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Global Economics

President Jimmy Obama

Former U.S. President Jimmy Carter

Photograph by MPI/Getty Images

Former U.S. President Jimmy Carter

“Job growth here is just very steady,” James Glassman, senior economist at JPMorgan Chase & Co. in New York, said yesterday during a radio interview on “Bloomberg Surveillance.” The challenge “is how the rise in the payroll tax affects the consumer, because that is probably a bit of a headwind. Once we are over that, I think there is every reason to believe that the economy should do better than last year.”


—Shobhana Chandra, “Payrolls in U.S. Keep Growing Even Amid Fiscal Talks,” Bloomberg News, January 5, 2013.


I need to go back to wide lapels and a love of the Bee Gees.


David Kelly is a first-rate economist. Decades ago (think post-Carter/Reagan), he held court with the legendary Bob Goodman at Putnam of Boston. Now he is at JP Morgan Funds, tangential to Jim Glassman’s shop.


Dr. Kelly suggests Dr. Glassman’s “headwind” elicits a zero percent first-quarter GDP and a follow-on zero percent second-quarter GDP.


We will be zero-high by the Fourth of July. Why?


Tax increases.


Let us consider two emotional realities.


Per Glassman above, 77 percent of America is enjoying a 2 percent redo of their FICA tax. This is foisted by sundry pols as NOT an increase because it was a previous tax on “holiday.” The holiday has ended. It is not a 2 percent diminution of income. It is worse.


You and I have massively fixed costs. Let’s be charitable and say half our take-home pay of 2012 was “fixed.” Two divided by our variable 50 is 4 percent. Add in the obligatory 12-month inflation pop, and the pundits’ 2 percent becomes, say, 5.5 percent of discretionary household income. That is a massive hit, given 2.1 percent wage growth.


Then there is the small matter of desire and the signals that high summed taxes bring. The Clinton years are being bandied about as the near-equivalent, but I would suggest the glorious Carter years have a more certain similarity.


Pundits and gurus dismiss a marginal-tax analysis for the lower summed total-tax due. They are correct, but only correct to a certain tipping point.


Is that tipping point here and now?


The collegiate crew is at $80,000 aspiring for $110,000 of party-in-Brooklyn income. The $130,000 UES tranche aspires to a she-must-get-into-Spence $372,000. They, and many others, have audacity to hope to one day be the president’s rich: say, an AGI of $500,000.


39.6 + 6.85 + 3.876 + 1.45 + 0.9 + 1.41 = 54.086%


That is the all-in tax take in the vicinity of $500,000 in Manhattan. The last tax is Glassman’s payroll tax ($7,000+ / $500,000). (CPAs may send your-numbers-are-wrong corrections to my accountant, Karen Tom-You-Can’t-Do-That, CPA, LLC.)


Something has just occurred and is wildly dependent on what our fair politicians do on spending responsibility. (The Spending Responsibility Act of 2013 has a certain ring to it.)


Glassman optimism and Kelly caution must know the harsh reality of what people feel in their present and future pocketbooks.


2013 brings a new era. Beware, for it may be the era of President Jimmy Obama. Discuss.

Keene hosts Bloomberg Surveillance 7-10 a.m. ET on 1130 AM in the New York metro area and nationally on SiriusXM 113.

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