econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 08 July 2017

Do Rents Total Nearly Half Of The National Income?

Written by

This past week I had a discussion with my daughter concerning investment for a business venture. She put together a big spreadsheet showing how much could be made.


Please share this article - Go to very top of page, right hand side for social media buttons.


My response was: Did you consider you were spending after tax monies for the investment, and the income would be taxable at the highest Federal tax rate (as it would be on top of existing income) combined with self employment tax? And did she realize that this did not include state taxes? The government would easily take half of her profit for this particular business venture. Yes, the venture would likely make money - but much less after-tax income than she was expecting. On top of that, this particular venture could not be scaled up to increase income.

There is little incentive to pursue many business ideas. Think about it - most small businesses fail because the after-tax income is significantly less than anticipated.

The average Joe hands over 20% of his pay to the federal government, between 5% and 10% to their state governments for income taxes - and another 5% to 10% to their state governments for sales taxes when he spends the after-income-tax money.

An interesting assertion from the American Monetary Institute's Facebook page [you can click on the image below to play the video]:

What is rent seeking?

Rentier capitalism is a Marxist term currently used to describe the belief in economic practices of monopolization of access to any (physical, financial, intellectual, etc.) kind of property, and gaining significant amounts of profit without contribution to society. - Wikipedia

I have difficulty getting getting to the 50% of national income. The table below uses after tax dollars.

totalrental unitsowned residences
home ownership rate 36.4 %63.6 %
number of households125,819,00045,798,11680,020,884
median home rental price per month $1416
mortgage debt outstanding $11,544 billion
rent paid per year / residence mortgages $780 billion$700 billion
average home mortgage payment $1,030*
average property tax collected per month $180
percent of national income> 9.6 % ??4.5 %5.1 %

* author's calculations based on the average residential loan at 5% compounded with 70.7% of all homes having a mortgage


Even in the worst case where half your money was taken by taxes - you would need less than 20% of one's gross income for rent. Of course, I did not consider the hidden rent portion of the goods and services prices one pays. And I also did not consider the broader definition of rentier income which includes all forms of passive income, inferred from the Merriam-Webster definition of rentier: "a person who lives on income from property or securities".

Considering this latter definition, how does one distinguish between (1) a person who collects rents from a property they own (with or without a mortgage) that they manage and maintain and (2) a person who collects rent from properties that are managed and maintained by someone else (investing in a syndicate or a REIT, for example). Is the second person a rentier and the first person not?

Regardless of what definition is used and whether or not rent seeking is nearly 50% of national income under any definition, this is an interesting discussion and food for thought. For example, you might start an ideological war by asking the question: Should income from active investing be tax-favored over income from passive investing?

Other Economic News this Week:

The Econintersect Economic Index for July 2017 continues to forecast strengthening economic fundamentals - with the index showing normal growth for the third month in a row. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from bankruptcydata.com: Quadrant 4 System, Privately-held True Religion Apparel, Cecil Bancorp

Weekly Economic Release Scorecard:

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Contributors








search_box
Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.







Keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government





























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved