FRA Co-founder Gordon T. Long discusses with Charles Hugh Smith about
stagnating wages and high real inflation rates, using the IRS tax reports as
a guide to real economic activity, and the likelihood of future tax
increases.
Charles Hugh Smith is the author of nine books on our economy and society,
including A Radically Beneficial World: Automation, Technology and
Creating Jobs for All; Resistance, Revolution, Liberation: A Model for
Positive Change; and The Nearly Free University & the Emerging Economy.
His blog, oftwominds.com,
has logged over 55 million page views and is #7 on CNBC's top alternative
finance sites.
Why Wages Have Stagnated
"The statistics we rely on are becoming more and more
suspicious."
Statistics are now used for perception management rather than reflecting
the real economy. Of all these statistics we're relying on to reflect
reality, some of them are really suspect. We're trying to stick with the ones
that are valid. GDP is flawed but still our bellwethers, and we're still
relying on FRED database.
When you look at stagnant wages, two things pop out: GDP has continued to
go up and the economy's expanding, so wages and employment should be
expanding as well. Productivity has also been rising until recently. We
would expect that wages and employment would be rising at the same rate as
productivity and GDP, but what we find out is that wages for the bottom 95%
have stagnated.
The GDP increases and the increases in productivity are not flowing
through to the bottom 80%. They've actually lost purchasing power in their
wages. The top 5% have done really well, and the middle sector has stayed
even. There are huge disconnects.
Purchasing Power in Decline
For the last 15 years, we see wages stagnating for declining for all but
the top 5%.
"Our standard of living is falling. We're working harder, longer
hours for less in real disposable income."
Spending in the bottom 95% has been flat for the last decade. The top 5%
are skimming a good percentage of the productivity gains.
"I think that's the best and only valid way you can reach an
estimate of inflation: take a basket of goods and test them in the same
metropolitan area over the years."
As consumers see lots of evidence that inflation is running higher than
1%, we start wondering why the official statistic is suppressed to 1%. The
answer is that the system would break down if that 7% was reveals as reality.
The bottom 60th percentile can't afford to buy, even with cheap interest
rates and rents are going through the roof relative to their salaries.
Both the charts from Dollar Tree and Dollar General are talking about how
tough business is, and that it is a serious issue for the bottom 80%. Their
biggest sellers are bread, eggs, and milk. The basics staples are where
people are now going to buy them, because they can get them cheaper. They're
talking about the items being hit by by price hikes: rent, food, healthcare,
taxes. Rather than raise the price by 15%, they've cut the amount by 15%.
Regardless, it's still a 15% loss in purchasing power.
Falling Tax Revenues
Tax receipts are falling across the board. We've lost so many small
businesses, and the jobs that go with them. The chains have consolidated
dramatically, but put all the mom and pop stores out of business.
"We've lost some 770,000 net losses of small business since 2000.
That is crippling to the economy, and that's where the bottom 60% have
worked."
The United States is not alone in suffering from statistics that are being
gamed. China had the same problem – people started looking at the statistics
for electricity consumption because that was a more accurate gauge of economic
activity than the obviously phony GDP statistics the government was issuing.
"There's always a way to get a better statistic, but it has to be
outside whatever the official government agencies can manipulate. In the
United States, the one thing you can't manipulate is the IRS tax
statistics."
Everyone that reports to the IRS reports the facts because it's not worth
their time to try any gimmicks. These are as accurate statistics as we can
get. These numbers can't be gamed like GDP and the numbers we know are
rigged.
Tax Increases Coming in The Future
Major tax increases are coming. There's no question. Hilary's already
mentioning it, Trump's already mentioning it, they know it has to come: at
the state level, at the federal level, and it's going to be at the local
level and it's going to be property taxes. It's happening in the US already.
The government is not collecting more taxes, but the cost of running the
government is going up at a significant rate. Every time in the past that tax
receipts fell to the zero line, the United States was in recession. So what
we're talking about here is a recessionary economy where people are suffering
a stagnant or declining household income, and their taxes are going up if they
owe any taxes at all.
"Even low income people have to pay sales tax – if you jack up
sales tax, everybody pays that. Even the people who were barely getting
by."
Junk Fees and Civil Forfeitures
There's so many fees, licenses and tolls that you have to pay; that's
where the tax is coming from, not just on income. Even police fines have gone
through the roof. These are extremely aggressive forms of taxation. These are
regressive taxes that hit the lower income households a lot harder than the
upper income households.
If you look at these charts, a lot of people are suddenly going to be classified
as "rich". There's going to be surcharge on the upper middle class,
and you can argue that it's justified, but we're likely going to see a double
whammy: higher regressive taxes that everyone has to pay in the form of junk
feels, and higher income and sales taxes as well. So it'll be a tax increase
across every form of taxation. There is no alternative. The government is
going to get the revenue however they can.
They're actually seizing assets and you have to prove that they were wrong
to get your assets back, which can take a long time. The police departments
are a revenue source now in many areas. They're gambling that people will
miss something, and they've got the assets. And you may not get it back.
"What we're talking about here is a vice that's slowly squeezing
the households. We're seeing stagnating income, hours cut, hidden inflation
that's eating away at our purchasing power at a far greater rate than 1%, and
we're anticipating a lot higher taxes across the entire spectrum of fees and
taxes because we can see that government tax revenues aren't rising
anymore."
As there's more and more pressure on the government to sustain itself, it
has to resort to more and more aggressive stances like this. There's a lot of
very good people in all levels of the government that feel like they have no
choice, especially where there's a lot of underfunded pensions that they have
where they have pension obligations and no money to meet them.
"If taxes are declining, that means households and businesses are
making less."
Abstract by: Annie Zhou
Video Editor: Min Jung Kim
