Today, whitehouse.gov released their annual Income, Poverty, and Health Insurance in the United States in 2015 report. There are six key points they outlined which paint an optimistic picture of the US Economy, particularly for the middle class. As you know, we at Financial Time Traveler are dedicated to delivering a balanced perspective of all things finance and self-development. Therefore, I felt it was mandatory to quickly report the data set provided by the White House in laymen’s terms, play a little devil’s advocate to each of their six points, as well as provide some insight on what this may imply for the market.
Real median household income rose by 5.2 percent ($2,798) in 2015, the fastest on record.
Q. What does “real median household income” mean?
A. This takes all household incomes across America and averages it out ($56,516 in 2016) and then adjusts that number against inflation. Once they know the “real” number, aka the inflation-adjusted number, then they compare it to last years to calculate the growth or contraction.
Our thoughts: We are excited about this info! However, the inflation rate in 2015 which the Census Bureau is adjusting against was 0.7% due to an unprecedented central bank stimulus package as well as artificially low-interest rates. Although the growth in real median household income is the greatest percent change since the Census Bureau began publishing household income data in 1967, we need to see continued growth for our economy create a sound basis for the middle class.
The total number of Americans below the poverty line fell by 3.5 million from 2013 to 2015, and the official poverty rate fell to 13.5 percent due to the largest one-year drop since 1968
Q. What is the poverty line?
A. The federal poverty line (FPL) changes annually and are used to measure eligibility for government assistance programs. In 2015, income below $11,770 for one person and $15,930 for two people qualifies at the poverty level.
Our thoughts: We are very satisfied to witness a decline in poverty rates; I mean how could you NOT be thrilled when “more than 1 million children are lifted out of poverty.” Although a poverty rate of 13.5% is still an unacceptable number, the 3.5% drop in one year is a historic achievement. Hopefully, this trend can continue, and our country will be able to continually diminish the enormous lack of resources 14 out of 100 Americans experience.
Households at all income percentiles reported by the Census Bureau saw gains in income, with the largest gains among households at the bottom of the income distribution.
Q. How do they create these percentiles?
A. The Census Bureau looks at how many households are making particular incomes. The average household income or 50th percentile was $56,516. Another way to put that is if your combined household income was $56,516 last year, you made more than 50 out of 100 Americans.
Our thoughts: I found it interesting that the Census Bureau decided not to show real figures when illustrating the income gains. Although the bottom half of the income brackets increased the most in percentage points, the dollar amounts reflect a different story. For instance, the 10th percentile household income is just above the poverty line at $12,276 and a 7.9% increase equates to $969.80. Compare that to the 95th percentile income of $206,568 with an increase of 3.7% which represents $7,643 or 788% more than $969.80. While the gains are a positive sign that the economy is growing, we still have a lot of work to do regarding income inequality.
All racial and ethnic groups saw increases in household incomes and decrease in poverty in 2015
Our thoughts: This one is pretty straight forward and speaks to a workforce that has come a LONG way since the Census Bureau started reporting these figures in 1967 (we won’t get into that here). It is important to note each community’s growth as well as the overall picture by aggregating all the data together in the “All Households” category. As stated in point two, we still have a long way to go, but this is positive data to build off!
In 2015, refundable tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) lifted 4.8 million children out of poverty.
Q. Why did they make a separate point for this?
A. The official measure of poverty does not include the combined earning of income and government assistance. Therefore, it is important to adjust the “official” numbers with what poverty stricken Americans are dealing with to get a more accurate reading.
Our thoughts: When you break down the numbers by category, we see an overall drop in poverty as well as household income across the board. Those two points should add confidence that taxpayer money is going to work in a big way. The Census Bureau states, “Together, in 2015, 9.2 million Americans, including 4.8 million children, were lifted above the poverty line by refundable tax credits, including the EITC and the CTC, illustrating their critical importance to the social safety net.” Government assistance should be viewed by the taxpayer and recipient as an investment into families and their children, which the NY Times does a great job outlining here.
In 2015, the share of people without health insurance declined in almost every State, and all States have seen gains since 2013, reflecting continued progress under the Affordable Care Act (ACA).
Q. What are all of these dots and lines?
A. Each dot represents one State, with the line illustrating the trending average.
Q. What is a “Medicaid Non-Expansion State?”
A. “Medicaid Non-Expansion State?” is simply a State that declined to expand their government health coverage program for the poor. By doing so, States that are non-expansion are rejecting federal cash and footing the bill internally.
Our thoughts: There is a tremendous amount of controversy surrounding the rollout of the Affordable Care Act (ACA). However, those talking points center around the process and less about the concept of Americans deserving medical treatment. It’s clear that if your State adopted the ACA, then your State has more people covered under insurance than a non-ACA state. Whether or not you are getting better service is yet to be seen. Small businesses are especially struggling as corporate insurance costs have disrupted where they need to spend the little amount of money they gross. People need health care, but we also need an efficient system which is something this graph does not quantify.
WHAT DOES THIS MEAN TO ME?
Although the media circuit may lead you to believe differently, the economy did in fact grow last year. As income levels rise, this could mean that we are staging the scene for some solid holiday shopping numbers, it could mean that people are continuing to save and get back on their feet, or it could mean more people are investing for retirement.
Another theory is that Americans are not experiencing wage increases, but a significant amount of those who fell off of unemployment have found jobs. As we noted in our article, The Future of America, small businesses account for 70% of new job creation in the past decade. We believe the small business owner and entrepreneurs will play a vital role in getting our nation back on track and we hope to help every step of the way!
If you have any questions you would like covered in future posts or podcasts, leave them in the comment section below and we will definitely respond!