If you look at D.C.’s local income tax data, you might say the middle class is shrinking—or you might say it’s booming. It all depends on how you define middle class. We’re not going to delve into the fraught debate of what it means to be middle class (though you can get some perspectives from the NYT, EPI, and Pew). What we’ll do is present the data and let readers make their own conclusions.
From 2001 to 2012 the number of families (married couples or singles with dependents) filing income taxes in the District with incomes between $20,000 and $80,000 decreased or barely grew, while the overall population increased by about 60,000 residents. According to tax data most of this population increase was driven by childless single people with incomes under $100,000. The number of married couples making over $100,000 grew, but in smaller numbers than childless singles making under $100,000. This is probably because married couples make up a much smaller portion of D.C. taxpayers than singles.
When we look at percent growth instead of growth in raw numbers we see a more nuanced story. The graphs below show that even though in raw numbers the increase in families making over $100,000 is modest, the increases percentage-wise are quite large, especially for those with incomes in the low to mid $200’s.
There’s also been a sizeable increase in the lowest income filers (those making below $20,000), especially among singles with dependents. This might be due to more people in this category filing taxes and not necessarily more of these folks moving into they city. The earned income tax credit (EITC) was expanded during this time, according to the DC Fiscal Policy Institute, so that might have caused more low-income people to file taxes.
We’re curious to see how our readers interpret these numbers.
Recently, we shared data on contributions by District residents to three different causes identified on tax forms. How about charitable giving in general?
- In 2012, 109,000 tax filers in the District – about a third of all filers—reported contributing $744 million to charitable causes that are exempted from federal taxation. District residents collectively gave away 4 percent of their incomes.
- More than a quarter of the tax filers who gave had incomes above $155,000—the threshold for the top ten percent of income in our city. The top-ten-percent collectively accounted for 61 percent of the giving. Nine out of 10 highest income earners gave to charitable causes.
- Even the poorest in the District gave, but in smaller numbers and proportions. Nearly 2,000 District residents with annual incomes under $15,000 gave a combined $3.3 million for charitable causes.
- On average, tax filers, gave about $6,825 (a filer could be single person, a couple, or a family). Average giving is remarkably stable across the middle of the income distribution, varying between $2,000 and $4,000 per filer. Giving among the richest tax filers on the other hand was $15,500 per filer.
- The great recession affected charitable giving. Total giving declined from its pre-recession peak of $811 million in Tax Year 2008 to $630 million in tax year 2010. This is a 22 percent decline. We are yet to catch up with that level, but more tax filers are giving today than any other time since 2006. This is another way of saying more filers are itemizing.
- So how do we compare to the rest of the country? We give more than average Americans do, but not nearly as much as we earn. Per capita giving in the District (averaged across all District residents, and not just tax filers) is 1.12 times the national average at $1,174 per year, but our per capita income is 1.71 times the national average.
Tax filings do not reflect all charitable giving. The National Philanthropic Trust reports that 95.4 percent of American households give to charity. Tax filings underrepresent that figure, especially at the lower end of the income distribution because filers who do not itemize their deductions have no reason to report their charitable giving.
Today’s post on the District’s labor market prompted one question on the nonprofit sector in the District. The Economic Census gives us a full picture of the tax-exempt organizations, their employers, and their payroll, but the data are bit dated. The census is conducted every five years. The 2012 Economic Census is now complete but data release is not (all we have for DC is manufacturing data); we have to wait a year or so more to get the full picture. Therefore, we look at the 2007 Census to get a sense of the lay of the nonprofit land in the District.
In 2007, the total payroll of the entities that were exempted from federal income taxes was about $16 billion. Over 10,000 entities in the District employed nearly 214,000 people. The sector payroll show us that professional, scientific, and technical services, and health care and social assistance organizations accounted for three quarters of total payroll.
How much does the nonprofit sector pay? Taking the estimated weekly pay for 2007 and inflating it by the GDP deflator shows us that except in the areas of professional, scientific, and technical services, non-profit wages were below the DC average. Those working in nonprofits in education, healthcare, social assistance and arts earned even below the private sector average wages. This assumes that wages in the sector are growing at par with the economy. We will know more about how the sector did relative to the economy once the 2012 data is fully released.
