Fwiw we feel like middle class but we’re really in the top 5% or higher. We’re the rich people these taxes and politicians talk about.
The ultra rich/wealthy are a red herring, there’s only a few 10k of them of them. Only 614 people are billionaires.
7 figure income (salary) puts you in top 0.35% ... that’s 1,120,000 Americans. Not a whole lot.
edit: top 10% starts at $125,000 salary
$10m is a substantial bound. Above that threshold, we can expect financial fortitude.
Is there some other kind of millionaire?
It's one thing to say you have a million dollars to your name. The difference is that one person has to sell everything they own to command that value while someone else just calls their broker to have it liquidated from their rainy day fund.
But more to the actual point. To the extent a concept of “paper wealth” exists it should be confined to things that are genuinely unable to be converted into real money at all. For example stock options in a seed stage company are genuinely illiquid and may never be worth anything ever to anyone.
People living in a million dollar house and saying it’s not really wealth and shouldn’t count sound pretty out of touch to the rest of the world that doesn’t get to live in a million dollar house.
https://en.wikipedia.org/wiki/Paper_wealth
If you're sitting in a house and it has appreciated in value because it's 2005 and you are in Sunnyvale then you've acquired paper wealth. You didn't upgrade your home, you didn't make it nicer. It's the same home you bought for $300k. It's just now magically worth $1.2m because the world continued spinning.
Sure, that probably sounds great if the person wanted to sell the home and move into a place where home values have remained largely unchanged. But if that person either likes where they live or wants to stay reasonably close, the increased value of their home basically doesn't affect their life - they purchased something that was of modest wealth and now people think it's worth more.
If you bought a gumball for $0.25 and now people think it's worth $1m should you get taxed as a millionaire even if you never intend to sell it? Would it seem reasonable that the rest of the world thinks that you're out of touch because they don't get to have million dollar gumballs?
Yes it does. They don’t have to move. The people who aren’t rich and haven’t been able to own real estate have to leave the area when property values skyrocket.
Have a look at what inconveniencing just 400 of them would do (they would still be billionaire after) https://mkorostoff.github.io/1-pixel-wealth/
Scale can be like a force multiplier for engineers. Makes them deliver more value and employers are able to pay them more.
Seems for Google the value is actual money and for a startup it is a potential future earning? Yet the startup developer in San Francisco is still (presumably) paid 200k or more? If that startup fails, was the developer overvalued?
I value the service of my local council's binmen more than most developers' output (including my own). Doesn't mean they get paid the big bucks.
Also the companies who employ these engineers aren't making that much money to burn. That's just my hunch, I haven't done a thorough research.
If you want to make more money you become a manager. Developers are just like electricians or brick layers.
They also don’t have the FAANG to create tons of value from software.
Another part of the equation: in today’s age of massive aggregation around a few gigantic tech monopolies in the US, those few companies are able to pay large salaries because they derive a lot of value from their employees. But the reality of compensation is not very dissimilar between the US and other locations once you remove FAANG from the equation. FAANG companies employee a very highly selectively chosen segment of software developers who can command high value, but are also a tiny slice of the market. But the majority of software engineers in America are not employed in FAANG or compensated that way.
Where does the middle class top off? $125,000/year individual income puts you in top 10%. Pretty normal for a software engineer. Is that middle class?
Depends on the location and cost of living?
And no I'm not saying you should just offset income by exactly the CoL. Obviously being in a prime location has its own benefits too. But you can't just assume the benefits cancel the extra cost of living either; they certainly don't cancel for everybody. The balance is somewhere in between. (I don't have a formula.)
And they own half the country.
I think middle class is about where your money comes from than the amount of your money. If you are primarily deriving your income from from working for a company you don’t control, then I think you are middle class.
That’s the classic definition of working class.
Having a roughly equal (in terms of importance) split between capital and labor dependence for income (such as by applying your labor to your own capital as an independent small-business owner or yeoman farmer) is the traditional middle class.
What if you invest 70% of those 500,000 because your CoL is only 150,000. Still middle class?
Cold hard cash is an asset if you use it like an asset. Well okay, your cold hard lucrative skills are the asset in this case.
