In a recent interview with Harvard Business Review, Harvard Business School’s Mihir Desai and Bill George gave some great insight on inversions, who really pays the corporate tax, profit shifting, and corporate tax reform.
Below are a few selections from the interview, but the whole story is worth a read.
To start us off, Bill George on why we are seeing so many inversions:
“The problem is definitely with the tax code. We have a dysfunctional tax code in the United States. We have among the highest tax rates anywhere in the world, and what’s happened is companies are paying taxes on foreign earnings that they generate overseas but they’re not bringing them back to the United States because they don’t want to pay at the U.S. corporate tax rate of 35%. You’ve got some $2 trillion of cash trapped overseas, so companies are looking for ways to use that cash effectively. It’s driven many U.S. companies to buy foreign companies, but in many cases they’d much rather deploy that cash in the United States.
“One very interesting proposal came from Robert Reich, a liberal Democratic economist who recommended that the U.S. go to the system that almost all other industrial nations have of just taxing people where they earn the money. Personally I think that would solve the problem.”
Mihir Desai on the problems with the tax code and why it needs to be fixed:
“This is the manifestation of two big problems. One is a high rate, and the second is this worldwide system, both of which are highly distinctive relative to the rest of the world. One of the things that’s happened recently is that leading countries like the UK and Japan, which used to look more like us, with relatively high rates and a worldwide system, have left. So now we’re really all alone — and that’s why these transactions are happening more.
“A meaningful reform would combine two things. One, a considerably lower rate — and I think you need to get below 25% or 20% for it to be meaningful. And the second, as Bill mentioned, is a switch to a territorial regime. I actually am optimistic that we can get there; there’s a fair amount of consensus about that. The tricky part is where does the money come from to fund all of that, and there I think people divide up.”
Mihir Desai on whether or not we should tax corporations:
“The corporate tax is a hard tax to like. It’s a hard tax to like because it’s a second layer of taxation and it’s entity-level taxation. So it’s always going to be dominated by a tax on individuals, because you’re giving another margin for distortion and another margin for evasion.
“The reason why we might still like one, albeit it a low-rate one, is because without it you can run into some problems with individuals shielding and hiding their own income. Justin Fox Inc. can all of a sudden become a vehicle, if it’s got a zero rate, for shielding a lot of income. So we need a rate, and it’s probably positive.”
Mihir Desaie on the notion of corporations not paying enough in taxes currently and who really pays the corporate tax:
“We know that corporations don’t per se pay taxes. That tax is going to be borne by shareholders, workers, or customers. Those are the only people who can actually end up paying the tax. So while people like to think about corporate tax reform as a sop to big business, the reality is that what we know about the corporate tax is it’s most likely borne by workers.”
There is lots more from this interview here.
Identity thieves exploit changes in federal law to file phony tax returns
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From 1987 through 1992 — after the much ballyhooed 1986 tax reform — the top marginal rate was around 31%, yet real GDP growth averaged just 2.8%. And from 2003 through 2007 when the top marginal rate was 35%, GDP growth averaged 2.9%. This is not to say lower tax rates aren’t good for economic growth. But marginal rates at those levels are almost certainly already deep on the good side of the Laffer Curve. Also, while it’s true that other things were happening in the economy during those years, that’s the point. The top tax rate isn’t the only factor influencing economic growth, either short- or long-term.
First, the Laffer Curve refers to tax revenue, not economic growth. It says there is a tax rate at which tax revenue is maximized. The tax rate at which economic growth is maximized is almost certainly well below that.
Second, not only were other things happening in the economy, other things were happening in the 1986 and 2001-2003 tax changes besides tax rate cuts. Namely, the 1986 Tax Reform Act involved a number of tax increases on saving and business investment, especially through higher capital gains taxes and longer depreciation lives. The net effect was to increase the cost of capital. Slow growth ensued.
The Bush tax cuts involved… a doubling of the child credit, among other changes that made the tax code more progressive. Slow growth ensued.
More from Pethokoukis:
[E]xpanding the child tax credit would serve as a sort of human-capital gains tax cut for worker creators (also known as families). It might just be nudge enough for financially-stressed families to have another kid since surveys suggest parents don’t have as many as they would otherwise prefer due to money concerns. Modern pro-growth policymakers should fret as much about the nation’s birthrate as productivity and labor-force participation rates. Lower birthrates and older populations are associated with less economic growth. A younger American society with a higher birth rate, helped by a tax code that offsets anti-family government policy, would be more dynamic, creative, and entrepreneurial.
