Too many Americans are living at what I call the tipping point. This is the point where their incoming wages, rent, dividends, alimony, etc. – whatever they consider income is very close to, if not less some months, than their outgoing expenses such as a house payment, rent, a car payment, food, utilities, etc. It is also called living on the edge.
We are no longer a nation of savers. Our national saving rate is close to two percent (2%). Some months, our national saving rate will go negative. We are a nation of spenders. And this spending has gotten a lot of people in trouble. For many folks, their savings was in the equity in their home and we know what has happened to housing values. They have gone down leaving many people “under water” or owing more on their house than it is worth. For others, their savings was in their 401 (k) and the value of most 401(k) accounts today is 40% or more less than it was 10 years ago.
Few Americans have a cash reserve. This is something that many financial analysts consider essential in today’s economy. A suggested reserve is six months of spending. Many people don’t have six weeks in any sort of a liquid account. So when adversity hits them, the choice is either to put the money needed on the credit card, borrow from friends or family or use a cash advance/payroll firm. Payroll or Cash Advance firms like Check n’ Go have sprouted up all over the country. It can be a very lucrative business. Rates for the first $100.00 dollars borrowed can be as high as 14% with all sorts of hidden finance charges and fees.
In January of 2009, there were 30 million Americans on food stamps. Now there are over 47 million Americans on food stamps. This rising trend is inextricably linked to the unemployment rate. The cost for the U.S. government is $6.025 billion dollars per month with the average monthly benefit per person at $132.96 dollars. Part of the problem is also linked to the hourly rate of the newly created jobs. About 60% of all the jobs created during the past two years have paid $13.83 an hour or less. This hourly rate equates annually to an income of about $28,766.40 – hardly enough to support a family of four.
So with millions of American out of work and millions underemployed, Mr. Obama needs to tread carefully. All kinds of ideas are being thrown out for consideration as the government attempts to cut spending and increase taxes. However, with so many middle class families at the “tipping point” the wrong move could trigger a domino effect. Such things as bringing back the Alternate Minimum Tax or capping the deductions claimed on the Form 1040 could increase taxes for the average family and throw them into a negative cash situation. Wealthy Americans can absorb a tax increase so any increase in say a capital gains tax, or increasing the estate tax, or even reducing their tax deductions would not have the same effect as it would on the lower or middle class families struggling in today’s economy.
So please go slowly, Mr. President, or we could all be in serious trouble.
We are not creating enough new jobs now to have a major effect on the unemployment rate and some serious thought has to be given to any taxes that you place on the middle and lower class wage earners that would destroy their purchasing power and push them over the tipping point.