Ever wonder how you or most Americans feel about their finances two years after the 2016 elections? To find out, Steve speaks with Mark Hamrick, Washington Bureau Chief and Senior Economic Analyst at Bankrate.com.
For Steve, the burning question is whether tax cuts or other initiatives from this Congress and administration are having their intended effects. Are the majority of Americans feeling that their finances have improved since the 2016 election or not?
Most Americans Feel Finances Have Not Improved Since 2016 Election
A recent Bankrate survey on this very question found that only four out of ten Americans say their personal finances are better than two years ago. 62% of Americans say their financial situation has not improved over the past two years. This is a little surprising given the broadly positive headlines about the economy.
The Haves And The Have-Nots
Wealthy Americans say their finances have improved. People earning less than $30,000 a year say their finances have not improved. Demographically, older Americans haven’t seen their finances improve significantly, while younger Americans have. Gender wise, men generally say their situation is better; women more often say their finances are worse.
Mark attributes this to Trump’s personal income tax cut favoring wealthier Americans, with legitimate debate about whether it will even be felt by the middle class. Since the election, interest rates and gas prices have risen significantly. This hurts lower and middle-class savings substantially but has little impact on the savings rate of the rich.
And while the stock market has rallied strongly since 2016, stock gains too have disproportionately favored the rich and those with significant savings. Fortunately, most retirement portfolios have benefited from this long-running bull market but can’t be used to pay for day-to-day expenses. That’s because withdrawing money from a retirement portfolio comes with penalties and doesn’t make tax sense. This, Mark says, explains some of Bankrate’s survey results.
Early on after the 2016 election, Steve urged his listeners to go out and buy stocks, index funds, etc. to get some exposure to the market. It was pretty obvious to him that the market was poised to improve dramatically.
Does Wealth Trickle Down From The Rich To The Poor?
The rhetoric behind Trump’s tax cuts was, in part, that tax breaks for corporations and high earners would lead to more investment, which would create more and better-paying jobs—classic trickle -down economics. But does it really work or is it just a nice excuse for tax breaks?
Mark believes trickle down doesn’t really work. Most corporations have taken their higher profits and used them to buy back stock, which is usually great for investors. They haven’t really used a lot of their profits to make capital investments or boost jobs and wages.
Over the past two years, the average U.S. worker has seen wages go up by about 2.5 percent annually. In addition, workers have benefited from one-time bonuses tied to corporate profits. The overall impact, however, has been muted.
Mark believes wage benefits were promoted to make tax cuts politically palatable. The economic reality is that tax cuts overwhelmingly favored wealthy Americans.
Most Americans Living Paycheck To Paycheck
Steve notes that average weekly earnings rose by $53 from September 2016, reaching $940 by September 2018. That’s an increase of 5.6 percent over two years or 2.8 percent each year.
The increase seems fairly decent, but expenses have risen even more, by comparison. Property prices are up sharply, mortgage rates are higher, and gas is a lot more expensive.
Bankrate’s earlier surveys show that most Americans are really living paycheck-to-paycheck. This is not unique to this administration or the last one but is an unfortunate long-term trend in the United States.
To combat this, politicians lurch from one short-term solution to the next, without addressing long-term structural problems such as rising debt, rising deficits, and a struggling middle class. Their argument is that structural problems take more than a few years to fix.
Things Improving But At Too Slow A Pace
On a positive note, measures of median household income and net wealth are improving—but not to the level that would satisfy most Americans. Most wage earners have heard that Trump’s tax cuts are going to make their personal finances better, but two years on, they are still waiting to see the real benefits. Mark calls it “a check that’s still in the mail kind of a thing”.
Tax cuts for corporations haven’t delivered either because they’ve enriched corporate coffers and shareholders, not salaried workers and employees. There just haven’t been enough investments in infrastructure and productivity improvements.
Opinion Split Along Party LinesWhat’s fascinating to Steve is that despite economic reality, Americans react to tax cuts along party lines. Broadly speaking, rich Americans and business owners tend to be Republican, and they believe Trump’s tax cuts are working. Lower and middle classes tend to have Democratic affiliations and aren’t too happy about tax cuts reducing funding for government programs.
Moreover, Trump’s policies are a stark departure from traditional Republican positions, so it’s hard to assign party affiliations on his policies.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Are the majority of Americans feeling their finances have or have not improved since the 2016 election? This is an important question we all want to know after two years of change. So I’ve invited Mark Hamrick, Washington Bureau Chief and Senior Economic Analyst for Bankrate.com to join me today to discuss.
Mark wrote for the Associated Press in Washington for nearly 20 years and is a past president of the National Press Club. Hey, Mark, welcome to the show.