Our current economic malaise is defined by the lack of jobs, not the lack of children. In fact, that is how economic malaise is defined in general. We would need to come up with a new word to describe a lack of children (demographic malaise?).
I, like most humans, think that children are blessing. I am also one to think we as a society should have more kids. I also think that in the very long run, say decades, demographics are destiny, i.e. we cannot expect to be a large, flourishing economy a generation from now if our birth rate continues to be at or below the replacement rate.
However, boosting the birth rate is not as simple as boosting the child credit. Even if people were robots that cared only about monetary incentives, we are talking about a tax benefit of a few hundred dollars a year compared to a cost of many thousands of dollars per year and a long term cost in the hundreds of thousands of dollars. No self-respecting robot would have a child for the child credit. Of course, we are not robots, and we have children for lots of non-monetary, sentimental reasons.
People do think of money, of course, when planning out whether or not to have kids. In that sense, the best way to get the birth rate back up is to get people back to work with wages that can support a family. Remember, for the vast majority of Americans, wages come from private sector employers, not the federal government. There are currently far more job seekers than job openings, hence unemployment. The best way to fix that is to lower the cost of hiring by lowering taxes on employers.
Pethokoukis is right, that a good way to do that is to lower the corporate tax rate and to move towards full expensing of investment. Another good way is to lower the top individual tax rate, in part because so many businesses are taxed at that rate, i.e. the pass-through businesses that now make up the vast majority of all businesses and more than half of all business profits.
More from Pethokoukis:
American needs more growth, and worker creators (strong families) are just as important to achieving that as job creators (strong companies). Let’s have both.
Life is about tradeoffs, and so is the federal budget. Whatever tax benefits we shell out to parents we cannot then shell out to workers or to businesses. We could cut taxes for everybody, but then we’d have to shrink the federal budget. That’s a debate worth having.
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Dan Mitchell from the Cato Institute recently wrote about the debate over increasing the child tax credit or lowering marginal tax rates. He says lower marginal tax rates would have a bigger impact on the incentive to work and could lead to a better economy in the long run. From the Wall Street Journal:
"Now let's look at the economics. The most commonly cited reason for family-based tax relief is to raise take-home pay. That's a noble goal, but it overlooks the fact that there are two ways to raise after-tax incomes.
"Child-based tax cuts are an effective way of giving targeted relief to families with children, particularly when compared to a reduction in tax rates, which would have only a modest impact on take-home pay for a family in the 10% or 15% tax bracket.
"The more effective policy—at least in the long run—is to boost economic growth so that families have more income in the first place. Even very modest changes in annual growth, if sustained over time, can yield big increases in household income."
The focus of any tax reform should be economic growth. Growth has the best chance in the long term to improve quality of life and raise living standards for middle and lower income groups.
Instead of debating an increased child tax credit or lower rates, Mitchell suggests a couple potential compromises that would put growth at the forefront:
"While the camps disagree on lower individual income tax rates vs. child-oriented tax relief, both agree that the tax code's bias against capital formation is very misguided. The logical compromise might be to focus on reforms that boost saving and investment, such as lowering the corporate tax rate, reducing the double taxation of dividends and capital gains, and allowing immediate expensing of business investment."
Our work finds that these provisions could have a significant impact on economic growth. According to the Taxes and Growth Model, a corporate rate cut to 25 percent would boost GDP by about 2 percent in the long term and lift wages by just slightly less. We also find that moving to full expensing of business investment would boost GDP by about 5 percent in the long term and lift wages about over 4 percent.
These types of changes can provide serious long term benefits for the economy and should be the focus of any potential tax reform.
We recently published a map showing how far $100 would take you in different states. For example, in states with low costs of living, like Arkansas, $100 had the same sort of purchasing power that $115 would have in an average state.
We got a lot of requests – particularly from upstate New Yorkers - for a map of purchasing power that separates out cities from non-metropolitan areas. Fortunately, that data is available from the BEA’s interactive tables, and we have created an interactive map of purchasing power down to the city level.
Full data for this map available on Github.
The reddest colors on the map, signifying the place where your $100 buys you the least, are in these five cities. One of them may surprise you.Honolulu ($81.37) New York-Newark-Jersey City ($81.83) San Jose-Sunnyvale-Santa Clara ($81.97) San Francisco-Oakland-Hayward ($82.44) Bridgeport-Stamford-Norwalk ($82.31)
Yes, Honolulu is the most expensive place to live! Honolulu is, in fact, quite densely populated; there isn’t much territory to work with between the mountains and the Pacific. It also relies heavily on expensive imports. People pay a heavy premium in order to enjoy its lovely weather.
