State of US Household Wealth...

[eytonxav]

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Originally Posted by samclem People aren't any greedier today than in the past. What we're seeing is the market at work. In the 50s and 60s labor was in short supply in the US as our industry expanded after the war to feed worldwide demand. Businesses didn't pay workers a lot because they were kind or benevolent, they paid them a lot because they had to in order to get solid workers in a tight market. Today our workers are competing against workers from around the world who get paid very little per hour. Our workers, even those with minimal skills, still get paid a lot compared to the rest of the world, but this will go down unless we re-cultivate some important relative advantages (lower tax rates, better "treatment" of capital, education that equips people to think critically and function in the work force, etc). Regarding the rise of CEO pay, we've got structural problems that serve to distance those who own public companies (stockholders) from those who run them (CEOs), and this is part of the reason for higher CEO pay. Lower worker pay and higher CEO pay are due to entirely separate dynamics, and to pile them together and determine they are related and evidence of a change in human motivations (greed) is probably not accurate.

Its hard to argue with the forces of the marketplace, but to some extent, corporate leadership (and our politicians) in this country have to take some responsiblity for the outsourcing bandwagon it jumped on back in the 90s vs not cultivating back then those important relative advantages that you noted or other strategies that could have improved or at least preserved U.S. prosperity. Its similar to our dependence on foreign oil, a lot noise is made, but things never change as we put off the hard decisions for a later time and generation to resolve.

Now we are in a land of diminished opportunities, political gridlock and dependency on an entitlement based system and must reinvent ourselves. While I try to be optimistic that we can turn all this around, it sure appears like we have cooked up a recipe for disaster for the younger generation. Of course greed did not play a role in any of this.

[Hamlet]

All of the taxes I mentioned are regressive. As a group, the poor tend to pay a larger percentage of their income on them than the wealthy do. The progressive nature of the income tax is the only thing making the system even remotely fair.

FICA is neglible to someone making a million/year, because 90% of their income is exempt from it.

It is a huge drain on the production of the working poor, however.

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Originally Posted by engprodigy Considering all of the taxes you just mentioned are paid by the top 50% as well (in larger quantities) I would be surprised how significant the tax contributions are from those paying 0 income tax...

[Hamlet]

The deduction game generally doesn't get most people to zero, but for alot of people it gets them down below what your daughter pays.

Your daughter with nothing to itemize ends up subsidizing a lot of the deductions.

My wife and I put 33k into our 401ks. We paid 7.5k or so in deductible mortage interest, got a 1.5k credit (the equivalent of about a $5k deduction) for replacing our furnance. We deducted 2.5k for property taxes and about 7k in state income taxes. We gave about 3k away to charity. We get the personal exemption that everyone gets of about 7k. We also got the $800 making work pay credit, which is the equivalent of about a 2.5k deduction

So roughly $67k of our income is exempted from Federal income taxes, and we haven't even worked at it. We also don't have any of the deductions for children yet.

Our Federal taxes end up being less than 10% of our gross income.

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Originally Posted by sheehs1 Well......I can't slice and dice every little word. I think most knew what I meant within the context of what I was writing. Yes...I meant "INCOME TAX". That's the only tax where some pay and others do not...that I can think of ...off the top of my head. I don't know many that can play the deduction game you mention that make $80,000 and pay zero income tax. Even my daughter ...working full time this year and showing about $43,000 in income paid $7,300 in taxes (no itemization). With W2's and 1099's you can not hide your income. Meaning ..it's fairly straight forward.

[Free To Canoe]

What I thought noteworthy was the Wealth - Racial ratios in Table 5. It pretty much shows no significant trend in the black to white ratio. I expected to see some black improvement since 1983 due to across the board barrier reductions. Perhap the above average gains for the top 1% (mostly white) cancelled out gains in the lower percentages?

[engprodigy]

7% vs 40+% that the "wealthy" pay...

I still don't see the comparison or how the middle class is getting squeezed, mistreated, etc.

Everyone should be paying some taxes, otherwise how could they possibly be an informed voter, they have no idea what their decisions cost the people of the country.

Giving certain groups a free pass on taxes is part of the problem with the entitlement mentality and perception of some in this country.

