Defining Rich in America

[daylatedollarshort]

So...I do think that the "millionaire" next door is a pretty common occurrence. This isn't to say that everyone in a McMansion isn't "well off", but if I was able to pull up actual net worths, I would bet our old contemporary neighborhood would give the McMansion folks a good run for their money.

More on this from one of TMND author's blogs:

"There are nearly three times more millionaire households (1,138,070 versus 403,211) living in homes valued at $300,000 or less than there are millionaires living in homes valued at $1 million or more. The data strongly indicate that this ratio of "wealth-building productivity" is inversely related to the market value of one's own home as well as those of one's neighbors. Once the market value begins to move up beyond the $500,000 level, wealth-building productivity moves into the unproductive range (i.e., less than 1.00)."

Avoiding The Money Pit

 

[Jay_Gatsby]

Because Person A, being dead, is incapable of being taxed? The taxes apply to Person A's heirs, who are asked to pay their share of their unearned gains?

If one wants to help relatives while being fully aware of their heartfelt appreciation, one can give yearly non-taxable gifts. That way, one can also check to see if the relatives are just blowing the gifts on fast things, in time to change one's will and leave everything to a charity that pays no tax!

Amethyst

Actually, I disagree with this and agree with Walt34 - it is unfair. Person A may have sacrificed his/her life to earn a tremendous amount of money so that his/her heirs wouldn't have to do so. Inherited/family wealth is how many of the world's greatest scientists, artists, writers, poets, philosophers, etc... were able to fully develop their gifts and thus advance society as a whole. To be confiscatory in order to redistribute wealth through Government spending is simply a way to perpetuate the existence of Government itself.

That said, the growth of an economy comes down to spending, whether by the Government or someone like Person B blows the money on frivolous purchases. Absent spending (and where there is prodigious saving), money doesn't flow easily and you have an economy like Japan's was until recently.

 

[rodi]

And on that note, I see this reflected in the cars too. Almost all of the McMansions have $60K+ cars in the drives whereas we have lots of older Hondas (especially the 2000-2005 Accords!), Toyotas and a couple of Towncars (that are 10 years old). I feel out of place in my 5 year old Infiniti!

This fits my neighborhood too. It's a neighborhood built in the early 60's... many of my neighbors are original owners, and many others are 2nd gen (taking advantage of CA prop 13). (I'm a 2nd gen-er... bought from my dad.)

The cars aren't fancy - lots of camry's accords, some minivans...

In an area close to us - lots of mcMansions with big loans and fancy cars in front of them. I suspect if you compared networth, my neighborhood would come up better, despite the smaller houses and more ordinary cars.

 

[engprodigy]

Here's a simple example:

You have $100,000 invested in a stock. It pays no dividends and it increases in value at 5% a year so it doubles in value in 14.4 years. Lets also assume a steady 5% inflation rate over those 14.4 years.

After 14.4 years, you then sell your stock. It's worth $200,000 giving you a $100,000 long term capital gain. You pay a 15% federal tax on this gain - $15,000 in federal taxes.

The trouble is that this investment exactly held steady with inflation. Your $200,000 has the same buying power as the original $100,000. EXCEPT you have to pay $15,000 in taxes so you are actually behind by $15,000.

That's a really good point.

 

[Bestwifeever]

....
ANYWAY...my DW (who is a Realtor)was pulling up deeds a few days ago and absolutely stunned at the difference in mortgages in the area. Almost all of the McMansions bought over the last 5 years were financed for at least 80% the value of the home (many with HELOCs added on 6 months later), whereas in our old neighborhood, the number of homes with mortgages was less than 40%.

....

I think many if not most non-mcmansions buyers also carry mortgages like that in the first five years or less of ownership? I know we did, and our kids do. And the low mortgage rates today made this decision and getting a HELOC a no-brainer for a lot of smart people.

We are not those people, having neither a mortgage nor a HELOC for several years now. And we don't live in a mcmansion although I have been inside several.

