Retro #10 - Occupy Wall Street And The Ignorance Of Their Math

As most Americans know, there have been protests going on in major U.S. and international cities called Occupy Wall Street. They are a loose knit group, to say the least, with confused and divergent objectives. The most frequently occurring complaints are that corporations in general, and Wall Street banks in particular, are too greedy, that 1% of the population controls too much of the nation's wealth and the wealthy 1% need to be arbitrarily punished for being in that situation.




We could probably do any number of posts on the philosophy of soaking the rich, taxing the rich more, greedy banks, etc. However, rather than get into an endless and pointless loop of emotionally arguing with Occupy Wall Street supporters, let's look at the math behind their demands and positions. I find in life that if you understand the underlying math and the reality of that math, you can understand the world a lot more clearly, a lot less emotionally.



Let's start with some basic assumptions and basic math, mostly taken from government and other, respectable sources, (sources include the official IRS website, http://www.usgovernmentrevenue.com/, U.S. Census Department):



Number of U.S. households - 114,000,000 households

Population of the United States - 308,745,538 according to U.S. Census reports

Number of U.S. individual income tax returns filed with the IRS in 2009, the latest year data was available - 140,494,127 returns

Number of individual income tax returns filed with the IRS in 2009 showing more than $1,000,000 income - 236,883 returns

Total amount of income of those tax returns with more than $1,000,000 in income in 2009 - $726,910,880,000

Percentage of 2009 Federal income taxes paid by top 1% of earners in the country - 40%

Expected 2011 Federal government revenue - $2.174 TRILLION

Expected 2011 Federal government budget deficit - $1.3 TRILLION

Percentage of 2011 Federal government revenue that comes from individual income taxes - 53%

Percentage of 2011 Federal government revenue that comes from payroll taxes - 37%

Percentage of 2011 Federal government revenue that comes from individual income taxes and payroll taxes - 71.5% (53% plus half of the 37% that is paid by individuals)

Estimated 2010 total revenue of the nation's four largest banks - $350 billion

Estimated national debt - Approaching $15 TRILLION

Estimated total wealth (money, stocks, bonds, cars, real estate, etc.) of the richest 400 Americans according to Forbes magazine - $2.4 TRILLION

Let's do some basic math, thinking relative to how the occupy Wall Street people think:



- Percentage of U.S. tax returns filed by people making more than $1,000,000 a year = .17%, significantly less than 1%. This number surprises many people, with the vast majority of people thinking that there are certainly must be more than about 236,000 Americans earning over $1,000,000 a year. Thus, there are not a lot of American millionaire earners that could be taxed more to support the rest of the country.



[Side note: the total number of Americans earning over $1,000,000 is down by about a third relative to the 2007 IRS statistics, a reduction in taxes that will have to be made up by other non-millionaire American tax filers. At this rate, Obama, Reid, and Pelosi should wipe out high earning Americans within four years.]



- Four of the largest banks in America (Bank Of America, Wells Fargo, JP MOrgan, Citigroup) had 2010 revenue of about $418 billion in 2010. Let's use that number since 2011 is not yet done and their revenue is probably down year over year, given the bad economy. Occupy Wall Street people think that these banks make too much money.



If we made the banks set aside 10% of their revenue a year for ordinary Americans as a result of these demonstrations, each American would receive about $135, assuming that the bureaucracy of distributing the money did not eat up a lot of the 10%. Hardly enough for the Occupy Wall Street demonstrators to pay off their student loans or substantially improve their lives.



- Almost two thirds of the those Americans earning over $1,000,000 earned between $1.0 and $2.0 million in 2009. Thus, it is not like there are that many Americans earning billions of dollars that would make a substantially dent in any financial aspect of the nation's financials.



The average earnings for these two thirds is about $1.4 million, hardly enough to make everyone in the so-called 99% rich or even moderately better off. In fact, just over 8,000 American tax filers in 2009 made over $10 million. These people represent just .01% of tax filers in America.



- Harry Reid wants to impose a 5% tax on the income above $1,000,000 of any American who earns over $1,000,000. If he somehow got this inane proposal passed, it would generate about $28 billion additional revenue a year. This would reduce the tax burden of every other American taxpayer by only about $198, it would account for a mere .8% of the 2011 Federal government budget, and only 2% or so of the 2011 Federal budget deficit.



