Inequality much worse than most think

[ProdigyofZen]

Re: Inequality much worse than most think

So in this example the rich guy pays 348,000 in taxes vs 16,800 for the average-ish person. So he makes 20x as much and pays over 20x as much in taxes. What is so inherently unfair? How much does a person making 1.2 million have to pay in order to pay their "fair share"? Is it only fair when they have the same amount left over?

Of course not but when the guy paying 16,800 in taxes has little monies left over to provide for his family, or buy a home or save any capital at all dont you think something is wrong with this picture? Not to mention the astronomical increase in services like healthcare or even student loans or cost of anything with debt attached to it.

Lets say the guy makes 62k and pays 16,800 in taxes which leaves 45,200 net to him per year.

Break that down to per month of 3766.

Lets say he is single. Lets take the average rent in a decent area in a large city of 1500. (a large city to get a job making 62k a year).

Now thats 3766 - 1500 = 2266 left.

Add in car payment (average american has a car payment) say 300 dollars for a 25k car. Because he needs a car to get to that job.

2266 - 300 = 1966 left

Now factor in food+transportation costs (gas)+daily expenses which lets say = 800 a month. I will even include in that 800 a bit of eating out or movie money. 800 a month is not unreasonable and not living high on the hog.

1966 - 800 = 1166 left

Tv/utilities = 250

1166 - 250 = 916 left per month

Cellphone bill = 100

916 - 100 = 816 left

So he is left with 816 for the basic essentials for an average American. Thats not even including the probably student loan bills or credit card bills.

Lets say he puts away that 816 per month thats 9792 saved per year.

9792 is the amount the guy making 1.2 million makes in half a month.

I can keep going.

[thriftyandboringinohio]

Re: Inequality much worse than most think

P of Z -

I saw that exercise done recently by Charles Hugh Smith at Of Two Minds at this link http://www.oftwominds.com/blogdec13/...lass12-13.html
He starts with a functional definition of "middle class", such as saving for retirement and having one reliable car for each wage earner.
Next he puts a price on each of the functions and tallies it up.

There is more at the link, here is his tally.

