2015 State of the Union Address

[illram]

I know life's hard. Having a million bucks doesn't make it easy either. It's still going to be hard. But lots, almost everyone, gets to enjoy the fact that life is hard without a nest egg equal to about two decades of median take home pay. If this is the reaction to the argument that it's unconscionable to not even think about starting to tax income on savings over a half million? Then crap, class warfare is probably way overdue.

I like and viscerally agree with your eat the rich perspective, but my feeling from reading your posts is your criteria for rich is about 30 years behind where we are at today.

For instance I'd say a household of 3 that takes home $100,000 a year and saves $10,100 a year in an IRA or Roth IRA or 401k or whatever is upper middle class. (Median US household income is around $50k a year if I am not mistaken, and $75 is considered upper edge of middle class). At age 65 a 30 year old couple saving the current max contribution would have over a million, according to an average steady return by age 65. That is not wealthy by any means. If I understand the question being discussed here, do they deserve a change in the tax law to tax that even more? No. I'd say that's unfair. To me the unfairness of the system is in many ways even worse when you look at how the middle to upper middle class gets squeezed.

Eat the actually rich, I'd say.

 

[Light Cleric]

I like and viscerally agree with your eat the rich perspective, but my feeling from reading your posts is your criteria for rich is about 30 years behind where we are at today.

For instance I'd say a household of 3 that takes home $100,000 a year and saves $10,100 a year in an IRA or Roth IRA or 401k or whatever is upper middle class. (Median US household income is around $50k a year if I am not mistaken, and $75 is considered upper edge of middle class). At age 65 a 30 year old couple saving the current max contribution would have over a million, according to an average steady return by age 65. That is not wealthy by any means. If I understand the question being discussed here, do they deserve a change in the tax law to tax that even more? No. I'd say that's unfair. To me the unfairness of the system is in many ways even worse when you look at how the middle to upper middle class gets squeezed.

Eat the actually rich, I'd say.

Yeah basically. That is not rich. If you want to start talking about taxing at a much higher point, that's a discussion that could be had. But starting at $500k is very low, especially when you consider that, unless something crazy happens and the dollar starts going back up sharply, $500k is going to start being worth less and will start to hit more people, especially decades from now. This is why I took such offense to the idea that this was about the "rich" when I was voicing my concerns about people who are very much not rich.

 

[Farm Boy]

I like and viscerally agree with your eat the rich perspective, but my feeling from reading your posts is your criteria for rich is about 30 years behind where we are at today.

For instance I'd say a household of 3 that takes home $100,000 a year and saves $10,100 a year in an IRA or Roth IRA or 401k or whatever is upper middle class. (Median US household income is around $50k a year if I am not mistaken, and $75 is considered upper edge of middle class). At age 65 a 30 year old couple saving the current max contribution would have over a million, according to an average steady return by age 65. That is not wealthy by any means. If I understand the question being discussed here, do they deserve a change in the tax law to tax that even more? No. I'd say that's unfair. To me the unfairness of the system is in many ways even worse when you look at how the middle to upper middle class gets squeezed.

Eat the actually rich, I'd say.

That still puts the median wage earner under 40000 a year if they're holding stable full time employment. Maximum allowable contribution every year from 18 to 65? Over 10% of gross? What world do you live in? Look, I realize nobody wants to consider themselves rich, especially when there are Kardashians out there, but seriously dude. In the dirty world out there living paycheck to paycheck is a thing for hard working people, and they're not able to max their contributions. They get laid off, they scrimp and they save and they don't have a million bucks to retire in relative opulence at 65. And guess what? They didn't have the fortune to dump a significant amount of wealth into tax shelters like retirement accounts, expensive homes. As if simply taxing income at any rate is "eating the rich." I call severe BS.

 

[bhsup]

Farm Boy, you DO pay taxes on IRAs. Roths you pay on before you deposit, traditionals you pay on with you withdraw. Now if you're fine with double whammy taxation, okay so be it, but it isn't like people do not pay taxes on IRAs.

 

[Farm Boy]

Farm Boy, you DO pay taxes on IRAs. Roths you pay on before you deposit, traditionals you pay on with you withdraw. Now if you're fine with double whammy taxation, okay so be it, but it isn't like people do not pay taxes on IRAs.

Ah really, so they aren't a sweet tax deal? Hrmm. Sounds like a pretty dumb idea to sequester cash into them that could be better invested then, eh?