Assuming you are completely dependent on the salary for support, you are high income working-class intelligentsia.
> What if you invest 70% of those 500,000 because your CoL is only 150,000. Still middle class?
Assuming the returns from those investments are as important to your ability to get by (even if you aren’t touching them currently, but they ade backstopping your labor income), then you’ve achieved middle-class (petit bourgeios) status, instead of merely working class.
> Cold hard cash is an asset if you use it like an asset. Well okay, your cold hard lucrative skills are the asset in this case.
“Skills to do labor that is valued by capitalists” are assets, sure, but they are the assets determining success within (and perhaps at the extremes the potential to move out of) the working class. Ownership of transferrable capital assets defines the difference between the working class and the higher classes in a capitalist economy.
What is your definition of "middle class"? Someone making $400k is most certainly in the top 1%.
What tax changes have occurred so far in the past few decades that are significantly affecting you? I would genuinely like to know
My effective tax rate between state and federal is something like 55% before including sales taxes.
These Billionaires find ways to pay basically nothing in tax because their wealth comes from capital gains and not from RSU + salary compensation which are taxed as normal salary.
The bulk of the burden of new tax increases will fall on people like me who make more than 400k but make it in easy to tax ways instead of changing the law and making it easier to heavily tax people in the 100M/yr+ category
These aren't complaints, just facts.
That seems extremely high, what state is this? Do you mean the top marginal rate, or is that literally the effective rate when you file your 1040?
Also, making 400K does not make you rich. In California, you are actually bringing home around 200K with high cost of living in areas where an engineer might make that much, whereas the top 1% (measured by household wealth instead of income) still has a net worth of ~$10M.
Calling that lifestyle "rich" just serves to muddy the water. This is soundly in the category of upper-middle class and decades away from being financially independent.
Tell them at the end of the year you’re going to give them the next nine years of paychecks as a Christmas bonus and then ask them if they feel financially independent.
Tell that hypothetical average American to buy a mediocre house in Sunnyvale and see what reaction you get.
Nobody cares what lifestyle $400k can buy in Mississippi because very few people are making that much in a locale that cheap.
This is completely independent of CoL. There are very, very few Americans who will ever be able to seriously consider doing this.
Or, 90 minutes from Sunnyvale, an amount of time they are keenly aware of as they commute there every day to clean the clothes, cook the food, and maintain the real estate of the “not rich” people you are describing.
> Tell that hypothetical average American to buy a mediocre house in Sunnyvale and see what reaction you get.
They would say I’m sorry I can’t, because the prices of those houses have been bid up by the rich people who currently live there and make $400k a year.
> Nobody cares what lifestyle $400k can buy in Mississippi
People in Mississippi do. They also get a say in setting tax policy for the U.S. which is the topic of current discussion.
A little perspective is always a good thing.
In other words, you have accumulated 1/10000 the wealth of your FAANG employer.
A federal sales tax with exemptions for basic necessities (food, rent, school supplies, etc.) would make so much more sense, as already exists in 7 states at the state level.
In this way you don't have to worry about whether income was earned offshore or onshore, if you're buying stuff or services here or importing stuff, you get taxed on it.
Even with the exemption for basic necessities, a person who earns 100x what you do will probably spend on the order of 5-10x more than you, thus making the tax very regressive.
If you make $50k plus COLA for your entire career but one year your stock options materialize and pay $400k, are you rich?
If you're making 400k post-tax, sure. If that's pre-tax income, however, you're not making 4M after 10 years.
After federal taxes you're making closer to $286k, roughly. This is just for the privilege of being a US citizen - even if you don't necessarily spend the majority of your time in the country.
Assuming this is a CA software engineer, it's closer to $250k. This is just for the privilege of having a tax basis in CA.
Assuming you actually do live in the Bay Area as a single bachelor and would like the privilege of having your own apartment that you don't have to share with others (remember, you're "rich") a nice unit to yourself will run you roughly $3k/m -> $24k/y. So we're much closer to $225k/y.
Even assuming this person has no car, no social life, and no metabolism we're still running at roughly half of your projections. Which is still a fair chunk, to be sure. But it's still half of their money going towards the privilege of obtaining money.