Here are my calculations based on our own expenses and those of our friends in urban America. We can quibble about details endlessly, so these are mid-range estimates. These reflect urban costs; rural towns/cities will naturally have significantly lower cost structures. Please make adjustments as suits your area or experience, but please recall that tens of millions of people live in high-cost left and right-coast cities, and millions more have high heating/cooling/commuting costs.The wages of those employed by Corporate America or the government do not reflect the total cost of benefits. Self-employed people like myself pay the full costs of benefits, so let's "get real" and count *all* costs paid to maintain a middle-class lifestyle.
1. Healthcare. Let's budget $13,000 annually for healthcare insurance. Yes, if you're 23 years old and single, you will pay a lot less, so this is an average. If you're older (I'm 60), $13,000 a year only buys you and your spouse stripped down coverage: no eyewear, medication or dental coverage--and that's if your existing plan is grandfathered in. (If you want non-phantom ObamaCare coverage, i.e. a Gold plan, the cost zooms up to $2,000/month or $24,000 annually.)
Add in co-pays and out-of-pocket expenses, and the realistic annual total is between $15,000 and $20,000 annually: Your family's health care costs: $19,393 (this was before ACA).
Let's say $15,000 annually is about as low as you can reasonably expect to maintain middle class healthcare.
2. Home equity. Building home equity requires paying meaningful principal. Let's say a household has a 15-year mortgage so the principal payments are actually meaningfully adding to equity, unlike a 30-year mortgage. Let's say $5-$10,000 of $25,000 in annual mortgage payments is interest (deductible) and $15-$20,000 goes to principal reduction.
3. Savings. Anything less than $5,000 in annual savings is not very meaningful if college costs, co-pays for medical emergencies, etc. are being anticipated, and $10,000 is a more realistic number given the need to stockpile cash in the event of job loss or reduced hours/pay. So let's go with a minimum of $5,000 in cash savings annually.
4. Retirement. Let's assume $6,000 per wage earner per year, or $12,000 per household. That won't buy much of a retirement unless you start at age 25, and even then the return at current rates is so abysmal the nestegg won't grow faster than inflation unless you take horrendous risks (and win).
5. Vehicles. The AAA pegs the cost of each compact car at $6,700 annually, so $13K per year assumes two compacts each driven 15,000 miles. The cost declines for two paid-for, well-maintained clunkers. Average cost of auto ownership: $8,946 per year. let's assume a scrimp-and-save household who manages to operate and insure two vehicles for $10,000 annually.
6. Taxes. Self-employed people pay full freight Social Security and Medicare taxes: 15.3% of all net income, starting with dollar one and going up to $113,700 for SSA. Since an adjusted gross income (AGI) of $66,193 or more puts you in the top 25% of earners, let's use a base income (self-employed) of $68,000 to calculate our SSA/Medicare taxes: that's about $10,000 annually.
Property taxes: These are low in many parts of the country, but let's assume a New Jersey/New York/California level of property tax: $10,000 annually.
Income tax: Since the mortgage interest is only $5-$10K a year, itemized deductions are less than the standard deductions of around $18,000. One-half of the self-employment tax is deductible, as well as the health insurance and IRA retirement contributions, so that's another $30,000 in deductions. That leaves about $20,000 in taxable income and about $3,000 in Federal tax, and let's assume $2,000 in state and local taxes for a total of $5,000.
7. Living expenses: Some people spend hundreds of dollars on food each week, others considerably less. Let's assume a two-adult household will need at least $12,000 annually for food, utilities, phone service, Internet, home maintenance, clothing, furnishings, books, films, etc., while those who like to dine out often, take week-ends away for skiing or equivalent will need more like $20,000.
8. Donations, church tithes, community organizations, adult education, hobbies, etc.: Let's say $2,000 annually at a minimum.
Note that this does not include the cost of maintaining boats, RVs, pools, etc., or the cost of an annual vacation.
Here's the annual summary:
Healthcare: $15,000
Mortgage: $25,000
Savings: $5,000
Retirement: $12,000
Vehicles: $10,000
Property taxes: $10,000
Other taxes: $15,000
Living expenses: $12,000
Other: $2,000
Total: $106,000
Oops. That's more than double the median household income. OK, let's assume the mortgage is a bit high, ditto the property taxes. Let's say we need "only" $96,000.
Oops again: our tax calculations were based on $68,000 in self-employed net earnings. To earn $96,000, our taxes are going to skyrocket, as we're still paying the full 15.3% SSA/Medicare taxes while we'll jump into the 25% tax bracket when our taxable income exceeds $35,000. Since we'll be paying at least $15,000 more in SSA and income taxes, then we're up to $111,000 as the minimum household income to maintain a middle class lifestyle for two self-employed adults.
An individual earning $111,000 is in the top 10% of all wage earners. A houshold earning $111,000 is in the 80%-90% income bracket--the lower half of the top 20%. This suggests that the "middle class" has atrophied into the 10% of households just below the top 10%. Households in the "bottom 80%" are lacking essential attributes of a middle class lifestyle that was once affordable on a much more modest income.
Note that this $111,000 household income has no budget for lavish vacations, boats, weekends spent skiing, etc., nor does it budget for luxury vehicles, SUVs, large pickup trucks, etc. There is no budget for private schooling. Most of the family income goes to the mortgage, taxes and healthcare. Savings are modest, along with living expenses and retirement contributions. This is a barebones budget.

[gwynedd1]

Re: Inequality much worse than most think

So in this example the rich guy pays 348,000 in taxes vs 16,800 for the average-ish person. So he makes 20x as much and pays over 20x as much in taxes. What is so inherently unfair? How much does a person making 1.2 million have to pay in order to pay their "fair share"? Is it only fair when they have the same amount left over?

Its an inherently silly metric until taxes are linked to user fees. I think a million dollar empty lot that is essentially a government created, private asset is a good indication that taxes come from revenues almost entirely due to government. Imagine someone who gets to own a beach in Hawaii(illegal implying some people very well know this principle) having revenue of a million dollars and whining about 95% taxes. That's a free 50k to me. The entire cash flow is from a privilege. Why should I care about Microsoft patents that use the court system and legal enforcement? Why is that my problem? Microsoft would be bankrupt without government. On the other hand someone who creates value without using the army, the roads, stop lights or bridges etc has an unfair tax for a penny.

A user fee, what a concept.Guess who gets a huge highway and port subsidy? That would be Walmart. Why are we subsidizing the transport system for import companies like Walmart? Why do I have to pay for snow removal? They move the snow on the sidewalks that I use meaning I pay for further inconvenience walking over snow piles, but I gotta pay. When was the last time they paved sidewalks? When will people with more wealth then I have stop leaching off me? Who should pay for the military, someone who rents an efficiency or someone with a 5 million dollar house? Whose house need the insurance not to have it confiscated under the new regime? why don't the wealthy wanna pay for everything they use? Poor people rarely fly, but they gotta pay. They gotta pay for the airport security.They gotta pay for the FAA. They gotta pay for air traffic control. They can't have picnic on the runway because its restricted.