With MSA-level data, we can see price differences are even larger than the ones on our previous map. We are interested in this issue because it has important implications for state tax policy, federal tax policy, and interstate migration. A lot of policies are based on income, like progressive taxes and means-tested federal benefits. A federal benefit in Mississippi could be so large as to overwhelm the returns to work, while that same benefit in New York City could be insufficient to help people get by. As we wrote in a recent report, income data alone is insufficient to tell us how well someone is doing.
It’s important to see that price differences do persist across states, even in non-metropolitan areas. $100 still doesn’t go nearly as far in rural California ($101.94) as it does in rural Texas ($113.64). It doesn’t even go as far as it does in San Antonio. ($106.50.) This suggests that policy – not just geography and urbanization – may play a role in these price differences.
Ed Kleinbard, a law professor at the University of Southern California, has a new paper in which he claims that the recent wave of corporate inversions is not about competitiveness, even though the U.S. has the third highest corporate tax rate in the world combined with exceptionally high repatriation taxes. Instead, he argues, corporations find ways around the U.S. corporate tax and the solution is to beef up the rules:
The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction. These motives play out against a backdrop of corporate existential despair over the political prospects for tax reform, or for a second "repatriation tax holiday" of the sort offered by Congress in 2004.
The professor proposes the following solutions:
The first component of the necessary legislative package is the most obvious: revise section 7874 so that it parallels domestic law’s consolidated tax return principles, by treating a “reverse acquisition” of a U.S. firm by a smaller foreign firm as a continuation of the U.S. firm for U.S. tax purposes.
The second component, which has very recently gained traction among some members of Congress, is to lower the excessively generous ceiling that section 163(j) sets on the quantum of U.S. corporate tax base erosion that we will tolerate in respect of U.S. domestic earnings.
The final necessary component of any legislative response to inversion transactions is an anti-hopscotch rule.
The professor doesn’t seem to think it problematic to further increase the complexity of the U.S. corporate tax code with these rules. Does he not recognize that such complexity increases compliance costs? Who does he think bears the compliance costs if not corporations, which is to say corporate employees and shareholders? Does the professor not know that tax complexity is an important dimension of competitiveness?
The World Economic Forum (WEF) does. Every year they publish the Global Competitiveness Index, which ranks 148 countries on a multitude of factors including many related to tax rates and tax regulation. While the U.S. ranks 5th most competitive overall, it ranks extremely poorly in terms of tax rates and tax regulations.
The U.S. ranks 107 in terms of the total tax rate on profits. The U.S. ranks 40th in terms of the effect of taxation on incentives to invest, and 38th in terms of the effect of taxation on incentives to work.
The U.S. ranks 55th in terms of the business impact of rules on foreign direct investment, some of which are the tax rules that Professor Kleinbard would like to make more complex and burdensome.
The WEF also asks a random sample of business executives in each country what are the most problematic factors for doing business. In the U.S., the most problematic factor is tax regulations, followed by tax rates. Third most problematic is the inefficiency of government bureaucracy.
This Global Competitiveness Index is probably the most systematic and respected international ranking of business tax regulations, so one would think the professor would make some reference to it. (The World Bank’s Doing Business report is another one, but it only deals with domestic firms. On that score, the U.S. also ranks poorly).
There are many international rankings of corporate effective tax rates, done by prominent academic researchers, and all find the U.S. has one of the highest corporate tax burdens in the developed world, if not the highest. The professor does not refer to any of these, but instead refers to a flawed analysis by the GAO, which many have criticized basically for comparing apples to oranges.
Professor Kleinbard acknowledges that most countries outside the U.S. have territorial tax systems, which means they largely exempt foreign profits from domestic tax, while the U.S. has a worldwide system that taxes earnings no matter where they are earned. However, he claims this distinction doesn’t matter for competitiveness because the U.S. has an “ersatz territorial” system in that U.S.-based multinationals can use deferral to leave their profits offshore and thus avoid the repatriation tax of our territorial system. He argues that U.S.-based multinationals can access their foreign cash “tax-free” by borrowing against it and using the interest deductions against domestic profits. The professor forgets that such a transaction involves paying interest to a bank, which means the bank has to pay tax on the interest income. It also involves risk and paying for the overhead of the bank’s services. This is why economists estimate the effective cost of accessing offshore profits is about 5 to 7 percent, not zero.