In other words, the Harry Reid proposal would have basically no impact on any American or government spending excess. All it would do is remove disposable income from the economy, quite possibly resulting in more unemployment, less economic growth, and more government inefficiency.



- Let's get absurd and assume that the Federal government confiscated EVERY dollar from these 236,000 Americans who earned over a million dollars in 2009. These people earned about $727 billion, that if it was distributed to other American households, each one would receive about $6,400.



Now, the Occupy Wall Street people would say we are getting some serious change or justice for the so-called 99%. However, these 2009 American millionaires would be unlikely to ever work hard again if the government took ALL of their earnings. The taxes they would have paid in subsequent years would now have to be paid by the 99%.



If we assume that the millionaires paid about 30% of their earnings to the Federal government, the non-millionaires would have to pay about $1,550 more each year to keep government revenue at the same level. Thus, beginning in the fifth year, the non-millionaires would be in a losing proposition since the they would have been past the break even point of the initial $6,400 they received and would be paying $1,550 extra in taxes a year, forever.



- If the Federal government confiscated the wealth of the 400 richest Americans, (cars, boats, real estate, cars, investments, etc.), they would end up with about $2.4 TRILLION of wealth that they could use to cover about 69% of the Federal government's 2011 spending. In other words, stealing the total wealth of the richest 400 Americans could not cover even one year's worth of political class spending and waste.



It could be safely assumed that these 400 Americans would never go to the effort to earn a lot of money again, forcing the remaining U.S. taxpayers to make up the difference in every succeeding year in Federal government taxes that these 400 Americans would have paid.



- This $2.4 TRILLION of confiscated wealth would cover only about 16% of the country's current national debt. The remaining national debt would have to be paid off by the rest of America, most of whom earn far less than $1,000,000 a year. Thus, "eat the rich," the despicable slogan the Occupy Wall Street people often use, would have a very short term desired effect but the long term effect would place a significant and ongoing burden on the non-millionaire taxpayers relative to the national debt.



- According to a Washington Post article that was summarized in The Week magazine in the October 21, 2011 issue, the average household wealth of the top 1% of households in America was $14 million in 2009. If we confiscated all of this wealth and redistributed to the so-called 99%, each household would receive about $141,000. Wow, now we are talking about true socialism or even communism, power to the people.



However, now matter how attractive this windfall appears, it would have devastating long term consequences to most households and our nation. It is probably a safe assumption that the 1% of American households who had their entire wealth stolen and redistributed would never work hard again, given the threat of confiscation. Thus, the so-called 99% would have to pay more in annual income and payroll taxes to make up for what the 1% pay each year.



This incremental annual payment for each of the households in the 99% would be about $8,800 to cover what the Federal government spends each year. Thus, unless government spending was reduced, in sixteen years the 99% would get to their break even point and starting in year seventeen and going on forever, the 99% households would be paying $8,800 incremental a year, an ongoing penalty for killing off the vile 1%.



You get the idea. The math shows that even in the highly unlikely scenarios where the government confiscates the entire wealth of certain Americans, the impact, both short term and long term, on the rest of America eventually becomes negative. The math also shows that confiscating 10% of big bank revenue has a negligible effect on the 99%. Anything less than full confiscation is even less effective in changing the lives of the Occupy Wall Street crowd.



However, there is one avenue where a change in behavior would have long term positive consequences for EVERY American. In our October 6, 2011 post, we easily identified over $500 billion a year in government spending savings that could be incurred on an annual basis if we clean up the fraud, waste, and excesses in Medicare, Medicaid, Social Security, IRS, the military budget, and other government wastelands. If these savings were realized, these savings would be worth about $4,300 a year, EVERY year, for each American household without raising the taxes of anyone.



The October 6 post was not inclusive of all changes in government spending reductions, efficiencies, and savings that are available so this $4,300 is a worst case. Thus, the Occupy Wall Street people need to be down in Washington and getting into the face of the political class, that is where hundreds and hundreds of billions of dollars can be recovered EVERY year for the good of the country and the good of every American.



Insisting that the banks and wealthy Americans give up their wealth, even in a total confiscation scenario, just does not add up, as the above math proves. As usual, the enemy is not our fellow Americans, the enemy is the incompetent and wasteful politicians in office in D.C.









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