Mark Hamrick: Good to be with you, Steve, thanks for having me.
Steve Pomeranz: To me, the burning question is whether the tax cuts or the other initiatives from this Congress and administration are having their intended effects.
Are the majority of Americans feeling that their finances have improved since the 2016 election or otherwise?
Mark Hamrick: Yes, thanks for asking the question, and, obviously, all that is tangential to the outcome of our survey. And I have some other things that I might add to that central premise.
So our survey did want to know, basically, how Americans broadly were feeling about their personal finances, now that we are two years since the past general election. And that’s around the doorstep of another election, and what we find is that only four out of ten Americans say that their personal finances are better than two years ago.
And the other part of the math is that 62% of Americans say their financial situation has not improved in the past two years. So we find it interesting that given the broadly positive headlines about the economy that we all write about or talk about or comment about on an ongoing basis, that the feeling, essentially, on the ground across the entirety of the United States, which is what we at least attempt to portray with a survey of this type, that, as the saying goes, your results may vary.
Steve Pomeranz: Yeah, yeah, so let’s start with the big picture. Who are the haves and who are the have-nots?
Let’s start with let’s say older Americans or lower earners because I think if you break it down demographically, you can kind of really see where the gains are and where they’re not.
Mark Hamrick: Sure, well, I mean I can do it very quickly and broad brush stroke, and if you want we can go into more detail.
But for the most part, wealthy Americans are saying that their finances have improved. And people who have less income and by that definition here, $30,000 a year or less, are basically saying their finances have not improved. We have, older Americans are saying their situation is less improved, and younger Americans saying their situation is more improved.
And then we, basically, have men saying their situation is more often better and women saying their situation is more often worse. So a lot of people might want to know, well, how can this be or why might it be, if you take the results at face value, which obviously we do.
And we think that other people should. I think there are a number of possible explanatory factors, not the least of which is to your point at the very outset, the personal income tax cut was favoring wealthier Americans, and there’s a legitimate debate going on right now about whether it is even, frankly, even being felt by effectively the middle class, as we speak.
But, of course, we have other things going on, such as rising interest rates and, certainly, over the course of this past year, higher gasoline prices. We have a stock market that, since election day 2016, has rallied quite strongly obviously, pulling back here in recent days and weeks. Obviously, that favors wealthier Americans as well, and even those people who are exposed to the stock market by virtue of their retirement savings, that is not liquid, right?
So unless you are sort of taking emergency measures to get at that money, which is not a good idea on the tax basis, you might have a sense that hey, my retirement savings is doing better, but that does not necessarily help you to pay the bills. So I think those are some explanatory factors that are why some of these results came up as they did.
Steve Pomeranz: Yes, so let’s get into that a little bit. So early on after the election, one of my commentaries was, right now if you don’t own any stock, go out and buy some stock, index funds, get some exposure to the stock market. Because it was pretty obvious, to me, at least, that that was going to be one area which was going to improve dramatically.
There is this idea of the trickle down, when I was coming up in the 80s, there was a lot of talk about the trickle-down economy. And I’m not really sure whether it ever really did trickle down or not. I’m not one to comment on that, I’m not an economist.
But I think the bet here is that, by giving high earners tax cuts and companies, especially, tax cuts, that that would eventually lead to higher wages. Has it led to higher wages?
Mark Hamrick: No, not substantially, the bulk of the benefit has gone to stock buy-back. So that’s great for investors, in a sense, it’s great for corporations, not so much for the average worker. And so we’ve seen most of the income’s data or the wage data point to gains that have been either roughly at 2 and a half percent on an annual basis or above that level. When you look at all of compensation, it’s better than that because that includes some of the compensation that was doled out in the early part of the year, such as one-time bonuses.
So, my own opinion is that the wage benefits or the tax cut were promoted to try to make it politically palatable. Because we knew, from a broad standpoint, the notion of a corporate tax cut was unpopular with many Americans. And so the idea to try to make it politically palatable to a larger cross-section was to say, oh, and there’s an individual income tax cut as well.
The reality of that, though, was that it did tend to favor wealthy Americans. So those are not philosophical arguments. Those are economically grounded arguments as well as some observations about the political realities of all that.
Steve Pomeranz: According to the article, average weekly earnings rose by $53 from September of 2016, reaching $940 in September.
That’s a 6% rise, sounds like a fairly decent bump, but I think you have to put that in contrast to higher prices from the tariffs and Canadian lumber and oil prices and so on. How easy is it to wipe out some of these somewhat, meager gains?
Mark Hamrick: Well, I think it’s very easy.[LAUGH] And we’ve seen this in years past where we’ve seen a spike in gasoline prices. We can think about things that were going on around the time of the financial crisis or that led into the financial crisis when we had oil at $140 a barrel. So when we look at other surveys that we do at Bankrate, there’s a surprisingly large portion of the American populace which is living paycheck-to-paycheck.