Professor Kleinbard also claims that other countries with territorial tax systems have stricter anti-abuse rules than those found in the U.S., without referring to any other country’s rules. In fact, it appears the rules in other countries are less strict. For example, the U.K. does not have a specific rule regarding thin-capitalization to prevent “earnings stripping”, instead relying on standard transfer pricing rules. Most countries, such as Ireland, have nothing to compare to our complicated Subpart F rules.
Instead, these countries have found the best way to combat abuse, a.k.a. profit shifting a.k.a. base-erosion, is to lower the corporate tax rate and switch to a territorial tax system. That is, they have made their corporate tax systems more competitive, thus removing the incentive for shifting profits offshore.
It is unfortunate that Professor Kleinbard failed to mention any of these important facts regarding competitiveness. It is a rather important issue after all, affecting the lives of millions of U.S. workers who are employed by U.S. corporations.
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It is well known that the United States has the highest corporate income tax rate among the 34 industrialized nations of the Organization for Economic Cooperation and Development (OECD). However, it is less well known how the United States stacks up against all of the countries and other tax jurisdictions throughout the world.
This map shows the top marginal corporate income tax rates for 163 countries and tax jurisdictions.
Expanding the sample of countries to 163, the U.S. corporate tax rate of 39.1 percent is the third highest in the world, behind only the United Arab Emirates and Chad, which have rates of 55 and 40 percent, respectively. The U.S. tax rate is 16.5 percentage points higher than the worldwide average of 22.6 percent and about 9 percentage points higher than the worldwide GDP-weighted average of 30.6 percent.
For more information on this data and the corporate tax rates around the world see our new report.
Every OECD Country Except the U.S., Chile, and Hungary Has Lowered Its Corporate Tax Rate Since 2000
The United States, Chile, and Hungary are the only three OECD countries that have not cut their corporate tax rate since 2000. Hungary and Chile, who had the two lowest rates in the OECD in 2000, have both increased their rates to 19 and 20 percent, respectively.
Germany has cut its rate the most in this timeframe, going from 52 percent in 2000 to 30.2 percent in 2014. Canada, Ireland, Poland, and the U.K., among other, have also made large cuts to their corporate tax rate. In all, 14 of the 34 OECD countries have lowered their corporate tax rates by at least 9 percentage points, with another 10 countires lowering their tax rates by at least 5 percentage points.
The rate cuts by 31 of the OECD countries have led to a drop in the average corporate tax rate across the OECD from 32.6 percent to 25.3 percent between 2000 and 2014. If we go back even further, OECD countries have cut their corporate tax rates continuously, with the average falling from 47.5 percent in 1981.
The U.S. has not changed its federal corporate tax rate since it increased the rate from 34 to 35 percent in 1994.
We're in Minneapolis this week for the annual meeting of the National Conference of State Legislatures (NCSL), where 6,000 state legislators, staffers, and experts gather. I'll be on an NCSL panel event on State Tax Reform with Michael Leachman of CBPP, at 3:30pm today in M100DE, so be sure to attend if you're in town! To prepare for the session, I wanted to share some of our key research reports so far this year at the Tax Foundation covering state tax reforms and trends.
Major StudiesAnnual State-Local Tax Burden Ranking FY 2011 Tax Freedom Day® 2014 is April 21, Three Days Later Than Last Year Effective State Evaluation of Tax Incentives The Facts on Interstate Migration Indiana’s 2014 Tax Package Continues State’s Pattern of Year-Over-Year Improvements New York Corporate Tax Overhaul Broadens Bases, Lowers Rates, and Reduces Complexity Minnesota Enacts $443 Million Tax Reduction Package Wisconsin Approves Income Tax Reduction, Business Tax Reforms Nebraska Legislators Approve Inflation Indexing But Drop Major Tax Overhaul D.C. Council Approves Tax Reform Package Iowa Illustrated: A Visual Guide to Taxes & the Economy Kevin Spacey at Annapolis Bar Tonight to Lobby Legislators for Subsidies Federal Aid as a Percentage of State General Revenue (Fiscal Year 2012)
Income TaxesState Personal Income Tax Rates and Brackets 2014 Update Moving to a Progressive Income Tax Would Increase Taxes on the Majority of Illinois Employers States Provide Income Tax Filing Guidance to Same-Sex Couples Pennsylvania Urged Not to Tax Out-of-State Emergency Responders Tennessee Jock Tax Finally Sacked Response to CBPP: Flat Income Taxes Don’t Endanger Public Finances or Create Inequality Illinois May Face Confusing Non-Binding Tax Referendum Missouri’s 2014 Tax Cut: Minimal and Slow with a Small Business Gimmick Maryland Argues There's No Constitutional Bar to Taxing Over 100% of Residents' Income When Did Your State Adopt Its Income Tax?