 

[Walt34]

Because Person A, being dead, is incapable of being taxed? The taxes apply to Person A's heirs, who are asked to pay their share of their unearned gains?

I wasn't clear and should have said that I was assuming the gains had already been taxed. In fact it was taxed twice, once when earned (income tax) and again when the saver didn't spend it but was paid interest or dividends when he made that money available for use by other people.

That always made me go "grrrrr" too because in effect the saver is penalized for not engaging in consumption that he feels is not necessary or is not wanted.

 

[nash031]

I'd consider dividends and capital gains as just regular income that would be taxed at your marginal income tax rate.

While this would affect a lot of folks on here including me, I agree in principle.

 

[Blue65]

What is so interesting about this thread is the many paths others take to reach that comfort level and balance between income needs and what it takes to get there. It makes me appreciate the income I have and if I can stay healthy, I can work another 12 years to maximize my SS. Some folks never get that chance because of their health, bad economy, corporate bs, or the creative destruction of the business they work in.

I agree with one of the posters about pensions and wealth. I live in a state that is very very good to their public sector employees, but frankly, the money has to come from somewhere, and it's not the sky.


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[dallas27]

While this would affect a lot of folks on here including me, I agree in principle.

[ quote is referring to taxing passive income]

The interesting thing is it would presumably lower the overall income tax rates as that burden becomes more shared. Well, maybe that's wishful thinking, probably our leaders would just spend (borrow) more.







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[eta2020]

And on that note, I see this reflected in the cars too. Almost all of the McMansions have $60K+ cars in the drives whereas we have lots of older Hondas (especially the 2000-2005 Accords!), Toyotas and a couple of Towncars (that are 10 years old). I feel out of place in my 5 year old Infiniti!

Usually those McMansions with 60k cars are NOT owned by people who have high net worth. They are owned by high earners though.

 

[Totoro]

That said, the growth of an economy comes down to spending, whether by the Government or someone like Person B blows the money on frivolous purchases. Absent spending (and where there is prodigious saving), money doesn't flow easily and you have an economy like Japan's was until recently.

Probably not the place to voice my stance on this, but the growth of an economy in the long run most certainly does *not* come down to spending.

It comes from the ability to create and do more with less, i.e. efficiency. Specifically, more possible output in goods and services with less energy in human-hours involved.

The increased consumption is an effect of that, not the driver.

Frivolous purchases waste resources and actually reduces potential growth. You need purchases that further increase efficiency and output per unit of energy / human effort. In other words: investments with a good return on capital.

Small counter-example to Japan: Belgium has one of the highest savings rates in the world, they are doing fine. China also saves a bundle.

 

[dallas27]

Probably not the place to voice my stance on this, but the growth of an economy in the long run most certainly does *not* come down to spending.

It comes from the ability to create and do more with less, i.e. efficiency. Specifically, more possible output in goods and services with less energy in human-hours involved.

The increased consumption is an effect of that, not the driver.

Frivolous purchases waste resources and actually reduces potential growth. You need purchases that further increase efficiency and output per unit of energy / human effort. In other words: investments with a good return on capital.

Small counter-example to Japan: Belgium has one of the highest savings rates in the world, they are doing fine. China also saves a bundle.

+1 to someone who understands "wealth of nations" (adam smith)


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[Gumby]

Frivolous purchases waste resources and actually reduces potential growth. You need purchases that further increase efficiency and output per unit of energy / human effort. In other words: investments with a good return on capital.

Precisely why enormous military spending, supported by politicians of every stripe for the jobs it supposedly creates in their districts, actually harms rather than helps the economy. There is no economic return on the capital invested in a tank or a submarine (although at least some tanks and submarines admittedly are required for other reasons).

 

[Hamlet]

The problem with this view is that we've been running below our economic capacity since the economic crisis, and that may continue for quite a while. Our economy is currently facing a shortage of demand.

In our current situation, productivity gains actually work against us, as it just generates lay-offs, which ends up reducing demand further as those laid-off workers cut back spending.

Productivity gains are good when the economy can find something useful for those freed up workers to do, but in the current situation they actually makes the economy worse.