EDIT: just saw this bit
> I get that COL lowers that, but if you are making 400K you're not renting
This depends, as buying is not always superior to renting, especially when you're talking a house. A house is a pretty big investment - so much so that a lot of financial circles still spend a lot of time between "get a home, what isn't equity is a tax write off" and "just rent, no surprise expenses, remain more liquid, invest the difference between your rent and a typical mortgage in the market".
The last time I was looking in the South Bay area, average prices for a 2 bedroom home in a suburb were ~$1.2m. This is a $240k down payment and ~$7.3k monthly (15 year conventional, down to ~$4.7 for 30 year but we're outside of the "10/20 years" we described above and paying more interest for it besides).
If we account for all that, we're looking at much closer to $190k being available to us after the privilege of living and working (that's adjusting for the taxes, but it's not so clean as interest is a sliding scale over the years) - just now we have a place to ourselves that cost us around a year or two of savings time just to start the house purchase and a recurring expense that's over double the nearby rent. This is largely not favorable to the majority of people unless they're wanting to lay roots. That said, given people seem to be leaving I'd imagine housing prices will become less steep in a matter of years; albeit whether it makes it more reasonable to buy than rent for those not looking to stay for 15+ years remains something of an open question.
$400k can buy you an entry-level home in cash, or a 10% deposit on that $4M mansion across town. Most choose the latter.
I'll make up some numbers to make it simple. Let's say there's 2 brackets. Everyone who makes under $399,999.99 pays 0% tax. And everyone who makes over $400k pays 90% tax. You make $400k. How much do you owe the taxman? Did you know it's only 90 pennies out of $400k? The first $399,999.99 you make is in the 0% bracket. It will always be taxed at that rate. Only the amount over that ($1) will be taxed in the next bracket.
Now in reality, we have 7 tax brackets. This is how much you really pay, assuming filing single for 2020.
$9875 of $400k @ 10%
$30,250 of $400k @ 12%
$45,399 of $400k @ 22%
$77,775 of $400k @ 24%
$44,049 of $400k @ 32%
$192,649 of $400k @ 35%
You wouldn't even make enough to pay anything into the 7th bracket @ 37%.
Personally, I believe yes, we need to raise taxes on the uber rich just to slow their growth. NO, it will not affect you who make $400k (which is already wealthy compared to most of America!) And add more brackets while we're at it. There was a time in America where the uber rich had a 94% tax bracket. I'm not saying we need to go that high. But 37% and too many deductions is a joke.
So a tax increase at 400K will indeed affect someone who makes 400K (or maybe ~450K, or someone who files jointly) now or in the ensuing years when they get raises to combat inflation. The brackets never keep up with inflation, because the government uses CPI to pretend like there isn't much inflation. The highest bracket in 1913 was 1 million dollars (NOT ADJUSTED FOR INFLATION).
[1] https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...
[2] https://www.pewresearch.org/social-trends/2020/01/09/trends-...
Note: I'm not saying correlation = causation; just an interesting phenomenon to notice.
The point is that the distribution of tax rates is broken, with no statement made about the rates themselves.
Lower taxes makes it less expensive for the rich to pay the government.
Look at housing and food costs to see how the middle class are affected, they don't get welfare, social housing, or food stamps.
If you are in between (say) my salary and 400k, no amount of increase in the price of food is going to be a problem for you unless you are ludicrously bad with money. I'm not in favour of wanton taxes aimed at "the rich" as a political manoeuvre, but let's not be blinkered here.
CoL increase maybe not a problem, but its still an increase, if you're trying to tax the rich, you've hit the wrong target.
After a certain rate, as taxes rise, revenue falls. Feds keep spending, when they realize projected income will fall short, the goal line moves from 400K to 200K, then 100K, etc.
We should lower taxes and close the 1000's of loopholes, I would bet revenue goes up.
And I learned a new word today, "wanton"!
That might be true of new taxes/tax increases created by those doing the bidding of the truly wealthy. In fact, it is true.
But that's true of all possible new taxes, and increasing taxes on those with earned income over $400k will have ZERO impact on those who earn less (in terms of their own taxation).
We should put effort into compliance, instead of increases.