 

[bhsup]

I am not suggesting that there are not benefits to IRAs, but so what? Don't you think it makes sense to encourage planning for retirement? I am just saying you're wrong if you think that stuff isn't ever taxed.

 

[onejayhawk]

How would it be politically feasible to tax at 100%? We are struggling now to move those with over $500,000 in annual income back to the capital gains rates we had under Reagan and Clinton and that is only moving from like 24% to 28%.

Ask Castro before he dies.

J

 

[Farm Boy]

I am not suggesting that there are not benefits to IRAs, but so what? Don't you think it makes sense to encourage planning for retirement? I am just saying you're wrong if you think that stuff isn't ever taxed.

But so what?

There are so many things that simply ''have benefits'' to encourage affluent Americans to do things that they suck up so much from the teat while everybody complains about the pittances people receive in SNAP and the like while pitching all of their base and subsidized economic activity back into the taxed pool every year. Then whenever a liberal politician suggests that maybe people should start having their breaks on taxes phased out once they have about two decades of median take home pay accumulated it's suddenly 'unfair' that they stop receiving breaks. The median American was retiring with about sixty grand in total assets in 2012 according to a Wells Fargo site I found last night before I passed out(I didn't double triple check other sites). I'm supposed to weep for the unfairness of it all that we might deign to start evening out the taxes for those with almost ten times more instead of charging them functionally lower percentage rates?

 

[onejayhawk]

I am a bit surprised that 529 plans are in any discussion of the rich. They are almost exclusively a middle class option. Genuinely wealthy people don't use them--not worth the trouble. For them it is better to use a more complex trust or pay out of cash flow. That is why paying for two years of trade school, by taking back the 529 shelter, is wrong headed.

IRAs are the same thing, though not as much. Wealthy people will use one, but it is just a portion of the big plan. Typical tax the middle class for their own benefit thinking.

J

 

[illram]

That still puts the median wage earner under 40000 a year if they're holding stable full time employment. Maximum allowable contribution every year from 18 to 65? Over 10% of gross? What world do you live in? Look, I realize nobody wants to consider themselves rich, especially when there are Kardashians out there, but seriously dude. In the dirty world out there living paycheck to paycheck is a thing for hard working people, and they're not able to max their contributions. They get laid off, they scrimp and they save and they don't have a million bucks to retire in relative opulence at 65. And guess what? They didn't have the fortune to dump a significant amount of wealth into tax shelters like retirement accounts, expensive homes. As if simply taxing income at any rate is "eating the rich." I call severe BS.

First, rich people don't rely on IRAs. In fact they don't get the tax benefits of them above a certain income class, as I think they phase out close to $200,000 in annual income. As Onejay pointed out, IRAs and 401ks are the tools for middle and upper middle class wage-earners who can't just earn money on capital like the fatcats, and don't have pensions due to the death of the pension plan in American labor. Second, as everyone pointed out, they are taxed. Third, I realize saving 10% of gross is hard, (I believe people recommend 20%, actually, and I agree who does that?) but the point of the hypothetical is that a fairly run of the mill household (e.g., two people taking home $50k a year) can amass a nice little nest egg, assuming the economy does not tank between now and then.

Even if you don't max out annual contributions, you can still have hundreds of thousands of dollars at retirement on a very middle class salary if you save. For instance just saving $2,500 per year nets you close to $400k at 7% return.

In any case, I agree we have a problem that a huge % of the American population is living on the brink of financial disaster. "Paycheck to paycheck." Your animosity makes me wonder if you believe it but even someone living on a household income of $100,000 a year could be in a similarly precarious position depending on where they live. But the solution is not taxing the few remaining vehicles that lower income people have for retirement--that's just squeezing the middle class even more. There are plenty of other progressive tax solutions out there--such as flat out taxing higher income brackets, or raising the capital gains tax--that do not squeeze middle and upper middle class earners and actually tap into the truly wealthy "elite" owners of capital who are, in my opinion, gaming the system unfairly and putting too much of it on the backs of lower wage Americans.

 

[Farm Boy]

Anytime I see wage earners who pull 100000 per annum getting lumped with low earning Americans I know I'm listening to a bunch of rich white boys. It's the kindest extrapolation I can come up with in a sea of really nasty ones. I know 100000 a year doesn't make one Bill Gates. But it doesn't make it ''median'' or even remotely similar to it on the realities of the thing.

