Tuesday, January 9, 2018

Trump: "How about those 401Ks!"

Trump cites the economy.  Things are better now than they were a year ago.

The economy is, in fact, stronger than it was a year ago.  True Fact.  Unemployment is a bit lower, the stock market is higher, there are more people employed.  There is marginal--just barely--increase in wages above the rate of inflation.  Those are good trends.

In every respect, Trump is presiding over a continuation of the trends in place for the past six years.  In fact more jobs were created in 2016 than in 2017, 2.2 million versus 2.1 million.  Read that again.  Faster job growth under Obama.

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Trump did not jump start anything.  He is riding a wave.

But Trump presents it as a fresh start, everything good starting on inauguration day. In front of a Farm Bureau gatheringTrump said that now, at long last, you get to keep your family farm because the federal inheritance tax limit moved from $11 million up to $22 million dollars.  And look at your 401K accounts!!

The stock market has been on an unbroken 8 year run.

Trump has a comprehensive theme in place for the 2018 elections: The "American Dream is coming back to life."  

Not everyone is getting rich. The reality is that 84% of the stocks included in those averages are owned by the wealthiest 10% of Americans, i.e. people with net worths greater than $1.1 million dollars.   I know from personal observation as a Financial Advisor the simple reality that financial assets are owned by prosperous people, not the average American.  Indeed, the great bulk are owned by the top 1%, not the top 10%.  Slate: Trump did not make Americans rich.   

Corporations did in fact get a tax cut.  Increased after tax income does not go to workers.  That extra money goes to the owners of the corporations, the stockholders.   Workers are an expense for a business, not the owners of it..  Workers have a market for their labor just as do suppliers and venders and real estate and other expenses.  Workers get paid what they can negotiate, not some share of after tax earnings. Average Americans participate in the trickle down of higher profits only insofar as they own stocks, i.e. are both an owner and an employee.

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Doesn't that even out? Don't employees make up what they lose in the tax bill by increases in their 401k accounts, like Trump suggests?   

No.  Not average employees.  Only ones that are already rich, the top one percent.

An employee making $50,000 a year who owns $1,000,000 in her 401k might in fact be equally an employee and an owner.  (I calculated ownership to yield 5% net of taxes and inflation.)  My observation and experience is that few employees who have incomes of $50,000/year have million dollar IRA or 401k accounts.

There is a messaging opportunity for Democrats.  One is that Trump is taking credit for the gains and momentum that took place under Obama.  It is late, but perhaps not too late, for a Democrat to make that point.   

The second messaging opportunity is for Democrats to argue the simple truth that the distribution of benefits for the tax bill meant that the stockholder class got rich but the average employee got precious little.   Billionaires got millions while the average guy got a few hundreds.  This is true and an argument worth making.

There is a flaw in the argument, however. Wealth is relative.  The employee earning $50,000 a year might well have an IRA or 401k balance of $15,000 in her 30s and $100,000 in her 50s or 60s.  That employee is acutely aware of the rise and fall of that account.  The 60 year old who sees an account balance go from $85,000 to $100,000 in a bull market considers herself enriched.  They are thrilled. They feel like an owner, not an employee, and they are grateful for whatever mysteries of the economy made that account balance go up.  In fact they are a net loser, and wealth has trickled up not down--but the employee does not see the millions that go to others, only the amount that comes to her.

And that $15,000 seems like a lot.  Trump could be the beneficiary.  He is taking credit for that $15,000.  

Recommendation for Democrats:  Do not belittle that $15,000.  It is very precious to that account holder.  And do not belittle the rich people either.  Americans do not hate the rich.  They want to become rich themselves.  That is why they buy lottery tickets.  The focus for Democrats must be on the injustices that makes it difficult or impossible for the worker to get rich.  Americans like the goal.  They also believe the system is rigged against them, and it is, and Trump is party to the rigging.  

That is where the messaging opportunity is.

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