On the plus side, between the limit on SALT deduction and the increased standard deduction, the mortgage interest deduction is almost effectively dead; which is something that has needed to get removed, but nobody wanted to do it. Now it's technically there, but almost useless, so best of both worlds.
Maybe it will make ca/ny think twice about having such high tax rates…
IMO the SALT deduction is a horrible thing and allows state governments to become way too bloated.
Under a federalist, state-first system, the federal government shouldn’t consider mandated transfers to state (including administrative subdivisions) government which plays the primary role in the conditions of local commerce which enables income as part of the free income of a taxpayer subject to taxation (this also avoids federal taxes altering the calculus of net benefit in state democratic decisionmaking on tax and spending.) In a federal-first, centralized system, ignoring state taxes consistently makes sense. In either case, a limited SALT deduction has no principled justification, and is simply an effort to use the power of federal tax policy to put a federal thumb on the scales of state decisionmaking to get the successful states whose economic success makes them net contributors to the federal government to adopt tax and spending policies more like those characterizing the politically-overrepresented but less successful states that are net drains on federal resources, leveling the playing field by making every place suck equally, so at least the former can’t make the latter look so bad any more, while advancing the Norquistian vision of shrinking the size of government to where it can be drowned in a bathtub, without concern for thr consequences, because ideology.
In some places $400k can give 8 families this life. In others not even one. It depends.
Ummm, where exactly in the world is $400k per year not enough to survive? Monaco?
If you earn $400k year after year, then you are earning enough to be "rich". But true, it's still possible to live beyond your means regardless of how much you earn and incur financial difficulty.
In San Francisco it's just about striking distance to the lifestyle I described. The commutes and the housing are generally a little worse.
However, as I mentioned above, that same family (or even one that earns millions more) could easily put themselves into financial difficulty if they live beyond their means.
With $400k annual income you couldn't buy a single family home in the Pacific Heights neighborhood and if you had many children perhaps you couldn't afford to send them all to Harvard, but if you lived reasonably within your means you could certainly still be considered "rich".
Can you name a place, anywhere in the world, where $400k/yr is not enough to survive for one family?
I understand it’s emotionally satisfying to see them deprived, but the government also ends up with less revenue when they apply their skills to lower impact projects.
Large engineering firms have offices in various Midwestern states that are just as productive as SV, NY, what have you.
That's not true. If your combined income with your spose is more than 400k the tax increase will affect you. so it will affect individuals making as little as 200k if you assume income is divided equally between two spouses.
Someone making over $400k might want to invest some of that money. The businesses in which that person would have invested would hire people. And pay wages. And taxes. If you take more of the “rich” money. They won’t invest as much. And thus won’t create value. Giving that money to the government doesn’t create value — or if it does, there is still the issue of deadweight loss. The private sector always spends more efficiently than government.
Every rich person I know doesn’t put their money under the mattress; they invest it in something.
As far as tax changes that affect me: well the very high rates of California taxation led me to moving my residence and business to Texas. When I lived overseas, the Biden-supported, Obama-signed FACTA legislation (which was ultimately a tax law) had a very significant impact. I couldn’t open business bank accounts in the UK which led me to not being able to expand my (then) consulting business because our potential client required a UK company and that company needed a UK bank account in order to get anything done. Since I wasn’t a UK resident, it made it even harder. I am not super rich so Barclays and friends weren’t going to go through all the FATCA hoops just for my £100k per year in turnover.
And in terms of tax changes that helped? The Trump tax cuts resulted in a significant amount of savings that led to buying an airplane and significant production equipment, for example, being able to deduct a significant amount on an aircraft purchase — an aircraft that we wouldn’t have been able to afford without the change in the tax laws. That aircraft enabled my business to expand into smaller markets, which benefited those smaller markets in which we entered (they could get our product cheaper and resell it at a greater profit.) We could also target smaller towns that would have otherwise required flying commercial and then driving all day — then there was the issue of moving cargo quickly. Also the tax savings on equipment purchases allowed us to not have to pay copackers and instead set up our own bottling facility. Which lowered our cost per unit, allowing us to lower our wholesale prices, which led to our customers being able to make a larger profit. (Our business is making specialized fitness cleaning products and our customers are small boutiques and fitness studios.)
