Prior to her presidential bid, Sen. Elizabeth Warren authored the book “The Two-Income Trap” with her daughter, Amelia Warren Tyagi. Warren’s book highlights the startling reality of how two incomes for a family may seem like a ticket to the middle class, but actually be a ticket to bankruptcy.
Believe it or not, Warren’s book also makes an inadvertent case against raising taxes. In chapter two of her book, Warren highlights two families: Tom and Susan, a single-income family from the early 1970s and Justin and Kimberly, a dual-income family from the early 2000s.
After adjusting for inflation, Warren takes the salary minus expenses of Tom and Susan and Justin and Kimberly. She is able to prove that even though Justin and Kimberly make more money with two incomes, the dual-income family actually has less discretionary spending money than the single-income family.
Tom works full-time, earning $38,700, the median income for a fully employed man in 1973, while Susan stays at home to care for the house and children. Tom and Susan have the typical two children, one in grade school and a three-year-old who stays home with Susan. The family buys health insurance through Tom’s job, to which they contribute $1,030 a year … They own an average home in an average family neighborhood — costing them $5,310 a year in mortgage payments. Shopping is within walking distance, so the family owns just one car, on which it spends $5,140 a year for car payments, maintenance, gas, and repairs. And, like all good citizens, they pay their taxes, which claim about 24 percent of Tom’s income.
After the fixed costs of living, Tom and Susan are left with $17,834 in spending money. Meanwhile, there’s Justin and Kimberly who have two incomes, but somehow are left with less.
Justin is an average earner, bringing home $39,000 in 2000 … Thanks to Kimberly’s full-time salary, the family’s combined incomes is $67,800 — a whopping 75 percent higher than the household income for Tom and Susan.
Like Tom and Susan, Justin and Kimberly bought an average home, but today that three-bedroom-two-bath ranch costs a lot more. Their annual mortgage payments are nearly $9,000. The older child still goes to the public elementary school, but after school and during summer vacations he goes to day care, at an average yearly cost of $4,350. The younger child attends a full-time preschool/day care program, which costs the family $5,320 a year. With Kimberly at work, the second car is a must, so the family spends more than $8,000 a year on its two vehicles. Health insurance is another must, and even with Justin’s employer picking up a big share of the cost, insurances takes $1,650 from the couple’s paychecks.
But, here’s the real kicker for Justin and Kimberly’s smaller discretionary income:
Taxes also take their toll. Thanks in part to Kimberly’s extra income, the family has been bumped into a higher bracket, and the government takes 33 percent of the family’s money. So where does that leave Justin and Kimberly after these basic expenses are deducted? With $17,045 — about $800 less than Tom and Susan, who were getting by on just one income.
Now, let’s see what the discretionary income would be for these two families if they paid no taxes.
According to Warren, Tom and Susan pay approximately $9,300 in taxes, while Justin and Kimberly pay a whopping $22,400 in taxes. If Tom and Susan paid absolutely no taxes, their discretionary income would be approximately $27,000. If Justin and Kimberly paid absolutely no taxes, their discretionary income would be around $39,400.
The argument Warren makes throughout her book is that families who are trying to work and provide their kids the best life they can do not have enough money for savings and emergencies. Therefore, if Justin were to lose his job, the family would not have an adequate savings account and is more likely to have to file for bankruptcy.
However, if the U.S. tax system did not take so much in income tax (not to mention all the money government soaks up through regulation and other kinds of taxes), Justin and Kimberly would have more money for savings and emergencies. The solution to the “Two-Income Trap” seems simple: to help parents save money, allow them to keep more of their own money.
“They have little money left to build their own safety nets, and government policies tax most of their efforts to provide for themselves,” Warren writes with her daughter on page 70.
How did we get from a Warren who inadvertently highlights how big government ruins the nuclear family to the 2020 Warren who wants to raise taxes to create Medicare for All programs, bail out student debt, and push an even more progressive tax system — a burden so high it must inevitably fall on the working class she writes about?
Breaking down Warren’s previous writings may actually give us insight into a larger truth behind the Warren 2020 strategy: garner votes from Bernie Sander’s bloc. In the current 2020 polls, if Sanders were to drop out, Warren could overtake Joe Biden in the polls and lead for the Democratic nomination.
Warren has an entire book that highlights her devotion to the middle class and even makes a case for lowering tax rates, which she could point to if she wants to move more centrist in the general election. While Time magazine calls Warren’s book “a startling account of the elusiveness of the American Dream,” I believe this book is a startling account of how little Democrats understand how the big government policies they promote actually make happiness harder for Americans to achieve.