The New Rich

[samclem]

Quote:

Originally Posted by Midpack Or better yet, how did unequal wealth actually play out when income inequality was arguably even more distorted than now? The Main Causes of the Great Depression

Exactly--and even more telling was the aftermath of that worldwide economic depression. In Europe there was popular unrest that resulted in the rise of totalitarian regimes of both leftist and rightist stripes. There was a rising tide of similar unrest in the USA, but FDR's "New Deal" and similar efforts (as much as I think they did permanent damage to the US) did a lot to keep this popular discontent contained within the present political system rather than being expressed as violence and possibly revolution, or at least the election of even more collectivist politicians.

But, is moderate redistribution of wealth just a logical, reasonable accommodation that lets capitalism continue to exist in a democracy (where "the mob" is after all, free to use the government to take everything from the few)? Or, are these just blackmail payments that lead to further acts of extortion?

As it is, 47% of voters pay no federal income tax and have, therefore, no personal direct financial interest in reducing income taxes. To the degree that these and other people receive payments from the federal government, they may see a very real personal benefit from increasing government transfer payments and benefits. Once 51% of people are paying zero FIT, it's not clear to me how we will ever institute changes to the tax code to broaden it again. Who will vote to raise their own taxes when all the "rich" are still out there? And the rapid descent will begin. That's a genuine "tipping point." Watch for increases in the standard deduction, personal exemptions, other increases in itemized deductions, transfer payments/credits etc: These are what move people from one side of the ledger to the other. A flatter tax system with a broader base of taxed income has many very important advantages.

[dunkelblau]

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Originally Posted by Dwhit I guess I don't see why income equality is such a desirable goal. Shouldn't the goal be to find the system that produces the highest benefits for the most people? A village of hut dwellers in the jungle probably has very high income equality, but that does not make their village necessarily the best place to be. The west has typically tried to organize in the most competitive manner that could lead to the most scientific and economic advances. One could certainly question if this really provides the most happy life, but it does seem to provide the most prosperous. Income equality sounds like a measure to keep the mobs happy so others can continue their efforts to advance.

That's my view too, and if this article is true, the past couple of decades have seen a glorious achievement:
The world
I think the trouble with income equality as a goal is that it weights both ends of the scale equally when only one end matters (IMO).

[imoldernu]

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Originally Posted by Midpack No one is arguing for unbridled redistribution, but there are consequences for unbridled capitalism as well.

Yes...
I think the question being posed, is that, given the current direction of the economy, and the lessons of our history, what does the future look like for the nation? Will it survive, with a smaller part of the population looking forward to a comfortable retirement, while the rest will struggle?
Is there a solution? Can the current status continue during your own retirement?

I didn't read the initial article as proposing a redistribution of wealth from those who are comfortable to the poor... but rather a look at the current status, and how the economy is working today.

Not everyone who is looking forward to the future, is looking to take your/my money. Many are looking for solutions to improve the future for themselves and their children. And of course, there are many who don't see inequality as a problem in the first place, but then, that's what makes us individuals, and what makes life interesting.

[Andre1969]

One bad trend I noticed lately, is that some companies are finding ways to make the poor subsidize the poor.

Take the restaurant industry, for example. From 1988-1990, I worked at Denny's part time, while in college. I started off as a dishwasher, making $5.25 per hour at a time when minimum wage was $3.35. Fairly soon, I was given a raise to $6.00 per hour, and they also trained me to be a host. Eventually I became a waiter, and while I only got $2.14 per hour, I probably averaged about $10/hour in tips, which wasn't bad for ~25 years ago, in a restaurant that wasn't very pricey, and not in that great of a neighborhood.

Fast forward to today. One of my friends is a waiter. I think nowadays, waiter pay is $2.34/hour, plus tips. But, get this...the hosts in that restaurant also only make $2.34 per hour. To make up the difference, the wait staff has to tip out a certain percentage, and that brings up the host's pay to at least minimum wage or above. That tip-out also goes to the bartender.

So, essentially, a job that the company once paid about 79% higher than minimum wage for, now only costs them about 32% of minimum wage...and the remainder is made up by taking money from other sub-minimum wage employees.

Now, my friend does usually make more in tips than I did working at Denny's. On a good night, he's walked out with $170-200 for a 6-7 hour shift, even after tipping out. But, it's not consistent, and overall he probably averages about $15-16 per hour. Adjusting for inflation, that's less than I made working at Denny's ~25 years ago...and he's at a higher-end restaurant.