It’s very short sighted to see taxes that are paid only by “someone else.” If you run any sort of business at all, the effects of tax policy can be immediately evident. The typical wage worker doesn’t see it because they limit themselves to their immediate viewpoint: they fail to see the chain of transactions that lead to them having a job in the first place. An employed person has more economic impact than an unemployed person. That’s just a fact.
So yes, tax policy is felt by everyone, even those that don’t pay taxes.
Further, with current inflation rates, $400k will be solidly middle-upper class in a few years from now.
Billionaires (put together) in the US hold something similar to 1 year of federal tax receipts, for example. Tax them into the ground and you get 1 year of revenue.
Edit: I think I hit a nerve.
Why fail to fix one over the other?
Whether their proposed changes will actually work is another question, but it’s wrong to say there’s no attention there and that the debate is only about raising taxes.
I can’t say I understand the downvotes I received for saying that.
Raising taxes is an admission that current tax policy, and the other side of the coin, the government spending policy, are awfully designed.
Of course there has never been a competent design since taxes always need to be higher to "reduce" the ever increasing wealth gap higher taxes were supposed to be tackling in the first place.
Just for once we could try something different maybe?
You will be fine. Just like everyone else in pretty much the entirety of the rest of the civilized world.
I do agree though that the spending could be improved. That position varies group by group.
Those tax breaks happened to catalyze massive tax receipts nonetheless, but taxes are politically justified by who they poleaxe, not by the consequences that result.
During Clinton we were set to be debt free in 2013... the bush passed his cut. Tax policy matters.
Trying to stay on their good side hoping they will "do the right thing and pay more taxes", won't really make that much of a difference.
> won't really make that much of a difference
is that you hunch or you have data? I remember seeing the bell curve in an undergrad business class.
I'd imagine a 20% vs 45% tax will absolutely have different outcomes.
If someone is already dodging taxes then they will probably continue but the next generation of millionaires should never start.
That's why I think it's related to pirating movies, it's a similar dynamic.
Until you can get to a point where the rich actually pay taxes then we can talk about rates.
And in many developed nations also (naturally) get the biggest net benefits.
I used to think like you, until I realized that the people sinking millions of dollars in every electoral campaign to push candidates friendly to 'lower taxes' are the ones who are already taking advantage of every loophole.
Then you can see the truth.
If the politicians actually wanted to tax the rich then they'd be closing loopholes, not raising the marginal rates.
I am sure some figure out ways, but you have to go in dodgier places.
This is a new development is the last 10-20 years, so there is progress. It should help people trust the system is getting fairer.
If one is against taxes, and uses lack of enforcement as a reason, I smell dishonesty.
The burden of proof is on you then. For you to be able to say that, you'd have to enumerate all possibilities and then provide evidence why each wouldn't work. In the meantime, it seems obvious things could be better without needing to be perfect.
And predictably, the responses are whether or not you are actually middle class. Because somehow if you're not, you deserve to be f**d hard I guess...?
I'm talking about earning 2x-3x national average pay and getting fucked by that here, in a small EU country.
5k(eur) gross monthly here (current gross average is ~1950eur), after taxes and social/medical (they're a "tax" here, divided between worker and employer) gives me 2922eur net, and I cost my employer 5805eur. With VAT (22%) our customers pay 7082eur, for me to get 2922eur, and the government gets 4160eur. That's without any actual cost, my chair, my computer, toilet paper, office rent,...
In the same way corporate taxes trickle down to the consumer (otherwise known as "everybody else"), the same is true of taxes on wealthy incomes.
And even our discussion over who pays taxes and how much they pay is moot since the problem is actually spending. The best thing that could happen is that everyone has a real tax burden and everyone pays it directly (not via payroll deduction). Because then more people might be interested in how their taxes are being spent.
We get a bunch of random political parties, promising to "tax the rich" and stuff, we get new laws... and what happens?
- The poor already pay very little tax - no change there
- The rich avoid the tax by doing shady stuff (who remembers the panama papers.. or this.. or many other stories like these)
- I, the middle class engineer get fucked by the taxes, and I get fucked hard, and not in fun way.