Household income data showing positive signs

There were a couple of macroeconomic reports released in the past few days that grabbed my attention. The trends that are highlighted in these reports and the choices Americans make in response to these trends will have a substantial impact on the long-term outlook for U.S. manufacturers.

The first of these reports is "Income and Poverty in the United States: 2016" from the Census Bureau. This is an annual report that comes out every September. According to the latest edition, household incomes enjoyed another year of solid growth in 2016. The median household income last year was $59,039. After adjusting for inflation, this was a gain of 3.5 percent from the median level in 2015.

The data shows that last year marked the fourth consecutive yearly increase in the median income level. However, the gains in both 2013 and 2014 can fairly be described as meager, so this is only the second consecutive year I can comfortably state that the growth rate is strong and the trend is encouraging. The data also shows that 2016 was the first year this century that the median household income level was higher than the peak hit in the year 2000 when the data is adjusted for inflation.

Think about that for a minute. We are in the ninth year of an economic recovery, the stock market is at an all-time high, and the unemployment rate is at a historic low point. But income levels for most U.S. households are just now climbing back to the level they were at in the year 2000. That was 16 years and two recessions ago.

Prior to 2000, the data had gone up pretty much every year without fail. Throughout most of the second half of the 20th century, Americans could reliably count on rising incomes every year. But until recently, just the opposite has been true for this century. I will argue that the diminution of the U.S. manufacturing sector during that time is a critical factor in this unsuitable trend.

The importance of a positive trend in this data cannot be overstated. Households are the foundation for the U.S. economy. (In fact, the word "economy" is derived from the ancient Greek word for "house.") If it seems that political unrest has increased in the past few years or if it seems that people are not consuming products and services with the same alacrity as they did when you were young, this is likely the reason why.

Households are also the place where many plastics products are consumed. So if I start to sound more than just a little enthused about the fact that a robust trend in this data is finally starting to re-emerge, you will understand why. A strong rebound in this trend over the past couple of years gives me even greater confidence in my forecast for a gradual rise in the growth rate for demand for plastics products in 2018.

This report highlights a couple of other trends that bear mentioning here. The first is that the nation's official poverty rate declined for the second consecutive year in 2016. The poverty rate dipped 0.8 of a percentage point to 12.7 percent, the same level as in 2007, which was the year just before the last recession. So while we can take some relief in the fact that 2.5 million people were lifted above the poverty line last year, the fact that there are still 40.6 million Americans living in poverty means that there is still a lot of work to do.

The report also proves the adage that a rising tide lifts all boats. The median for households at all levels of income enjoyed a solid increase in 2016 when compared with the prior year. Unfortunately, this does little to resolve the issue with income disparity in this country that has emerged in the past few years. And the problem from a policymaker's perspective is that a gain of 5 percent for a household making $30,000 per year is not the same as a rise of 5 percent for a household that is making $300,000 per year.

Your response to this issue depends on how you frame the question, and this is the crux of ongoing debate in Washington about corporate tax reform. Should we try to raise all boats as high as we can or should we focus our efforts on raising the smaller boats more than the larger boats?

My personal opinion is that the first of these options is the only one that is actually possible and this is a good segue to the second report to which I want to draw your attention.

The Business Roundtable recently analyzed the importance of corporate tax reform in the U.S. Regardless of your political leanings, their conclusions are a must-read. You can access their report at www.businessroundtable.org/tax-report. I do not have the space to comment on all of the debate-worthy information in this document, but there are a couple of highlights that should whet your appetite for more.

The report concludes that American companies are significantly disadvantaged by U.S. international tax rules. According to their analysis, if the U.S. statutory corporate income tax rate had been 20 percent instead of 35 percent during the years from 2004-2016, then there would have been a net shift of $1.7 trillion in assets from foreign countries to the United States, and the U.S. would have kept, on net, 4,700 companies.

Those statistics alone may be enough to raise the eyebrows of even the staunchest Democrats, yet until now their refrain has always been the same: "We will not give tax breaks to the wealthy." But as it turns out, their efforts to help the little guy may be misguided.

The BRT report also finds that wage earners bear as much as 75 percent of the corporate tax burden. That is because corporate taxes are passed on to workers in the form of lower wages. So a lower corporate tax rate may sound like a tax break for the owners of the company, but the biggest beneficiaries may actually turn out to be the employees. Or to put it another way, you cannot love the employee by hating the employer.