Luckily taxes are a PERCENTAGE so everyone SHOULD be able to pay their share...

[MasterBlaster]

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Originally Posted by engprodigy I still don't see the comparison or how the middle class is getting squeezed, mistreated, etc.

The middle class is being squeezed by housing, medical, and higher education costs, and increasingly... debt service. The ticket to "the good life" just keeps costing more.

For the middle class the total tax bite including federal and state taxes, property taxes, FICA taxes, sales and other taxes have never been higher. It is not comparable to very high income individuals but still significant considering what else need be funded.

[engprodigy]

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Originally Posted by MasterBlaster The middle class is being squeezed by housing, medical, and higher education costs, and increasingly... debt service. The ticket to "the good life" just keeps costing more.

Well then perhaps what they have defined as the good life needs to be redefined.

Perhaps you can't have a mcmansion, private schools, the latest gadgets, new cars, etc on a 60-100k salary...

Where is it written what level of comfort the "middle" class is entitled too, I guess I'm unaware of what people are entitled too....

In my mind you aren't entitled to anything...you do your best, work hard and live a lifestyle based on your income.

Since when are all these things guaranteed that it is so hard for middle class people to afford now?

I'm positive all middle class families can afford the necessities, it is the absurd idea of what the "necessities" are that has some people confused.

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For the middle class the total tax bite including federal and state taxes, property taxes, FICA taxes, sales and other taxes have never been higher. It is not comparable to very high income individuals but still significant considering what else need be funded.

I doubt that.

Considering that income taxes are very low now compared to historically...

And property tax and sales tax can be controlled... again perhaps the mcmansion isn't right for a 70k salary.

The middle 20% make 13% of income and pay 9% of taxes...

[Mulligan]

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Originally Posted by engprodigy All the "poor middle class stuff" in the media of late is pretty ridiculous if you actually look at the numbers: The middle 20% average 60k in income. As a group they receive 13% of all income and pay 9% of all taxes. It truly is an absurd practice to compare the top 1% to the middle 20%, or the middle 50%, or even the top 25%... Why would you compare outliers to those within 1 std deviation? I really want to know how the middle class is getting squeezed...

Now I'm not a blame it on the rich or the middle class is getting abused type person, but average taxpayer income adjusted for inflation is $33,000 unchanged from 1988. We do know government reported inflation and real life inflation are a little different. As previous poster said, educational, housing, medical costs have went up higher than that reported rate for years. Throw in the "new" middle class bills that weren't around in the 80's such as Internet, computers, and cell phones the squeeze is there on the monthly budget.

[samclem]

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Originally Posted by Mulligan As previous poster said, educational, housing, medical costs have went up higher than that reported rate for years.

An interesting point. What's likely causing the excess inflation in these areas you cite?
Higher education: More than $100 billion in federal (or federally backed) student loans each year. That's ten times the amount of private loans. Pumping in government money drives up the price of products and services.
Housing: Fannie and Freddie: Need we say more? Pumping in government money drives up the price of products and services.
Medical costs: 45% of all spending on health care comes from the government. Pumping in government money drives up the price of products and services.

So, maybe we can reduce some of the major causes of inflation by the same method we will reduce the tax "bite"--by reducing government expenditures.

[engprodigy]

Absolutely samclem.

You would be hard pressed to find an example of a government interfering and making things better.

A comparison of the middle 20% from 50 years ago to now would probably open some eyes. There is a very weird perception (mostly being contrived by those with an agenda) that the middle class is getting boned today when in reality the comfort level is probably much higher...

There are plenty of people with an agenda that would love nothing more than to somehow convince as many people as possible that they "deserve" more and that the rich are taking it away from them.

I really am curious I guess...

If you are someone that believes the wealth inequality is getting out of hand, what SHOULD the distribution be?

[sheehs1]

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Originally Posted by engprodigy Absolutely samclem. A comparison of the middle 20% from 50 years ago to now would probably open some eyes. There is a very weird perception (mostly being contrived by those with an agenda) that the middle class is getting boned today when in reality the comfort level is probably much higher... There are plenty of people with an agenda that would love nothing more than to somehow convince as many people as possible that they "deserve" more and that the rich are taking it away from them. I really am curious I guess... If you are someone that believes the wealth inequality is getting out of hand, what SHOULD the distribution be?

