Wage gains are not being treated the same as investment gains. It's not like Bezos is taking home an hourly rate. Everybody at the real top is doing quite, quite well.

That's why the concentration of wealth into a very few hands at the top marches on, not because of "wages".

Your touching on a much more complicated subject about reporting.

If someone one owns a billion dollars of stock foobar, and foobar grows 10x, then that person is now worth 10B and "made" 9B. However they have not sold anything so while they can be reported as making 9B, they are none of it was directly cash and not taxed; at least not yet.

However, while Bezos "only" has a salary/bonus of 1.5 million a year, it is very common for executives to have total comp packages in the 10s to hundreds of millions a year. These can easily be converted into hourly rate equivalents because there is only so many hours you can work a year.

The billionaire stock owner in your example's economic power has increased by 10x regardless though. They can borrow against that money and those funds aren't taxed - so they can effectively spend it without taxation.

They can cycle debt to avoid ever having to sell a single share for their entire life, at rates more favorable than any middle class person has access to.

We can fix our tax code with legislation to address this loophole, our politicians just don't have the will to do this currently (largely because many of them amass fortunes through stocks and insider tips, IMO).

I think there's kind of a tacit understanding with business owners and legislators that if you collect taxes, you're good. Bezos and Musk might not pay taxes personally, but they oversee operations that result in payments of sales taxes, payroll taxes, employee income taxes, property taxes, etc, in vast amounts.

The historical critiques of class warfare have some good points, because there's obviously a privileged class here that's doing really well on the backs of labor, and this privileged class can afford to buy (and let's face it, it's really bribe) itself ever more privileges for a very tiny share of their wealth.

Wealth != income. What you're advocating isn't changing a loophole, it's developing an entirely new tax (wealth tax) to supplant the old (income tax). It helps to be explicit.

The loophole is that you can get $1M deposited into your bank account, but because it's technically a loan it isn't considered income. This doesn't require a wealth tax, (and getting ex. a home loan shouldn't be taxed as income), but being able to utilize wealth to get a pile of cash that is not taxed is effectively untaxed income IMO.

A wealth tax could address this, but perhaps there are other legislative options, like (partial?) realization of capital gains when used as loan collateral in the income tax code, or something like that. I'd prefer that latter, as it seems more direct.

But I don't know the specific best way to address this, I'm no a tax expert. But, I think its pretty clear that this scheme is an abuse of the system and should be remedied in some way.

This type of loan is really just a form of margin -- the same thing you can get at most stock brokerages (e.g. Schwab, TD Ameritrade, Interactive Brokers, etc). It seems almost impossible to distinguish the purpose of the loans -- e.g. I know people who use these loans to fund primary residence purchases because they lack income for FHA mortgages.

In fact, unless you have a cash-only account, you likely use margin every time you buy & sell a stock. Technically, stock transactions don't settle for 2-3 days. When your brokerage fronts you the shares to immediately buy, sell, or transfer funds, it's all margin under the hood. It gets even more complex once you get into options, swaps, and other esoteric financial instruments.

TLDR: It's simple in principle, but very complex in practice. Further complicating IRS rules is unlikely to win the whack-a-mole competition -- especially when IRS auditors under-target the ultra wealthy to begin with.

I assume they borrow against the after-tax value of the stock, because it will be taxed before being paid back(?) I don't know if that is significant, but I figure it's worth noting.

No that’s not how it works. Infact, you can get a margin loan at 0.75% interest from ibkr if you hold more than 50k usd of stock for half of its value.

Of course, if that value drops you’ll get margin called for more collateral

Half of its value is less than after-tax value, which is at least the initial investment + 63% of the gains.

Maybe I didn’t phrase it right for you,

Unaccredited investors (us, commoners) have access to margin loans for up to 50% value of account.

Accredited investors have access to portfolio margin which can be up to 90% of mark to market value.