[vt]

Re: Inequality much worse than most think

Actually the chart is being read completely wrong.

I went to the IRS website and put in $68,000 for a joint couple. I took the standard deduction and no retirement contributions.

The total taxes were $7,414 or 11% of income for federal income taxes.

We all pay into social security and medicare at about 7.65%plus our employers match this. Many employers provide payments for health insurance and matches for retirement funds. Social security and medicare are really contributions to one's retirement and old age health. These are insurance for disability, retirement, and health care. It is a mistake to call it a tax.

We will likely see a time soon when anyone with an income above say $500K in retirement will not receive any payback of social security, and much higher payments for medicare A & B. Anyone making over $100K in retirement already pays double of one with income below $100K.

We don't blame the poor for their condition; why blame someone who has a high income for their success. Only if it was gained illicitly would one question it.

The inequality we see is structural in nature. Our time is better spent trying to find ways to FIRE and inordinate corporate salaries certainly need to be curbed, but don't destroy job creators in the process.

If we confiscate the entire wealth of the Forbes 400 we run the federal government for less than one year. Should we then confiscate the next group and down the line. At some point government spending will be so out of line that the only way to get revenue if much higher taxes on the middle class. Is this what we want?

P.S. My tax bracket is about 15% and net worth not high. I pay my fair share with no gimmicks and provide high pay and benefits to my employees. I'm certainly not the 1%.

[gwynedd1]

Re: Inequality much worse than most think

P of Z -

I saw that exercise done recently by Charles Hugh Smith at Of Two Minds at this link http://www.oftwominds.com/blogdec13/...lass12-13.html
He starts with a functional definition of "middle class", such as saving for retirement and having one reliable car for each wage earner.
Next he puts a price on each of the functions and tallies it up.

There is more at the link, here is his tally.

The best definition of a middle class is the ability to generally consume one's own output. If an auto worker can generally afford the car they make its a sign of a healthy middle class. The classic case of a class society is one where maids and butlers are common. Butlers can't really have butlers. Butlers cannot consume any of their own output.

[lektrode]

Re: Inequality much worse than most think

The best definition of a middle class is the ability to generally consume one's own output. ...
...
Butlers cannot consume any of their own output.

altho theres been the story of the 'societies' that the (group out of favor) eat out of the same pail they...
uhhhh...
go in.

it can and does get worse.

i figger if The US goes off the deep-end and the .gov has to 'regain control'...

of 'society' ?

it'll be the lib/dems (and their efforts at 'gun control' ) who give us marshall law - as the green/leafy suburbs/gated communities/urban oasis'
start to feel threatened (by the 'barbarians' at the gate...)

[Woodsman]

Re: Inequality much worse than most think

P.S. My tax bracket is about 15% and net worth not high. I pay my fair share with no gimmicks and provide high pay and benefits to my employees. I'm certainly not the 1%.

Don't be so modest, vt. Wear that 1% crown with pride! You built it, right?

Now it depends on the source, but admission to the 1% club starts at between $350k - $450k. Of course, that's just wages, government transfers, capital gains, dividends and other investment income and doesn't consider total net worth. That metric varies too, but generally starts around $1.5m.

Bill Domhoff At UC Santa Cruz has been the go to guy on this since 1967. Since he hails from a place that proudly boasts itself the leftmost city in America and is a pointy headed academic (a Sociologist - horrors!), skip him for now and look over a guest article on his site written by a private wealth manager, "An Investment Manager's View on the Top 1%."

[jr429]

Re: Inequality much worse than most think

Of course not but when the guy paying 16,800 in taxes has little monies left over to provide for his family, or buy a home or save any capital at all dont you think something is wrong with this picture? Not to mention the astronomical increase in services like healthcare or even student loans or cost of anything with debt attached to it.

Lets say the guy makes 62k and pays 16,800 in taxes which leaves 45,200 net to him per year.

Break that down to per month of 3766.

Lets say he is single. Lets take the average rent in a decent area in a large city of 1500. (a large city to get a job making 62k a year).

Now thats 3766 - 1500 = 2266 left.

Add in car payment (average american has a car payment) say 300 dollars for a 25k car. Because he needs a car to get to that job.

2266 - 300 = 1966 left

Now factor in food+transportation costs (gas)+daily expenses which lets say = 800 a month. I will even include in that 800 a bit of eating out or movie money. 800 a month is not unreasonable and not living high on the hog.