Interesting points...and when one thinks about it...a lot of truth in this. The ways in which someone described the middle class is getting squeezed....are costs being born by all. The middle class is not unique with that. Some just have more than others. Always has been, always will be.

[Mulligan]

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Originally Posted by engprodigy Absolutely samclem. You would be hard pressed to find an example of a government interfering and making things better. A comparison of the middle 20% from 50 years ago to now would probably open some eyes. There is a very weird perception (mostly being contrived by those with an agenda) that the middle class is getting boned today when in reality the comfort level is probably much higher... There are plenty of people with an agenda that would love nothing more than to somehow convince as many people as possible that they "deserve" more and that the rich are taking it away from them. I really am curious I guess... If you are someone that believes the wealth inequality is getting out of hand, what SHOULD the distribution be?

I read an interesting statistic, that in 1980 a high school graduate earned 71% of a college graduate, today it's 55%. If people aspire to stay in the middle class, they are going to have to have a higher level of learning. The factory model from generations past will more than likely not keep you in the middle class level.

[sheehs1]

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Originally Posted by Hamlet The deduction game generally doesn't get most people to zero, but for alot of people it gets them down below what your daughter pays. Your daughter with nothing to itemize ends up subsidizing a lot of the deductions. My wife and I put 33k into our 401ks. We paid 7.5k or so in deductible mortage interest, got a 1.5k credit (the equivalent of about a $5k deduction) for replacing our furnance. We deducted 2.5k for property taxes and about 7k in state income taxes. We gave about 3k away to charity. We get the personal exemption that everyone gets of about 7k. We also got the $800 making work pay credit, which is the equivalent of about a 2.5k deduction So roughly $67k of our income is exempted from Federal income taxes, and we haven't even worked at it. We also don't have any of the deductions for children yet. Our Federal taxes end up being less than 10% of our gross income.

Not everyone is able to get their tax percentage to 10%. Wow ..that's quite an achievement. I don't think I have ever seen 10%. Everything I do is either phased out, or capped or coming to an end (like a mortgage deduction) so my rate is close to 2.5 to 3 times what yours is. My deductions were half of yours. But...that is what happens when you pay off your mortgage...or no longer have access to a 401K (although I do a Simple but it is capped). So please know I supported your deductions !! LOL !!

I mis-stated my daughters income...it was closer to $48,000. Will be significantly higher next year with a full years worth of teaching salary in there (she has other income). And she will be able to itemize.since she bought a condo this year.....so...maybe she can get to 10%... but I doubt it.

Great example of making generalized comments about taxation, rates, income levels,,,etc....meaning we can't really generalize. It depends on what ones personal circumstances are and which deductions are available for them to take...with the current system.
If we went to a flat tax system of 10 to 15%...I'd be paying 50% plus less tax. Maybe that's why Congress doesn't pursue this with any seriousness.

[ERD50]

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Originally Posted by sheehs1 Not everyone is able to get their tax percentage to 10%. Wow ..that's quite an achievement. I don't think I have ever seen 10%. .

Are you talking marginal rate or overall rate (total FIT/AGI or / Gross income)?

My FIT/AGI was running ~ 10-15% in the last few years of work (higher if I had cap gains, but still ~ 20% even when I had huge CG that put in the 'rich' category). Now, with small income from DW, ~ 4%, sometimes near zero with kids deductions.

-ERD50

[Hamlet]

Your daughter's taxes seem high, even with just the standard deduction and the Making Work Pay tax credit.

Did she file as a dependant or something?