I'm sure there are other industries that find ways to do similar things, to keep their costs down, and at the same time, driving down the wages of the lower percentiles.

[Texas Proud]

Quote:

Originally Posted by imoldernu About the marginal tax rates... and the point that few paid them... Because they were so high, there was no incentive for top level execs to receive more pay... @ 90% tax a $1,000,000 salary would equate to $100,000 in the pocket. @67 % tax, a $300,000 salary would equate to $100,000. @ 33% tax a $150,000 salary would equate to $100,000. Sure... the numbers weren't quite like that, but you get the idea. The "extra money went to the government.

I do not know how long it went back, but when I started to do income taxes, the highest marginal tax rate for EARNED INCOME was 50%....

This means that extra $1 million was taxed $500,000....

[Midpack]

Quote:

Originally Posted by imoldernu Yes... I think the question being posed, is that, given the current direction of the economy, and the lessons of our history, what does the future look like for the nation? Will it survive, with a smaller part of the population looking forward to a comfortable retirement, while the rest will struggle? Is there a solution? Can the current status continue during your own retirement? I didn't read the initial article as proposing a redistribution of wealth from those who are comfortable to the poor... but rather a look at the current status, and how the economy is working today. Not everyone who is looking forward to the future, is looking to take your/my money. Many are looking for solutions to improve the future for themselves and their children. And of course, there are many who don't see inequality as a problem in the first place, but then, that's what makes us individuals, and what makes life interesting.

The questions you're asking here are the focus of the Druckenmiller link another member provided earlier in this thread. Hint: Druckenmillers title is Generational Theft. He makes a compelling case IMO, very inconvenient for seniors now and in the future.

Here's an even more direct/provocative view from "The Can Kicks Back." Fasten your seat belt...

http://d3n8a8pro7vhmx.cloudfront.net...pdf?1382297664

Ironic, again this was the topic I self censored last week...

[eytonxav]

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Originally Posted by Theduckguru You should give $25K a try, it likely would change your whole perspective.

No, it wouldn't. Rich on the income scale, at least from my perspective is above $250K. Its just a subjective opinion, but to me, that is upper middle class, but certainly better off financially than some earning $25K

[NW-Bound]

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Originally Posted by imoldernu My Way News - Rising riches: 1 in 5 in US reaches affluence Quote: Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at some point during their working lives. That puts them, if sometimes temporarily, in the top 2 percent of earners.

Yep, it's definitely temporary for us. Not being in highly-compensated jobs, it took us until our late 40s to get to that income level, even with well-paid professional jobs. And when we got there, what did we do? We retired early. Hah!

Not regretting it, as I have to enjoy the remaining time that I have on earth. You just never know how much time you have left. About money, I am not rich, but I do have enough.

[Danmar]

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Originally Posted by Meadbh I'm not sure if this is exactly the information you were looking for, Danmar, but here is the Wikipedia entry on the Gini Coefficient. List of countries by income equality - Wikipedia, the free encyclopedia Since the 1970s, Canada's Gini (after taxes and transfers) has risen from 0.304 to 0.324. The US Gini has risen from 0.316 to 0.378. This suggests that income inequality is rising, particularly in the US. When it comes to upward mobility, the data are mixed, but it appears that being the son of a father who is in the bottom 20% of all earners makes it more difficult to be upwardly socially mobile in the US than in Scandinavia. Prosperity & Upward Mobility by Country

Thanks, yes that was it. I wonder where it is objectively better to live if one is rich? Taxes lower in US but social issues might be worse than say Canada or Scandinavia. Actually, I think taxes are almost the same in Alberta vs the US. As someone who splits his time between Canada and the US I would have difficulty deciding.

[Danmar]

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Originally Posted by samclem Here's a problem: Quite apart from any humanitarian issues, when people "at the bottom" believe neither they nor their children have a chance of getting "to the top", then there is violence and disorder that no amount of police power can put down. And that type of thing usually isn't good for anybody (including those at "the bottom," but especially those "at the top"). I am >definitely< a believer in capitalism and the free market, but these economic systems can only survive if they continue to meet the needs of the society in which they are practiced. It is counterintuitive and a bit ironic, but a limited amount of redistribution (of opportunity, not just wealth) is among the means of assuring this happens. It's a small "tax" on "pure" capitalism that, in the real world, has proven necessary to allow these economic systems to exist. A hungry person is not a rational person, and a person with "nothing to lose" threatens the wealth and wellbeing of more. This has more to do with "economic mobility" than "income equality", but some of the issues overlap.

Brilliant. Much more articulate than I could be. Totally agree.