 

[onejayhawk]

The auto loan is the curse of the middle class. A typical payment is $350/month, often with more than a year of the loan under water. Assuming 10%, driving a Bondo car and saving the $350 will let you pay cash for the same car in just over three years, rather than the five years of the loan.

Cars are a status symbol, but they are a depreciating asset. Borrowing adds insult to injury. Credit cards are the same thing on steroids.

Anytime I see wage earners who pull 100000 per annum getting lumped with low earning Americans I know I'm listening to a bunch of rich white boys. It's the kindest extrapolation I can come up with in a sea of really nasty ones. I know 100000 a year doesn't make one Bill Gates. But it doesn't make it ''median'' or even remotely similar to it on the realities of the thing.

Someone earning 100K belongs in the same group as someone earning 40K, for most demographic purposes. A lot of the behavior patterns are the same, just at higher prices, eg BMW instead of Buick. Lumping them with those earning 25K makes less sense.

J

 

[JollyRoger]

Ah really, so they aren't a sweet tax deal? Hrmm. Sounds like a pretty dumb idea to sequester cash into them that could be better invested then, eh?

For Roth IRAs, you don't get to deduct your contributions from your current gross income, but any gains generated by the Roth IRA are tax free at distribution.

For traditional IRAs and non-Roth 501(k) or other such schemes, contributions are deductible from current gross income, but all distributions are taxed at ordinary income rates, even if the source of gains are items that are ordinarily tax-favored (capital gains and dividends). It's sort of a stealth death taxes for the average Joe, though many victimized by it will get sucked into wanting no estatedeath taxes for Joe Multi-Millionaire, even though Joe Multi-Millionaire's estate contains often contains capital gains that have never been taxed nor ever will if you got fully rid of the estate tax.

Ask Castro before he dies.

J

How politically feasible is it that Castro will impose tax policy on the U.S> before his death? Should we worry about Rafael "Ted" Cruz in this regards?

 

[Farm Boy]

So don't lump them in with the 25000 crowd. Recognize the teat should be scaling off at over 10x the accumulation so that we might actually have prayer of taxing those trust fund babies at a progressive rate instead of every incrementally more affluent demographic saying ''I'm not the problem, kick it up a notch, they're the problem.''

Blah.

 

[JollyRoger]

In a progressive tax system, you have to keep going down a notch to find the real problem or at least 47% of it.

 

[illram]

Anytime I see wage earners who pull 100000 per annum getting lumped with low earning Americans I know I'm listening to a bunch of rich white boys. It's the kindest extrapolation I can come up with in a sea of really nasty ones. I know 100000 a year doesn't make one Bill Gates. But it doesn't make it ''median'' or even remotely similar to it on the realities of the thing.

I'm not saying a person making $100k a year is the same as someone making $25k. I'm saying a 3 person household income (e.g. two parents) with a $100k annual income is not the ideal target for income equalizing tax measures. I.e. not wealthy.

 

[onejayhawk]

How politically feasible is it that Castro will impose tax policy on the U.S> before his death? Should we worry about Rafael "Ted" Cruz in this regards?

Marco Rubio is the one you want.

I never said Catro was going to impose his tax policy on USA. I said he had experience with 100% taxation.

You make a good case for eliminating Estate taxes.

I'm not saying a person making $100k a year is the same as someone making $25k. I'm saying a 3 person household income (e.g. two parents) with a $100k annual income is not the ideal target for income equalizing tax measures. I.e. not wealthy.

Is there a good target? It seems like a crack dream.

J

 

[Farm Boy]

I'm not saying a person making $100k a year is the same as someone making $25k. I'm saying a 3 person household income (e.g. two parents) with a $100k annual income is not the ideal target for income equalizing tax measures. I.e. not wealthy.

Well, I think the conversation started around profits on accumulation in excess of about 10x median accumulation instead of the top 10 percent of earning households per annum. But, point taken I suppose. The out of touch rich white boys explanation is starting to wear thin.

 

[JollyRoger]

You make a good case for eliminating Estate taxesIs there a good target? It seems like a crack dream.

J

Eliminate the IRA/401(k) one first and then we will talk about the one that kicks in at $5 million.

 

[onejayhawk]

Eliminate the IRA/401(k) one first and then we will talk about the one that kicks in at $5 million.

More tax the middle class. How Democratic of you.

J