1966 - 800 = 1166 left

Tv/utilities = 250

1166 - 250 = 916 left per month

Cellphone bill = 100

916 - 100 = 816 left

So he is left with 816 for the basic essentials for an average American. Thats not even including the probably student loan bills or credit card bills.

Lets say he puts away that 816 per month thats 9792 saved per year.

9792 is the amount the guy making 1.2 million makes in half a month.

I can keep going.

You must live in a major east coast city. Let me break down for you how So Cali would look like for a decently hard-working guy of average intelligence and average education.

Income $44k
After Tax (your tax rate) $2700/month

Rent with spouse or roommate - $800
Car - $250 (why does he get a new car??)
Expenses - $600
Utilities - $100 (split with roommate, why does he get cable TV?)
Cell Phone - $65 (why does he get an Iphone 5s?)

Saves $885/month or $10,620/year. Why is this a problem? This is much more than many people making many multiples of this income save annually. Maybe instead he should pay 0 taxes so he can save $10k/year AND drive a Porsche?

[Thailandnotes]

Re: Inequality much worse than most think

There’s more than one way to skin a cat. Actually, there’s a million

Thailand’s income tax code is simple and straightforward, but in my opinion, not nearly as progressive as it should be, given the wild income distribution.

Personal income tax can be figured by a 6th grader in less than 15 minutes. There are no complicated deductions.

Thailand has a workforce of approximately 40 million people. Only 10 million are registered on tax rolls and out of those, 7 million owe no tax. Only about 8 % of workers pay taxes.


Taxable Income (baht) Marginal Taxable income

0 - 150,000 ....... Exempt
150,001 - 500,000....... 10%
500,001 - 1,000,000....... 20%
1,000,001 - 4,000,000....... 30%
4,000,001 and over....... 37%

Corporate tax and VAT make up over 70 percent of the tax revenue.

The rich get socked in other ways, but they can easily afford it. A 6-dollar bottle of wine, say Hardy’s or Yellowtail is 20 dollars here. The tax on wine is over 300 %. Luxury cars are taxed at 100%. A Toyota Camry is a luxury car.

[jr429]

Re: Inequality much worse than most think

Now it depends on the source, but admission to the 1% club starts at between $350k - $450k. Of course, that's just wages, government transfers, capital gains, dividends and other investment income and doesn't consider total net worth. That metric varies too, but generally starts around $1.5m.

Most reports I have seen the 1% starts at $7-8mm net worth which makes a lot more sense. A surgeon netting after taxes $300k needs about 30 years + asset appreciation to make it into the 1%. So I'm quite curious does a surgeon despite their (usually) above average intelligence, hard work, and 7 years of schooling + 5 years of residency/fellowship earn their entry into the 1% by your standards? Who else "deserves" to be in the 1%?

[jr429]

Re: Inequality much worse than most think

Its an inherently silly metric until taxes are linked to user fees. I think a million dollar empty lot that is essentially a government created, private asset is a good indication that taxes come from revenues almost entirely due to government. Imagine someone who gets to own a beach in Hawaii(illegal implying some people very well know this principle) having revenue of a million dollars and whining about 95% taxes. That's a free 50k to me. The entire cash flow is from a privilege. Why should I care about Microsoft patents that use the court system and legal enforcement? Why is that my problem? Microsoft would be bankrupt without government. On the other hand someone who creates value without using the army, the roads, stop lights or bridges etc has an unfair tax for a penny.

A user fee, what a concept.Guess who gets a huge highway and port subsidy? That would be Walmart. Why are we subsidizing the transport system for import companies like Walmart? Why do I have to pay for snow removal? They move the snow on the sidewalks that I use meaning I pay for further inconvenience walking over snow piles, but I gotta pay. When was the last time they paved sidewalks? When will people with more wealth then I have stop leaching off me? Who should pay for the military, someone who rents an efficiency or someone with a 5 million dollar house? Whose house need the insurance not to have it confiscated under the new regime? why don't the wealthy wanna pay for everything they use? Poor people rarely fly, but they gotta pay. They gotta pay for the airport security.They gotta pay for the FAA. They gotta pay for air traffic control. They can't have picnic on the runway because its restricted.

What gives the government the right to tax a private beach? Would this right still exist if the beach was owned before the inception of the government?

[vt]

Re: Inequality much worse than most think

Don't be so modest, vt. Wear that 1% crown with pride! You built it, right?"

Woody, where are your facts? Every so often you go off on tangents. Where's the beef buddy?