Business TaxesNorth Carolina Builds on Tax Reform, Repealing Burdensome Local Privilege Taxes One Visit to Washington Leads to $180,000 Tax Bill New Jersey Saves $448 Million Tackling Unemployment Fraud West Virginia Reduces Franchise Tax, Corporate Income Tax New CTJ Corporate Tax Study and Wisdom from Groucho Marx Alaska Voters to Decide Oil Production Tax Changes
Sales and Excise TaxesState and Local Sales Tax Rates in 2014 Cigarette Taxes and Cigarette Smuggling by State State Sales Tax Jurisdictions Approach 10,000 Judge Rejects Philadelphia's Attempt to Impose Amusement Excise Tax on Exotic Dancers' Lapdance Earnings Sales Tax Holidays: Politically Expedient but Poor Tax Policy 2014 The Marketplace Fairness Act: A Primer
To get these reports as they come out, be sure to sign up for our State Tax Issues e-mail list!
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Tax-Exempt Nonprofits Owe Millions in Payroll Taxes
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Alaska voters go to the polls tomorrow to decide Measure 1, which would change taxation of oil production. A yes vote repeals the More Alaska Production Act (MAPA) tax system championed by Gov. Sean Parnell (R) and passed in 2013, instead reinstating the previous Alaska’s Clear and Equitable Share (ACES) tax system pushed through in 2007 by then-Gov. Sarah Palin (R) in 2007. A no vote keeps the MAPA tax system.
Alaska has imposed a severance tax on oil production ever since sizeable extraction began in the late 1970s, which enabled Alaska to be the only state to repeal its state income tax. Over time, Alaska has collected $191 billion in oil production taxes, including tens of billions set aside in the Permanent Fund, with some of that paid to Alaska residents annually as dividends. Historically, the tax was structured as an Economic Limit Factor (ELF), which adjusted tax deductions to result in high taxes on highly productive oil fields and low taxes as a field’s profitability drew down.
Alaska oil production peaked in 1988 at about 2 million barrels a day and has declined since, to about 500,000 barrels a day today. With production declining and oil prices soaring, Alaska in 2006 adopted the Petroleum Profits Tax (PPT), which doubled taxes by consolidating tax calculations for various fields into regions and taxing the value of the oil and gas produced, with a higher tax when profits exceeded $40 per barrel. Continued soaring oil prices led to the enactment of the ACES system in 2007, which doubled taxes again by disallowing a number of production cost deductions, increasing the base tax rate to 25 percent, and taxing profits more heavily when they exceed $30 per barrel. These taxes are in addition to state and federal corporate income taxes.
Production has continued to decline under ACES, while production in Texas, Oklahoma, New Mexico, North Dakota, and Canada have grown sharply. Dividend checks mailed to each Alaskan fell from over $2,000 in 2008 to $900 last year, and the Trans-Alaska Pipeline is running dry. Governor Parnell blames the high taxes and pushed through SB 21 in 2013 to enact the MAPA system, which imposes a higher base tax rate of 35 percent but eliminates progressive add-ons. Parnell said the system is needed to encourage greater production, but opponents say it will sharply reduce oil tax revenue.
Polls show Alaskans almost evenly split on the measure, and signs and ads for both sides are everywhere in the state. It’s an important topic for the state because oil wealth has fueled much of the economic progress and state services for the last several decades. Unemployment in the state has crept above the national average for the first time in a long time, and anxiety is growing as production declines and other states surpass Alaska’s oil production. Both sides emphasize the importance of the oil industry to the state’s economic progress, debating whether taxing it very heavily is the right approach. Each voter may well be thinking the future of the state is in their hands with this vote.
This week’s tax map shows the real value of $100 in each state. Because average prices for similar goods are much higher in California or New York than in Mississippi or South Dakota, the same amount of dollars will buy you comparatively less in the high-price states, or comparatively more in low-price states. Using data from the Bureau of Economic Analysis that we’ve written about previously, we adjust the value of $100 to reflect how prices are different in each state.
For example, Tennessee is a low-price state, where $100 will buy what would cost $110.25 in another state that is closer to the national average. You can think of this as meaning that Tennesseans are about ten percent richer than their nominal incomes suggest.
