Monday, February 11, 2008

How Americans Spend money?

I found this image which shows how different income brackets in the US spend their money. It appears the top 20% of families save the most and pay the most taxes, very obvious. But what is interesting is that the lowest income goes into debt, the middle class save 5.3%, while the riches 20% saves 31.4%. That the discrepancy is so large is what is interesting.

However the tax differential between the classes is not so stunning. The lowest income is pays 9.2%, middle income pays 11.7%, and the highest income pays 15.6%. So while the savings rate in the highest class is 4x the rate of the middle class, they only pay about 50% more in taxes. So because the highest income has so much disposable income they are able to save and take advantage of tax breaks to lower their bills.

Now looking at consumption side of the equation, the lower classes consume obviously a large proportion of their income. For example food, the lowest income uses 32% of their income for food. While the middle class uses 12.5%, and the wealthiest use 6.8% of their income to eat. Now the rich spend more dollar for dollar again, but it's a much smaller percentage of their incomes.

This consumption is repeated for housing and transportation, where the poorest use 54.4% and 30.4% of their income, the middle class use 21.4% and 17.1%, and richest use 14.4% and 10.9% respectively. This shows how a consumption tax proposed by some people might be inherently skewed to tax the poor unfairly.

Also looking at the graph it appears, that the consumption of the average consumer is nearly the same between the middle and richest consumers. Hence the debt of the average consumer. They are trying to live like the rich while not having the income to do so. It's a vicious cycle. The need to keep up with the rich, when only 20% of the families can really afford to do so.

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