[Hamlet]

A couple of things--

That 47% number came during the aftermath of the financial crisis. It is lower now (43%) and if the economy stays okay it will drop further--

Now it's the 43 percent: Fewer paying no income tax

Another thing to consider is that it isn't a static group of people who aren't paying income tax. Most people have low incomes at the beginning of their careers and in retirement. A pretty big chunk of the people with no income tax liability are retirees that paid income taxes while they were working, but don't in retirement. They aren't neccessarily going to suddenly turn into re-distributionists because they now collect SS and get Medicare.

It also ignores FICA, which is now about 40% of Federal revenues, and is a regressive tax. Even if a low-income worker isn't paying FIT, they are paying FICA, and they see that bite come out of their check every week. I doubt that they are thinking that the Federal goverment is free to them because the taxes that they pay are called FICA instead of FIT.

FYI, I'm not opposed to broadening the tax base. I would like additional revenues (if needed) to come from reducing loopholes and deductions, which would likely have the effect of broadening the base somewhat, depending on the specific loophole/deduction involved.

I just think it is worth clarifying that the tax base is already much broader than 53%.

Quote:

Originally Posted by samclem As it is, 47% of voters pay no federal income tax and have, therefore, no personal direct financial interest in reducing income taxes. To the degree that these and other people receive payments from the federal government, they may see a very real personal benefit from increasing government transfer payments and benefits. Once 51% of people are paying zero FIT, it's not clear to me how we will ever institute changes to the tax code to broaden it again. Who will vote to raise their own taxes when all the "rich" are still out there? And the rapid descent will begin. That's a genuine "tipping point." Watch for increases in the standard deduction, personal exemptions, other increases in itemized deductions, transfer payments/credits etc: These are what move people from one side of the ledger to the other. A flatter tax system with a broader base of taxed income has many very important advantages.

[ChiliPepr]

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Originally Posted by Hamlet It also ignores FICA, which is now about 40% of Federal revenues, and is a regressive tax. Even if a low-income worker isn't paying FIT, they are paying FICA, and they see that bite come out of their check every week. I doubt that they are thinking that the Federal goverment is free to them because the taxes that they pay are called FICA instead of FIT.

While that is true, it does not make it correct. If someone went to the market and got all their food for free, but also put beer in the cart and got a bill at the register. Saying that they had to pay for their food because they got a bill (for just the beer) does not make it correct.

ok, it was a bad analogy, but you know what I mean...

Quote:

Originally Posted by Hamlet FYI, I'm not opposed to broadening the tax base. I would like additional revenues (if needed) to come from reducing loopholes and deductions, which would likely have the effect of broadening the base somewhat, depending on the specific loophole/deduction involved.

People always talk about loopholes/deductions... I wish I could find them, as a single/no kids/very low mortgage person I don't have many... And I have been hit by the AMT many times.

[Dwhit]

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Originally Posted by Midpack Or better yet, how did unequal wealth actually play out when income inequality was arguably even more distorted than now? The Main Causes of the Great Depression excerpt - "The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize."

I guess what I have a hard time understanding is the part about "...combined with the maldistribution of wealth..." Its very understandable to me that the excessive speculation in the stock market caused a very large bubble, than when it eventually burst, destroyed a huge amount of capital, thereby wrecking the economy. That makes sense.

Not sure how the income inequality is linked as the other major factor. If anything, I would guess income inequality would have prevented the average American from participating in the stock market speculation. He would be grabbing for torches to destroy the system, or maybe feel he didn't have enough money to waste any in the stock market.

However, I thought during this period, the average American truly bought in to the capitalist idea that investment can make him wealthy. I thought it was the participation of the average guy, not his wanting to scrap or destroy the system, that helped build up the bubble.

So I think maybe it depends on who is doing the post-mortem of likely causes. I could see how a free trader would say, " the market crashes, combined with the raising of trade barriers, caused the American economy to capsize."

In other words, pick you favorite political cause, pair it with the market crash, and you get the cause of the Great Depression that supports your world view. You could say men wearing hats, combined with the market crash, led to the Great Depression.

[samclem]

Quote:

Originally Posted by Hamlet It also ignores FICA, which is now about 40% of Federal revenues, and is a regressive tax. Even if a low-income worker isn't paying FIT, they are paying FICA, and they see that bite come out of their check every week. I doubt that they are thinking that the Federal goverment is free to them because the taxes that they pay are called FICA instead of FIT.

