FX MONETARY POLICIES
of a large number of middle and lower income families that helped Donald Trump win last year’s election; that much appears obvious. Trump is now trying to work with Republicans to pass a wide ranging tax reform that he claims will benefit everyone. As we only have a proposal at this stage, and we know that the final version that is signed into law will be different, it’s difficult to predict exactly what the benefits to the economy and households will be. We will make a couple of observations though.
Chart 3 – Real income and net worth growth 2007 to 2016 by percentile
spend to maintain what they see as their standard of living.
Accepting that it is impossible to produce one single inflation measure
that is consistent with
the experience of the vast majority of households, we do suspect that what many households experience is that their cost of living increases at more than the official figures suggest. The data
is clear that
those who hold a college degree earn more money, and so many households choose to pay ever increasing education costs, taking on huge debts along the way, in the hope of a better standard of living. Healthcare costs keep rising far faster than the official rate of inflation, and the failed healthcare reform is certainly not helping with
40 FX TRADER MAGAZINE October - December 2017
stories that Obamacare premiums in Florida will rise by an average of 45% next year, for example.
Even using official data from the Federal Reserve, most Americans are worse off now than they were before the financial crisis. Chart 3 shows the data for real growth of incomes and net worth, and unless you are in the top decile, you are worse off. Indeed, data for median household real income (not shown) illustrates that despite a large boost in the last two years, the median household is barely better off than it was in 2000, and we suspect that many households remain worse off when we measure income versus their true cost of living.
Many suspect that it is the plight
First, although aſter tax income will increase for US workers, this does not guarantee that their standard of living will increase. As noted above,
it is probable that most
households have experienced faster price inflation than the official inflation rate would indicate. If this continues (and it certainly looks like the biggest expenditure for many households being healthcare will increase rapidly again next year),
then this will swallow up some of the tax gain.
Second, there is an enormous pensions
problem affecting all
levels of Government. For the state and local governments, who have to balance their books by law each year, as these pension commitments become due either pensions will be reduced or taxes will have to rise. So, in the years ahead, the pensions
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