premiums [annually] cost $1,650.”
what planet are they living on? I had been paying $1K a month for a family of five, and now it’s at $700, 5 times what they are estimating.
I do agree though that the “make more money with two wage earners” is often a fallacy, particularly once you have kids.
It looks like the author has confused the marginal rates, which apply only to the top portion of a taxpayer’s income, with the “effective rate”, which would apply to the income as a whole.
Without getting into the minutiae of this, I do not think a family today earning $67,800 would pay taxes of $22,374.
Wilfred is spot on – the author is an idiot. Assuming 15k in deductions for a family of four taxable income making $67 would be about 52k (my guess is with a mortgage and property taxes that fiqure would be lower) the family would pay about 5k in payroll taxes and about 7k in federal income taxes – add on perhaps another 5-7k for state taxes – still way under 20k. However the article seems to be just discussing income taxes. Also – it made no sense in the 1970s for an upper middle class woman to go to work due to the confiscatory tax rate of 70% for income over 50k ( I assume the 38k figure is in todays dollars).
The taxes are probably combined federal, state, county, school districe, and city income, property, and sales taxes – which can easily add up to over 1/3 of a family’s income. I live in Texas and we don’t have a state income tax, but between the state and city sales taxes, we pay 8.125% for all retail items (except food).
YBIC,
Phil Snyder
The statistics show that no matter how the tax code is structured, government consumption grows. One effect of ever-increasing government consumption is inflation, and middle class families must send mom to work to maintain the same standard of living. This happened after Nixon completed the severance of the dollar from gold. Keynes was proved wrong in the 1970’s, and he will be proved wrong again.
#5 — 8.125% retail tax except for food? Luxury! Here (Davidson County, TN) we pay 9.25% sales tax on everything [i]including[/i] food. I always lobby for a state income tax and retail tax relief (since the retail tax burden falls disproportionately on the poor) but I’m in the distinct minority…
$9000 mortgage? Surely they jest. I’m renting a postage-stamp sized lean-to out here in San Diego for more than that. Mom’s at home with the kids, though, and we’ve never regretted it, as the good Lord’s met every need (apparently, we need a 94 Tercel). Peers and colleagues my age are all having kids now. It’s painful to watch them make the transition from working couple to working parents. The financial gains are often marginal while the relational strain on the family can be oppressive.
Chips, you and I may disagree with Prof. Zywicki, but I think it a bit rash to call him an idiot:
http://mason.gmu.edu/~tzywick2/
I’ve had the pleasure of meeting him once and found him to bright and engaging.
I would like to see his sources and calculations — the figures he cites do not seem to be correct.
Mr. Sulk,
You are right i was being harsh. My appologies. In fact since I was unable to read the entire article his conclusions may have been closer to my own. I am often frustrated by the media who get to spout off in magnificient forums and do not know what they are takling about and have a real effect on society for the worse.
Around here (DC area) it’s pretty typical for the mortgage to suck up close to half of take-home pay. And lets see— looking at my pay stub, I see that my deductions (ins. and all that) are significantly in excess of my total taxes, not even considering that my W-4 is set to give me a big refund.
And the thing is, to really help most people out, what has to be done is to cut the tax rates on the [i]bottom[/i] of the scale. Push the non-taxable limit up; cut the rates from the bottom up. That’s not what sells in the [i]WSJ[/i], of course, because what sells there are high-end marginal cuts, because the kind of people who subscribe to it have (or are looking forward to) incomes where the low end rates don’t have much effect on their taxes.
I don’t know whether the professor is an idiot, but he testified before Congress that the new bankruptcy act didn’t require a single word to be changed. This is probably the most poorly drafted piece of legislation in recent history. Nobody can figure out what it means. I would certainly take any conclusions put forth by this guy with a massive pinch of salt.
Mr. Wingate:
The bottom of the scale pays very little in income tax. Lets take our hypothetical middle class family of four making 67k – don’t worry with the itemized deductions lets just use the standard deduction which is $10,300. Personal exemptions are $3,300 x 4 = $13,200. So 67K – 23.5k = $43.5K as agi for tax purposes. The first 15K of taxable income is taxed at 10% which is $1500 then the next 28.5k is taxed at 15% or $3275 for a tax bill of $4775 minus $2k for the familiy’s child tax credits. This familiy’s federal income tax bill is at most a whopping $2775 less than 5% ofthe 67k fiqure (a family of four has to make 35k before any income tax is owed). This does not seem unreasonable and is much lower than the article suggests. The real tax burden on this family is the payroll tax of 7.5% but as this should help support their income and medical needs in retirement – it seems appropriate for them to pay that ammount.