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Originally Posted by sheehs1 Not everyone is able to get their tax percentage to 10%. Wow ..that's quite an achievement. I don't think I have ever seen 10%. Everything I do is either phased out, or capped or coming to an end (like a mortgage deduction) so my rate is close to 2.5 to 3 times what yours is. My deductions were half of yours. But...that is what happens when you pay off your mortgage...or no longer have access to a 401K (although I do a Simple but it is capped). So please know I supported your deductions !! LOL !! I mis-stated my daughters income...it was closer to $48,000. Will be significantly higher next year with a full years worth of teaching salary in there (she has other income). And she will be able to itemize.since she bought a condo this year.....so...maybe she can get to 10%... but I doubt it. Great example of making generalized comments about taxation, rates, income levels,,,etc....meaning we can't really generalize. It depends on what ones personal circumstances are and which deductions are available for them to take...with the current system. If we went to a flat tax system of 10 to 15%...I'd be paying 50% plus less tax. Maybe that's why Congress doesn't pursue this with any seriousness.

[Independent]

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Originally Posted by samclem An interesting point. What's likely causing the excess inflation in these areas you cite? Higher education: More than $100 billion in federal (or federally backed) student loans each year. That's ten times the amount of private loans. Pumping in government money drives up the price of products and services. Housing: Fannie and Freddie: Need we say more? Pumping in government money drives up the price of products and services. Medical costs: 45% of all spending on health care comes from the government. Pumping in government money drives up the price of products and services. So, maybe we can reduce some of the major causes of inflation by the same method we will reduce the tax "bite"--by reducing government expenditures.

Correct. Don't forget to add:

Housing: The mortgage interest deduction, which probably does more to increase the amount spent on housing than F&F ever did.
Medical: The group medical insurance deduction, which probably ....
Education: Tuition deductions, not as big as loans, but same idea.

Deductions like this create the same economic distortions as direct spending programs.

[Independent]

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Originally Posted by sheehs1 Even my daughter ...working full time this year and showing about $43,000 in income paid $7,300 in taxes (no itemization). With W2's and 1099's you can not hide your income. Meaning ..it's fairly straight forward.

The standard deduction for a single person was $5,700 in 2010. One personal exemption was $3,650. That leaves $33,650 in taxable income.
The tables in the 1040 instructions give a tax of $4,625 or $4,633.

If you want to check the math:
The first $8,375 is taxed at 10%, for a tax of $837.50.
The remaining $25,275 is taxed at 15%, for a tax of $3,791.
That gives a total FIT of $4,629.

[sheehs1]

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Originally Posted by ERD50 Are you talking marginal rate or overall rate (total FIT/AGI or / Gross income)? My FIT/AGI was running ~ 10-15% in the last few years of work (higher if I had cap gains, but still ~ 20% even when I had huge CG that put in the 'rich' category). Now, with small income from DW, ~ 4%, sometimes near zero with kids deductions. -ERD50

My marginal rate was 28%. My effective rate was 24%. My daughters marginal rate was 25% and her effective rate was 18.5%.

My husband is a CPA...and I have scoured for every deduction we might be able to take. So this is the best we can do...considering we are phased out of a lot of deductions, have less than $1,200 in mortgage deduction and our kids are all over 21.
It's a little more complicated than that. He owns his own little CPA firm...so all of his deductions are taken on the side of the corporation. His SEP, his corporate mortgage, his health care......etc.

[sheehs1]

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Originally Posted by Hamlet Your daughter's taxes seem high, even with just the standard deduction and the Making Work Pay tax credit. Did she file as a dependant or something?

This gets a little complicated. But to answer your question, my daughter did not claim herself.
Because...technically...my husband and I were separated until August of last year....and so I filed "head of household" for 2010...since I was still footing her bill...for over 50% of her expenses while she was still in college for 2010.

This meant she could not claim herself so she couldn't take the "making work tax credit". But it helped me on the other side.

Stuff happens.

[sheehs1]

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Originally Posted by Independent The standard deduction for a single person was $5,700 in 2010. One personal exemption was $3,650. That leaves $33,650 in taxable income. The tables in the 1040 instructions give a tax of $4,625 or $4,633. If you want to check the math: The first $8,375 is taxed at 10%, for a tax of $837.50. The remaining $25,275 is taxed at 15%, for a tax of $3,791. That gives a total FIT of $4,629.

Because of head of household filing...some of my daughters income was taxed at my rate (form 8615). This is probably why it sounds high to everyone.

But between the two of us...we came out better...with filing this way.

Next year will be simpler...