Personal Income Plummeted 3.6% in January

Americans’ personal income decreased $505.5 billion, or 3.6 percent, in January (on a seasonally adjusted and annualized basis), according to the Commerce Department’s Bureau of Economic Analysis. It was the biggest one-month drop in 20 years.

Consumer spending rose just 0.2% with most of it going toward higher heating bills and filling up the gas tank. Consumer spending accounts for about two-thirds of the U.S. economy.

BEA graph

The drop in income was partly driven by the end of the payroll tax cut, which means middle-class workers must pay 2 percentage points more in taxes this year on wages up to $110,000. But Congress has made the Bush Tax Cuts permanent for 98 percent of Americans, all except families with income more than $450,000 and individuals making more than $400,000.

Right-wing Republicans now declare that any ideas about raising tax rates or eliminating loopholes to boost revenue are off the table. They demand “cuts-only” deficit reduction. This means $85 billion in “automatic” austerity budget cuts kick in today (although Congress can cancel this so-called “sequester” anytime). The result will be a partial government shutdown, as many agencies are forced to furlough employees beginning in April.

Meanwhile, even Federal Reserve Chairman Ben Bernanke has said that the Washington obsession with budget deficits is hurting the economic recovery. The immediate crisis is our jobs deficit. Robert Reich:

Unemployment is still sky high. The current official rate of 7.9 percent doesn’t include 8 million people (5.6 percent of the workforce) working part-time who’d rather be working full time. Nor those too discouraged even to look for work. The ratio of workers to non-workers in the adult population is lower than any time in the last thirty years — and that’s hardly explained by boomer retirements.

Wages continue to drop because the only way many Americans can find (or keep) jobs is by settling for lower pay. Most new jobs created since the depth of the Great Recession pay less than the jobs that were lost. That’s why the real median wage is now 8 percent below what it was in 2000.

…The budget deficit and cumulative debt are not the “transcendent issue of our time.” The transcendent issue is jobs and wages. Cutting the budget deficit now will only result in higher unemployment, lower wages, and more suffering.

The next opportunity for Republican economic sabotage will be on March 27, when the continuing budget resolution expires.

  1. #1 by brewski on March 1, 2013 - 2:31 pm

    Clinton’s last year in office was 2000. That year Federal spending as a percent of GDP was 17.98%

    In 2013 the forecast is 23.28%

    And you’re telling me that we need to spend more to get the prosperity we had under Clinton?

    Right.

  2. #2 by Richard Warnick on March 2, 2013 - 9:17 pm

    Why do you imply that progressives are fans of Bill Clinton? When he said “the era of big government is over,” he was shamefully kowtowing to the right. Historians agree that Monica Lewinsky probably saved Social Security and Medicare. After Bush crashed our economy, we needed big government more than ever!

    Federal spending “is projected by the CBO to be 22.2 percent [of GDP] this year. As a point of comparison, spending during the presidency of Ronald Reagan averaged 22.4 percent.”

    It’s very simple. When our GDP growth is in the toilet, like now, you would expect federal spending as a percent of GDP to increase. Instead, it has been going down since 2009. As The New York Times recently noted:

    Federal, state and local governments now employ 500,000 fewer workers than they did on the eve of the recession in 2007, the longest and deepest decline in total government employment since the aftermath of World War II.

  3. #3 by brewski on March 2, 2013 - 11:40 pm

    “In my view … it is impossible to understand this crisis without reference to the global
    imbalances in trade and capital flows that began in the latter half of the 1990s.”
    –Ben S. Bernanke

    Note: The 1990’s was a time when W was not president. You know, that was when Clinton was president. Clinton was president, you know, when all this started. You know, asset bubble, Enron, irrational exuberance, and all that. 1990’s…Clinton. You know, when W wasn’t there. Go check the calendar.

  4. #4 by brewski on March 2, 2013 - 11:49 pm

    I thought Reagan was bad and Clinton was good? So if Clinton’s spending as a percent of GDP was lower then why do you want to do what Reagan did which was higher? You should be Reagan’s biggest fan and you should hate Clinton since he didn’t spend enough. Or was it that Reagan had a Democratic congress and Clinton had a Republican congress? Or don’t you like things like history and facts to get in the way of your Marxist rants?

    By the way, you never answered my questions about Marx, since you are such a big fan of his.

  5. #5 by Richard Warnick on March 3, 2013 - 12:46 pm

    I like Clinton’s tax rates – NOT President Clinton’s performance in office. There’s not much I liked about President Reagan, except his genial personality. Let’s face it, I’m just a dissatisfied citizen.

    Here’s how Keynesian economics works: during an economic downturn, the federal government is the lender of last resort (saving the financial sector from itself), and it has the ability to prop up the real economy through deficit spending.

    Reagan was forced to resort to deficit spending to keep the economy going. He tripled the National Debt. Surely you remember that – it was derided as “credit card prosperity.:

    Clinton enjoyed good economic times, and was able to reduce government deficits without stalling GDP growth.

    I don’t remember your question. But Karl Marx literally wrote the book on capitalism, and his critique was the best ever.

  6. #6 by brewski on March 3, 2013 - 6:56 pm

    You like Clinton’s taxes? OK, they were about 18% of GDP during his tenure. So let’s agree on 18% of GDP as being the Richard Warnick approved revenues and then let’s get spending to match about that in the long run. Agreed.

    You don’t understand Keynesian economics.

    Reagan was hampered by Tip O’Neill. Yes I remember that.

    Clinton enjoyed the Federal Reserve induced asset bubble which first crashed on his watch. GDP growth was close to zero in his final half year in office. It was very stalled. Look it up.

    So you want the State to own your home? You want the state to own all businesses? Are you serious?

  7. #7 by Richard Warnick on March 3, 2013 - 7:52 pm

    I said “Clinton’s tax rates.”

  8. #8 by brewski on March 3, 2013 - 8:07 pm

    So you think statutory rates are more important than tax revenues. Thank you for clearing that up.

  9. #9 by Richard Warnick on March 3, 2013 - 8:16 pm

    Couldn’t help but notice that after President Bush lowered tax rates on the rich, the National Debt doubled.

  10. #10 by brewski on March 3, 2013 - 9:40 pm

    And?

  11. #12 by Richard Warnick on March 3, 2013 - 10:23 pm

    First of all, the rich have had a tax holiday for too long. Secondly, since when is “rich” defined as incomes $400-$450 K and up? I don’t even know anybody who makes more than $100 K at most. The median household income in America is around $50 K.

  12. #13 by brewski on March 3, 2013 - 11:44 pm

    I am sorry the data doesn’t support your Marxist emotions.

  13. #14 by brewski on March 4, 2013 - 7:36 am

    “I don’t even know anybody who makes more than $100 K at most.”

    You know Cliff

  14. #15 by Richard Warnick on March 4, 2013 - 12:32 pm

    I’ve met Cliff a couple of times. How much does he make?

  15. #16 by brewski on March 4, 2013 - 3:53 pm

    Ask for his tax returns.

    There is big money in paying Chinese child slave laborers 10 cents an hour to make lead and cadmium poisoned kitsch which will be filling our landfills in about a week.

  16. #17 by Richard Warnick on March 6, 2013 - 10:32 am

    Of course, we’re still waiting for Romney’s tax returns.

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