This FICA thing comes up a lot, and I very seldom hear anyone mention the very "progressive" payouts of SS in the same breath. A low-income worker who pays into SS for a lifetime is getting a terrific deal, while a higher-income person will see a very poor "return" on what was paid. So, in the spirit of fairness you are striving for, I think that needs to come out. A low-income worker who pays into SS is paying a small fee in order to have the ability to have his retirement/disability income supplemented by wealthier (and younger) people. That's what it amounts to. The SS system as a whole is anything but regressive.

And the case for Medicare's "progressivity" is even stronger. Low income payers get back much more than higher income people.

I think your case is stronger if you just leave the FICA stuff alone. As far as not knowing the difference between the income tax and FICA, I give everyone credit for knowing that.

[Midpack]

Quote:

Originally Posted by samclem As it is, 47% of voters pay no federal income tax and have, therefore, no personal direct financial interest in reducing income taxes. To the degree that these and other people receive payments from the federal government, they may see a very real personal benefit from increasing government transfer payments and benefits. Once 51% of people are paying zero FIT, it's not clear to me how we will ever institute changes to the tax code to broaden it again. Who will vote to raise their own taxes when all the "rich" are still out there? And the rapid descent will begin.

It seems my role here is charts...

Not discounting anything you've said, but the margin isn't nearly as close as moving from 47% to 51% - Mitt notwithstanding. In truth, only 18% of Americans don't pay taxes.

Federal individual income tax is just over 40% of total revenue. FICA is almost as large so lots more people are paying taxes, the gubmit just calls it FICA. 60% of those who don't pay FIT do pay FICA.

It's frightening, but we're not quite as alarmingly close to the point of no return as the 47% misnomer suggests...

[Midpack]

And

[haha]

Quote:

Originally Posted by Dwhit I guess what I have a hard time understanding is the part about "...combined with the maldistribution of wealth..." Its very understandable to me that the excessive speculation in the stock market caused a very large bubble, than when it eventually burst, destroyed a huge amount of capital, thereby wrecking the economy. That makes sense. Not sure how the income inequality is linked as the other major factor. If anything, I would guess income inequality would have prevented the average American from participating in the stock market speculation. He would be grabbing for torches to destroy the system, or maybe feel he didn't have enough money to waste any in the stock market. However, I thought during this period, the average American truly bought in to the capitalist idea that investment can make him wealthy. I thought it was the participation of the average guy, not his wanting to scrap or destroy the system, that helped build up the bubble. So I think maybe it depends on who is doing the post-mortem of likely causes. I could see how a free trader would say, " the market crashes, combined with the raising of trade barriers, caused the American economy to capsize." In other words, pick you favorite political cause, pair it with the market crash, and you get the cause of the Great Depression that supports your world view. You could say men wearing hats, combined with the market crash, led to the Great Depression.

++++

[anethum]

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Originally Posted by haha I won't trade soundbites with you. Whatever you want to believe, go ahead and believe. These things are complex, and it is my opinion that the only purpose of any of these charts, statements, whatever is political. It is hard to know what a carefully designed medical study shows, how much less certain is some grand social pronouncement made off some questionable observations. Ha

I didn't post a soundbite. I posted a chart displaying data. Just because you call a chart displaying data "political" doesn't make the chart and its data "political", nor any less informative.

[samclem]

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Originally Posted by Midpack Federal individual income tax is just over 40% of total revenue. FICA is almost as large so lots more people are paying taxes, the gubmit just calls it FICA. 60% of those who don't pay FIT do pay FICA.

I suspect we cross-posted. Anyway, I do think it's entirely appropriate to keep FICA (and Medicare taxes) in their own bin. The money collected under these taxes is meant for very targeted things (which, BTW, disproportionately benefit lower-income people as previously mentioned), and doesn't (in theory) get used to fund everything else the government does.

Defense, national parks, SNAP, food stamps (and other welfare programs), NASA, foreign aid, the EPA, the entire federal courts system, the FBI, OSHA, the National Institutes of Health, CDC, federal block grants to states for all kinds of things, etc, etc: Every American benefits from these agencies and programs, but if a person isn't paying FIT then they aren't paying for them. That doesn't seem right to me, and it's not healthy from a long-range perspective.

[unclemick]

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Originally Posted by 2soon2tell W2R, Well said. Being rich is a state of mind that has little to do with annual income. Maybe we need a satisfaction index rather than an income scale to compare ourselves to others.

The richest person (and happiest) we know is a retired nun age 89 who boogie's on $900/month in subsidized housing.

heh heh heh - she blows my 1990's lowest annual budget out of the water. Plus I enjoy whining - especially when the Saint's lose.