George Boardman: I hope you’re prosperous enough to enjoy the Labor Day holiday
September 2, 2018
You're probably relaxing today, enjoying the fruits of your labor in our booming economy.
Thanks to the Trump tax cuts and the loosening of regulations, capitalism's animal spirits have been unleashed, raining prosperity on all who want to work.
Or maybe not.
The economy certainly is booming, with the gross domestic product up a hefty 4.2 percent in the second quarter. The Commerce Department reported last week that after-tax corporate profits rose 16.1 percent in the second quarter, the largest year-over-year gain in six years.
The growing economy contributed to much of that increase, but so did the Trump tax cuts. Taxes paid by U.S. companies in the quarter were down 33 percent from a year earlier, according to government data, or more than $100 billion at an annual rate.
The stock market has responded in kind. Investors have seen the S&P 500 Index, the NASDAQ Composite Index, and the Dow Jones Industrial Average hit record highs.
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In response, the wealthiest Americans are spending big as the economy gains momentum. Toll Brothers Inc., one of the nation's largest builders of high-end homes, rode strong sales to a 30 percent jump in profits during the second quarter, bucking weakness in the U.S. housing market.
Company CEO Douglas Yearley Jr. said Toll's customers spend an additional $165,000 on average toward customization and design of their houses during the period, and the average price of houses the company builds now range from $835,000 to $860,000. Yearley said buyers are more willing to pay a bigger premium for a new home.
High-end retailers like Nordstrom, Coach and Tiffany are reporting strong earnings. Kering, owner of Gucci, Saint Laurent and other luxury brands, said first-half revenue in the U.S. surged 45 percent. Richard Curtin, chief economist for the University of Michigan's Surveys of Consumers, said households in the top third of income distribution — who make up half of all retail spending — "are well positioned."
But what about the rest of us? Not to worry, according to conservative economists, because when the rich do well we all benefit. This is what is known as the trickle down theory.
Alas, a lot of people are waiting for the drought to end. While the unemployment rate is at a record low and many businesses are scrambling for workers, wages have increased a meager 2.9 percent — slightly higher than the rate of inflation. But people are also working more hours, which accounts for most of the increase in income.
Wage stagnation combined with rising home prices, tighter credit and a lack of lower-priced houses have made for a weak starter home market despite strong demand from millennials. Sales of existing homes over $1 million rose 7.6 percent in June from a year earlier, while sales of homes from $750,000 to $1 million rose 6 percent, according to the National Association of Realtors. At the same time, sales between $100,000 and $250,000 fell 7.1 percent.
Money is becoming more expensive in part because of the huge deficits the federal government is running. Thanks to the Trump tax cut and freewheeling spending by the Republican Congress, the U.S. is on track to run deficits of $1 trillion plus for the next four years.
What's really scary about these numbers is that they are the kind of deficits we usually run when the economy is in the tank and the government is trying to revive it. What's going to happen if we're running these deficits when the next recession occurs? How safe are Social Security, Medicare, food stamps and other support services in this scenario?
I think we got a taste of what we can expect last week when President Trump announced he is freezing a 2.1 percent pay increase for civilian federal employees scheduled for next year. The reason? "We must maintain efforts to put our nation on a fiscally sustainable course, and federal agencies cannot sustain such increases," Trump wrote House Speaker Paul Ryan.
But at least federal employees don't have to make decisions about what bills they're going to pay this month, unlike 40 percent of American families, according to a survey taken by the Urban Institute. The survey found these families struggled to meet at least one of their basic needs in 2017, including paying for food, health care, housing or utilities.
The unemployment rate last year was 4.4 percent and heading down, but that doesn't mean all workers were making enough money to support their families. An estimated $150 billion is spent each year to fund federal assistance programs for low-income workers.
Senator Bernie Sanders proposes to take that burden off the shoulders of taxpayers and put it where it belongs — on the well-padded shoulders of corporations. Sanders plans to introduce legislation this week to require large employers such as Amazon, Walmart and McDonalds to fully cover the cost of food stamps, public housing, Medicaid and other federal assistance received by their employees.
"At a time of massive wealth and income inequality, the gap between the very rich and everyone else continues to grow wider," Sanders said in announcing the legislation. He singled out Amazon for criticism — one-third of its employees in Arizona and 10 percent of its workers in Ohio and Pennsylvania receive food stamps, according to public records.
A spokeswoman for Amazon said the numbers are misleading because the employees cited worked short term or choose to work part-time. The company says the median income of its full-time U.S. employees is $34,123 a year. Meanwhile, the company's founder, Jeff Bezos, is the richest person in the world, with an estimated worth of over $150 billion, and the company's stock is currently selling at about $2,000 a share.
Keep all of that in mind as you enjoy your Labor Day. Assuming, of course, that you don't have to work today to make ends meet.
George Boardman lives at Lake of the Pines. His column is published Mondays by The Union. Write to him at email@example.com.
UPDATE: An Amazon spokesperson said the median income of $28,446 previously cited in the column is for all Amazon employees worldwide and includes part-timers. The median income of full-time U.S. employees is $34,123.