The states where $100 is worth the least are the District of Columbia ($84.60), Hawaii ($85.32), New York ($86.66), New Jersey ($87.64), and California ($88.57). That same money goes the furthest in Mississippi ($115.74), Arkansas ($114.16), Missouri ($113.51), Alabama (113.51), and South Dakota ($113.38).
Regional price differences are strikingly large, and have serious policy implications. The same amount of dollars are worth almost 40 percent more in Mississippi than in DC, and the differences become even larger if metro area prices are considered instead of statewide averages. A person who makes $40,000 a year after tax in Kentucky would need to have after-tax earnings of $53,000 in Washington, DC just in order to have an equal standard of living, let alone feel richer.
As it happens, states with high incomes tend to have high price levels. This is hardly surprising, as both high incomes and high prices can correlate with high levels of economic activity. However, this relationship isn’t strictly linear: for example, some states, like North Dakota, have high incomes without high prices. Adjusting for prices can substantially change our perceptions of which states are truly poor or rich.
As we showed in an example in our recent paper on income data, adjusting for prices reveals average real incomes in Kansas to be higher than in New York, despite New York having much higher incomes as measured in dollars.
The tax policy consequences of this data are significant. For example, because taxes must be calculated based on nominal income, the average New York resident pays significantly more in taxes than the average Kansas resident. But the Kansas resident actually has higher purchasing power, meaning that they get to pay lower taxes despite getting to have a richer amount of consumption.
Furthermore, this affects means-tested federal welfare programs. A poor person in a high cost area – like Brooklyn or Queens - may be artificially boosted out of the range of income where they are eligible for welfare programs, despite still being very poor. At the same time, many people in low-price states may be eligible for welfare programs despite actually being much richer than they appear. If the same dollar value program is offered in New York City and rural South Dakota, it may be too small to help anyone in New York City, and yet so big it discourages work in South Dakota.
We’ve explained elsewhere how taxes have a role to play in urban gentrification, which in turn increases the cost of living and the local price level. As we also pointed out when the BEA data was first released, adjusting state incomes for price levels helps solve several statistical problems related to taxes and migration as well.
College is generally a good investment. On average, people who earn a four year degree go on to make almost twice as much as those with only a high school diploma. But while those future high earners are in college, they tend to be relatively poor (speaking from experience here).
The relative poverty of college students has some big implications for how we look at inequality. We recently released a new report that takes a new look at the use of household income data and it’s implications for inequality.
Incomes are Low in College Towns
College towns are often home to the lowest-income places in the United States (table below).The Fifteen Lowest-Income Places in the United States
Number of Households
Median Household Income (2012 Dollars)
Mean Household Income (2012 Dollars)
Boone, North Carolina
Appalachian State University
Southern Illinois University
East St. Louis, Illinois
Georgia Southern University
East Cleveland, Ohio
University CDP (Hillsborough County), Florida
University of South Florida
Central Georgia Technical College, Georgia College, Georgia Military College
State College, Pennsylvania
Pennsylvania State University
Washington State University
Source: U.S. Census Bureau, American Community Survey (Selected Economic Characteristics, 5-year Estimates).
Note: minimum 5,000 households.
According to U.S. Census Bureau data, Hillsborough County, Florida (the home of the University of South Florida) has a median income of just over $20,000 a year. It would be very easy for the common observer to assume that the residents of Hillsborough County have a relatively low quality of life, when in fact they have a bright future.
One example: If you observed the tax data for surgeons, you would find very high degrees of inequality. Through their twenties, surgeons are in medical school and earning very little. Whereas, in their prime, with a proven track record and solid experience, they can earn $400,000 or more.
Economists and social scientists often consider low incomes as a sign of a lack of opportunity. Although that is sometimes very true, the opportunity costs of the situation must also be taken into account. Economist Alan Cole writes:
“A reasonable person would not say a construction worker is clearly better off than a business school student. And yet, it is the latter who benefits from progressive income taxes and refundable tax credits at the expense of the former. Use data unreasonably and you will get unreasonable results.”
The Growth in College Enrollment
Not only do post-secondary students predictably skew overall income data, they do it at an accelerating rate. Over 20 million students are currently enrolled in post-secondary education.
Since the late 1970s, we have seen post-secondary enrollment nearly double, from just over 10 million students to over 20 million students today.
This growth in post-secondary enrollment must certainly be considered in any discussion of changes in inequality.
To read the full report: click here