Let's talk about the 1% for a minute. The following articles are about prominent 1% members who went to jail.

http://www.nbcnews.com/id/8474930/#.UqgNy_S1yM4

http://en.wikipedia.org/wiki/Enron_scandal

Guess what? They went to jail in the Bush Presidential term! Wow!

How about this fact:

http://articles.washingtonpost.com/2...loan-home-loan

Seems like a few members of your team really helping the 1%! Maybe being the 1% too?

What about the 1% FIRE guys that caused the American Financial Crisis? How many of them are in jail? I don't see an answer.
Hey, maybe they got a get out of 1% card!!

What about Mr. Madoff. He went to jail. But why didn't the SEC, which was given the entire scheme twice on a silver platter, but ignored the biggest scam of all.
Was it because the SEC lawyers were watching porn all day on the taxpayer dollar? A Madoff family member spouse worked for the SEC. Bernie must have gotten a temporary pass.

Let's look at some of the other 1% ers on your team.

Let's take Air Speaker One Nancy Pelosi. Third in line for President gets a taxpayer paid military jet to take Ms. Nancy to San Fran and back. Oh, and a number of her family got free rides paid for by us common folk.

Nancy and her hubby are certainly in the 1%. Some of that loot was because of Nancy's insider trading in Visa stock. Some was a sweetheart deal for the Presido, a former military base, which was prime real estate in San Francisco.

Don't forget Harry Reid! He got rich while in the Senate by all sorts of real estate deals, again not available to us peons.

Next we have Barbara Boxer and her husband cutting more real estate and other business deals thanks to some "political" help.

Guess what Woody! They're all FIRE!!!!!!!!!!

I guess your team fits what Pogo said: "We have seen the enemy, and he is us"

P.S. Pelosi's successor at speaker, John Bohner, flies coach

[Woodsman]

Re: Inequality much worse than most think

Most reports I have seen the 1% starts at $7-8mm net worth which makes a lot more sense. A surgeon netting after taxes $300k needs about 30 years + asset appreciation to make it into the 1%. So I'm quite curious does a surgeon despite their (usually) above average intelligence, hard work, and 7 years of schooling + 5 years of residency/fellowship earn their entry into the 1% by your standards? Who else "deserves" to be in the 1%?

I'm curious, why all the resistance to seeing this as it is? It's a fairly easy question to answer, understanding that there's some play in the number based on how the data is collected. We don't need generalities like "most reports" because we have actual, peer reviewed work to which we can refer. Look to the article I linked and refer to that data. Check out Domhoff's work. He's been publishing these numbers for nearly half a decade; well before the phrase 1% ever entered the popular vocabulary.

It's curious to me why so many of these self-made types keep wanting to push up the threshold of entry to the 1%. And one minute these fellows crow like roosters, other times they seem a bit more hen-like. Now why is that?

I'm not the arbiter of deserving or undeserving and neither are you or anyone else. And as they have shown, the rich can take care of themselves.

But I will admit, my allegiances are with the poor, the prodigal, the alienated and the abandoned. I feel more affinity with the waitress, the bus driver, the nurse and schoolteacher than I do with the wealth manager, the surgeon, and the CEO. I identify more with Archie Bunker than Thurston Howell. I don't think it is a crime to be rich, but I know crushing poverty in the midst of unprecedented wealth is.

I just hope for everyone's sake there is no god and all of creation is an accident. Because if there is a moral intelligence operating in the universe with an interest in our collective choices, we in big trouble eternity-wise.

[Woodsman]

Re: Inequality much worse than most think

...Let's look at some of the other 1% ers on your team.

And good morning to you, vt! First, i'd say it was less of tangent and more of an aside.

You really know how to hurt a guy. "Your team." Give me a break, vt.

I'll say it again and every time I'm asked or the assertion is made. I don't have a team. Do you seriously contend that I believe the Democrats aren't standing naked on this same as the GOP? Come on, now.

I gave you plenty of fact to dismiss without contemplation. And you can find all the data and interpretation you want on Domhoff's site or go buy a copy of "Who Rules America." Give me a mailing address and I'll send you my copy on my own dime. If you're too busy running the plantation, then the one pager I linked would of given you all the facts you wanted about the entry requirements to the 1%.

As for delusional political allegiances, what do we make of this?

"If elected I believe Romney-Ryan will unwind FIRE and promote TECI."

[Woodsman]

Re: Inequality much worse than most think

What gives the government the right to tax a private beach?

That would be Article 1, Section 8 of the U.S. Constitution:

"The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States..."

Would this right still exist if the beach was owned before the inception of the government?

Yes.