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.
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.