Its slowly getting back to "normal", but until we are at full employment, those productivity gains aren't really gaining us anything.

Probably not the place to voice my stance on this, but the growth of an economy in the long run most certainly does *not* come down to spending.

It comes from the ability to create and do more with less, i.e. efficiency. Specifically, more possible output in goods and services with less energy in human-hours involved.

The increased consumption is an effect of that, not the driver.

Frivolous purchases waste resources and actually reduces potential growth. You need purchases that further increase efficiency and output per unit of energy / human effort. In other words: investments with a good return on capital.

Small counter-example to Japan: Belgium has one of the highest savings rates in the world, they are doing fine. China also saves a bundle.

 

[travelover]

........ There is no economic return on the capital invested in a tank ...........

Sure there is . They can be handed down to local police departments to save them from having to buy them from their own budgets. This can be a big deal in a town of a hundred people.

 

[imoldernu]

Rich in America... Didn't make the cut.

 

[Milton]

That’s why it’s better to think about the question of who’s rich in terms of accumulated wealth instead of annual income (which in turn is a good argument for a wealth tax).

Thanks candrew for the excerpts, which saved me from wasting time reading the linked article. I can stop reading right there … no such thing as "a good argument for a wealth tax".

 

[Turboslacker]

Usually those McMansions with 60k cars are NOT owned by people who have high net worth. They are owned by high earners though.

And to build on your point...those folks are simply temporary "users" of that stuff. Financial entities actually "own" it.
Well over 50% of high end vehicles are leased rather than purchased.


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[Walt34]

There is no economic return on the capital invested in a tank or a submarine (although at least some tanks and submarines admittedly are required for other reasons).

I think that is straight out of The Art Of War. Force the enemy to spend outlandish sums on his military and thereby bankrupt him or at least reduce his resources.

 

[unno2002]

[FONT=&quot]Personal Opinion:[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]If you do not have personal assets & income along the lines of the British royalty, you are not rich.[/FONT]

 

[haha]

We tend to worship the millionaire next door on this forum. But there are people out there for whom a 3,000 sqft colonial and a BMW are still well below what they could afford. Sometimes people look rich because... they are rich, richer than most us millionaires next door ever will be!

LOL. that is the secret envy of this board. My Dad used to give me this line, but mostly he was wrong, just like mostly one would be wrong to assume that most of the people who park their Ferraris, Aston Martins and 911s in the Microsoft or Google garages are actually broke. Most of them are actually filthy rich!

Ha

 

[LARS]

Precisely why enormous military spending, supported by politicians of every stripe for the jobs it supposedly creates in their districts, actually harms rather than helps the economy. There is no economic return on the capital invested in a tank or a submarine (although at least some tanks and submarines admittedly are required for other reasons).

Actually in the case of the US, it is in no small part all the money spent on tanks, submarines and missiles, etc. that has made the US the dominant military force of the 20th (and so far 21st) century, which in turn as allowed the US to have the tremendous economic benefit of having its currency (the $) as the world's reserve currency.

 

[Gumby]

Actually in the case of the US, it is in no small part all the money spent on tanks, submarines and missiles, etc. that has made the US the dominant military force of the 20th (and so far 21st) century, which in turn as allowed the US to have the tremendous economic benefit of having its currency (the $) as the world's reserve currency.

Is it military might that makes the USD the world reserve currency? It is an interesting theory and there are substantial benefits that arise from that status. I honestly don't know the answer.

 

[LARS]

Is it military might that makes the USD the world reserve currency? It is an interesting theory and there are substantial benefits that arise from that status. I honestly don't know the answer.

Yes, generally thru history the privilege of reserve currency status has fallen to the world's military 'enforcer'. Prior to the US, Great Britain (of Britannia rules the waves era) played the role similar to modern US.

 

[Spanky]

most of the people who park their Ferraris, Aston Martins and 911s in the Microsoft or Google garages are actually broke. Most of them are actually filthy rich!

In reality, the original Google garage does not have any cars in it!