The retail landscape has changed dramatically since the advent of the internet era with round-the-clock one-click shopping that is replacing the trip to the mall as a past time. While one-click shopping has been embraced by all segments of the population, for the 20-30 year old crowd that has grown up with apps and downloadable music, this way of shopping is the norm.
In addition, instant comparison shopping made possible by online access has helped keep prices for many retail items such as apparel and electronics in check. Savvy shoppers can also purchase items from remote retailers that have not collected sales taxes on the part of the District.
These changes in shopping patterns and demographics have had a noticeable impact on the District’s sales tax base. Since 2006, tax collections from general retail sales items such as apparel and electronics have grown only moderately by 11.4 percent. This pales in comparison to the growth in sales tax collections from restaurant and bars which have surged by more than 38 percent, as younger consumers tend to spend more eating away from home, fueled in part perhaps by the savings generated from purchasing from the likes of Amazon. Interestingly, the growth in retail sales is even lower than the growth in the District’s overall population of 13 percent, suggesting that taxable sales per capita have declined since 2006.
Change in Sales Tax Collections since FY 2006
The changes that have occurred in the District’s sales tax base will likely continue to amplify with the likes of Airbnb and Kickstarter only recently starting to impact sales in the District.
Sharain Ward co-authored this post.
Stephen Fuller has been telling us for a while that the labor markets in the District and the metropolitan area have not fully recovered from the great recession. Is our labor market changing? The data from the labor department (collected with the help of our own Department of Employment Services), say yes.
- Total wage growth in the District has fallen behind the nation. Total wages earned in the District (residents and nonresidents combined) held steady between 2013 and 2014, whereas total wages earned across the nation increased by 4 percent.
- The main cause of this change appears to be the decline in average wages. The District has the highest average weekly wage among all states–our workers on average earn $1,569 a week compared to the national average of $940–but the the growth in average wages has been sluggish since 2011. Preliminary estimates show that the average weekly wages declined between the second quarter of 2013 and second quarter of 2014.
- The average weekly wage is declining because a larger share of the people who work in the District have shifted to the private sector where wages are lower. In 2014, the number of employees hired by the federal government was only 2 percent above the level ten years ago—the levels are 192,650 back in 2004 versus 197,000 today. In contrast, the private sector employs nearly 70,000 more people today compared to ten years ago, when private employment was around 429,000.
- Those who shift to the private sector, on average, earn $500 less per week. In the second quarter of 2014, average weekly wages paid by the federal government was $1,938 and that in the private sector was $1,432. In fact since 2004, the private wages have grown slower than federal wages, and now stand at about 73 percent of federal level compared to 77 percent in 2004.
The District’s unemployment rate is higher than that of all other states: the preliminary number for December is 7.3 percent compared to, for example, 4.8 percent in Virginia and 5.5 percent in Maryland. This is not very unusual given that we are an entirely urban jurisdiction. Perhaps for this reason, the demands on the District’s unemployment insurance program are higher than most other states’ programs.
We looked at the data on the District’s unemployment program and found the following:
- The District’s civilian labor force is 378,000 (data from the third quarter of 2014) but its unemployment insurance program covers 522,000 workers. This is because unemployment benefits are paid at the place of employment. Employers pay into the unemployment insurance fund of the state where they are located. And a commuter who works in the District is paid by the District’s unemployment insurance program if he loses his job, even though he is not a District resident.
- Some workers covered by the District’s unemployment insurance program have a hard time finding a job. In the District, unemployed workers receive benefits for 19 weeks on average compared to the national average of 16.6 weeks. In only two other the states the average duration of unemployment benefits is longer: Delaware and Kentucky.
- A larger share of the unemployed in the District exhaust their benefits because they are still unemployed 26 weeks after losing their jobs. Nearly half of those who receive unemployment benefits exhaust them while the average exhaustion rate in the nation is 38 percent.
Source: US Department of Labor
Why is this? While the unemployment in the District is high, the rate in the metropolitan area is low at 4.4 percent. Shouldn’t these workers be able to find work elsewhere in the region? This suggests that some workers in the District have skills that may not be needed in the metropolitan area, or have hard time getting to places in the metro area where their skills are valued.