Buying Power: Is the Glass Half Full or Half Empty
By John Davis

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Have you looked at your dollars lately? Oh, they look about the same as they always did, but looks can be deceiving. While that dollar looks the same, it definitely doesn’t go as far. The government has been telling us that inflation is low and the unemployment rate is at a manageable 5.6%. The number also shows us that the economy is growing at a rate of 4%, but that number as well is misleading. The truth is, that ordinary American’s are losing buying power and financial resources.

Lets begin by looking at the inflation rate. Every month the Bureau of Labor Statistics surveys prices around the country for a basket of products then publishes the results as a number. This is called the Consumer Price Index. The cost of the items is compared year over year, and the resulting percentage is the rate of inflation.

However, we all know there are some cost that are not occurred at the checkout of a store. Health care cost for example. Across the country employers are experiencing dramatic increases in health care cost for their employees. It is has become the standard to shift these cost to their employees through increased co-pays or employee contributions. These cost are not included within the Consumer Price Index, so they are not included within inflationary numbers.
Another number that doesn’t hit the inflation rate is a growing trend with middle-aged couples. More and more are finding themselves in a position of having to supplement the livelihood of their adult children. The declining job market is having an adverse affect on the number of people entering the job market. As a matter of fact, recent numbers complied by the Economic Policy Institute show the unemployment rate of college-educated workers at a higher level than that of high school dropouts. The report went on to say that if the job market for college graduates had grown at the rate of graduates, an additional 600,000 jobs would have to have been created for the job market to keep pace.

However, this tells us that good jobs are being drastically reduced in this country. More and more white-collar workers are finding themselves out of work, as technical and engineering jobs are being outsourced to lower wage areas. This means more and more middle-aged parents have to assist their children with living expense, again missing the inflation radar.

The increase doesn’t stop there for middle-aged couples. The dwindling tax base is tricking down to our education system, meaning higher tuition rates at state run colleges and universities. This directly hits working Americans, whose children attended these state funded schools rather than private institutions. Again, educational cost are not part of the Consumer Price Index, and therefore do not hit the inflation rate.

Unfortunately, the hits do not stop there. Gasoline prices at running at record rates across the country. While these numbers do hit the Consumer Price Index, they make up a small percentage wise of the number of cost that consumers have, diluting the affect on inflation.

Lower reported inflation rates also can affect interest rates, meaning lower returns on savings accounts for working Americans, who can’t afford to tie up their savings in the stock market. The inflation rate also determines cost of living increases for Social Security, meaning less dollars for the elderly, while their true expense continues to climb.

The false numbers do not cover up the entire issue. In 2003, the rate of inflation was at 2.3%, but the median wage only rose 2%. Even with the skewed numbers for inflation, the average American lost .3% of their buying power last year, and early indicators show this year’s losses to be even greater.

What about those tax cuts we all received? Well, lets looks at exactly where those “cuts” ended up. For fiscal year 2002-2003, state and local governments filled a $200 billion tax shortfall by raising taxes. Between 2000-2003 the largest tax shift from the federal to state level in history occurred, with state and local governments seeing their burden rise by 15%. But who pays state and local taxes? In 2002, households in the lowest 20% paid 11.4% of their income in state and local taxes, while those in the wealthiest 1% paid 5.2% of their income in state and local taxes. Since 1980, the pay roll tax has jumped 25%, while taxes on investment income and inheritance have been cut between 31% and 79%. To add further insult, federal revenues from corporations have declined by over 60% since 1962 while individuals tax burden has risen 17%.

Coincidentally, when you revisit that $200 billion shortfall at the state and local levels, another statistic jumps out. During the same period, the tax cut to the wealthiest 1%, that is households making $337,000 or more a year, equaled $197.3 billion dollars. If that money had been redirected, lower income families would not have seen the great jump in their state and local tax burden.

Billionaire Warren Buffet, who came out publicly against President Bush’s tax cuts when they were passed, recently stated, “If there is a class war being waged in American, then my class is clearly winning.” If Warren Buffet is man enough to say something is wrong with the system, then why can’t the White House?

There is an old adage about personal perspective that ask, “Is the glass half full or half empty?” The answer to that question rest in whether your are drinking from the glass or filling it up. Working Americans are forced to keep filing the glass, while the rich are doing the drinking. As long as the waiter is a member of the rich group, the tables will never be turned.
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