And this is not something that is unique to this Presidential administration, or the last one, this is a long-term trend in the United States. So, in a sense, it’s an apolitical dynamic. And so, we tend to lurch from one short-term solution to the next. And the reality is that we have long-term structural problems that right now include rising debt, rising deficits, as well as a middle class that is sort of not doing as well in terms of making as much progress as the upper portion of the income strata.
Steve Pomeranz: Well, I think the argument would be is that these things take time. Now whether two years into an administration is enough time, I can’t answer that. But it takes time for these things to filter into the economy. Now the economy was improving for many years before the 2016 election.
Mark Hamrick: Sure.
Steve Pomeranz: We know that we had another great crisis, the recession and then things had been improving. The question really to me is, are we seeing an acceleration due to these tax cuts? Is the rate of change in people’s pocketbooks better or is it approximately the same?
Mark Hamrick: Well, I mean, we see measures of medium-household income, net wealth, all those things are improving. But probably not to the level that, broadly, we would all like for that to happen. But there are some realities of the tax law that are sort of difficult to dispute.
And part of those realities are that the benefits to the individual income taxpayer or the wage earner, we’re all front-end loaded. So here we are speaking in the closing act of 2018, and if you’re going to feel that as a wage earner, you should have been feeling that for many months now, right?
Steve Pomeranz: Yeah, yeah.
Mark Hamrick: That’s not a, it’s a check that’s still in the mail kind of a thing. The other part that perhaps you’re referencing is the corporate tax cutting, and yes. They were hoping for better investment and structures and then, equipment that can lead to productivity gain, which, ultimately, is a requirement for broader wage gains and improvement in our standard of living in the US. But even there the jury is still out because of the factor that I discussed early on about how a lot of this has filtered back into stock buybacks. And that, if you look at it just from the stock buyback piece, that’s kind of a sugar high, right?
Because, I mean that’s not going to help you in the long-term, it’s good for the coffers of a publicly-traded corporation.
Steve Pomeranz: And shareholders for sure.
Mark Hamrick: Absolutely. In a stretch, but that’s separate from something that a worker gets, right? And so, that’s how we differentiate all of that.
Steve Pomeranz: What fascinated me about this survey was how the differences of opinion split along party lines. In other words, I mean everybody knows whether their situation is improving, is it worse? Is it the same? Yet their attitude, or the way they describe their situation, changes as to whether which party they’re affiliated with.
I didn’t even really understand how that could be. Tell us just a little bit about that.
Mark Hamrick: Well, without sort of raising too many digits in terms of our conversation here, I would just simply say that I think, it’s easy to sort of get at the demographics of members of political parties broadly speaking.
And broadly speaking, Republicans tend to be better off financially than Democrats, if you talk about sort of the broad-brush stroke. But we know, for example, the counter of that is also, at least in some instances true, where you have Republicans who supported the President who might not all be of substantial financial means.
But I think, again, it goes back to the piece about who some of these policies are either helping or not helping. And if you’re a beneficiary from those stock buybacks that we were just discussing, then you might tend to be a Republican. You might not be as often a Democratic, or you might be somewhere in the middle as an Independent, and that’s really sort of how the polling broke down as well.
So, we’re living in interesting times, as the saying goes. And some of the policies that certainly the Republican Party as a party have been embracing or at least enunciating are not necessarily traditional GOP policies. And so, it’s certainly understandable how a lot of this is difficult for people to process and digest.
Steve Pomeranz: Well, it’s a weird tribalism that seems to be going on. Again, I think that it’s a simple question. Do you feel better off or the same or worse? And what does that have to do with whether you want to kind of sugarcoat it as to kind of represent your own political point of view, surprised at how much the political point of view came into the survey?
Very, very fascinating. Mark Hamrick, Washington Bureau chief, Senior Economic Analyst for Bankrate.com. Hey, Mark, thank you so much for joining us.
Mark Hamrick: Great to be with you and I appreciate it. And if anybody wants to read more about it, they can certainly find the story on our website or with a simple search.
And there’s more info there if folks want to see it, thank you.
Steve Pomeranz: Bankrate is a great site, as well, and to hear to this interview again, and any questions you may have, discuss, and, of course, we will put the bankrate.com link on our website as well. Visit StevePomeranz.com to join the conversation.
And while you’re there, don’t forget to sign up for the weekly update for brief rundown of the important topics we’ve covered that week straight to your inbox. And don’t forget to ask us questions, we love questions. That’s Stevepomeranz.com. Thank you, Mark.
Mark Hamrick: Thank you, Steve.