Money Karpus – Who is better off?
Who is Better Off?
The top 20% of wage earners, with an average annual income of $223,500 and who pay 67.9% of all Federal taxes, have the most investable assets. They are the clear winners as to “who is better off.”
The bottom 20%, with an average annual income of $23,500 and who pay almost no taxes, are the losers.
Printing money makes the poor poorer and the rich richer.
Deficit spending by governments stimulates economic activity which causes stock prices to rise. Printing money (QE1; QE2: Operation Twist) also causes financial assets to rise. Those with the most invested in financial assets (stocks and bonds) benefit the most.
On the other hand, those living on food stamps, welfare, unemployment, and social security alone, as well as those who are working and living from check to check, lose ground when the government prints money.
Printing money is essentially a regressive tax, meaning that it hurts the poor and lower middle class most.
In the last four years, gasoline prices have doubled and most food items have risen 40%. Imported goods from Asia have also risen due to the relative devaluation of our currency. The Consumer Price Index (CPI) no longer takes into account food and energy. People on social programs (food stamps, welfare, unemployment, social security) usually find their increases linked to changes in the CPI, while most employers increase employee wages by CPI plus 1%.
Thus, those in the bottom 50% find that they have been receiving increases of 2% to 3% annually but the things that they buy have increased 5% to 6% annually. After four years, they have fallen behind by 12% to 16%.
The top 20% of income earners use a smaller portion of their incomes for food and energy and a larger portion toward investments.
It is clear that the top 20% have been the winners over the last four years while the bottom 50% have been the losers.