That’s nothing to say of any custom financial instruments that banks might come up with to save bezos any taxes. Think swaps.

The thing is, when most of your money is in illiquid assets (stock, in this case, or houses, etc.) you can reliably get an extremely low interest rate loan against those assets. What does that mean? Let's say you have 10B equity in a company, and you want to buy a used 747 Jumbo Jet--a steal, at $500,000. You only have about $100k liquid cash on you at the moment. No problem! Go to a banker, take an extremely inexpensive loan out against your 10B (think less than 1% interest), and buy your jet. Because it's not income, it's not taxed. But yes, these people do actually have access to that much purchasing power, it's not just abstract numbers.

AMZN is down 10+% over the last year so not sure about that one.

His ex-wife is shovelling money to charities faster than anyone before and still made more than she gave out.

He's got elite financial engineers at his disposal, it's highly doubtful his fortune has declined in lockstep with the AMZN share price.

There are the rich and then there are the really rich, and then there are the unbelievably rich. I'll happily call a family earning 500k/y on two salaries in a small town where a million dollar home is literally a mansion on a hill "rich". Because they are. They just aren't as rich as the Trumps or Bezoss of the world.

What do you intend to connote by saying someone is "rich," though? What does it signify?

If the definition of "rich" is "independently wealthy," that family certainly doesn't meet it. They still have to work for a living.

If it means you never have to worry about where the next meal is coming from or losing the roof over your head, sure, a lot of people are "rich." And maybe this is better than 90% of humanity does, but it's still not a reasonable first world standard for being "rich" IMHO.

> They still have to work for a living.

No they don't. They could live in a median dwelling with a median income indefinitely on the interest of what they've saved over the past few years.

If you're saying that they have to work for the living that they're accustomed to, so does Musk.

Their modes of thought, their concerns and worries, their expectations, their assumptions of what is possible, their habits, their identities, all different.

She said: 'I am loosing every time!'

He answered: 'No, you are often winning, but when you lose you lose way too high.'

(-;

What does not calling them rich signify?

It hit me when I saw a 3MM home in Tampa vs 3MM in Bay Area. I think many’s definition of money is skewed from living in hcol cities.

One of my favorite quotes on the topic:

"Shaq is rich. The white man that signs his check, is wealthy." [Chris Rock]

The other thing I never hear discussed is that this round of inflation isn't expected to be permanent, or even particularly long-lasting. So a wage increase in January which is (temporarily) eaten up by January's inflation means....an actual wage increase in May which then goes on for years and years.

I think you're making a mathematical error here.

If inflation goes to zero, that does not mean prices have fallen to where they were before. It merely means prices stop increasing further.

So a temporary bout of inflation equal in magnitude to a one-time but persistent wage increase, _do_ cancel out.

Maybe I should swap in the word "price increases" for inflation.

Gas prices are high now, but nobody expects them to stay at this level indefinitely. (And nobody expects the price of gas to stop increasing without then also dropping back down.) Supply-chain related price increases aren't permanent, and go in the other direction when the supply chain improves.

And the larger point is it's a positive development if workers really are able to renegotiate their compensation -- and that isn't entirely negated by slightly higher prices in January.

Except that producers aren't going to lower prices, because the "expectation" is that other producers won't for any non-commodity good (consolidation is GREAT for the consumer), so we're stuck with it in a lot of cases.

The idea that "printing money leads to inflation" is startlingly overblown as the most impactful source of what causes it. It certainly can; but its explicative popularity is mostly the result of it being really easy to explain to children ("if you have two candy bars, wouldn't you feel that each bar is worth less?")

Or, more accurately: if everyone has more money, wouldn't demand for goods & services go up? And per the law of supply & demand, if demand goes up, prices should go up. And, per how inflation is calculated (CPI), if prices go up, inflation is on the rise. That's a lot of steps to get from "printing money" to "the value of the US dollar decreases".

It certainly can cause, and is a component of today's, inflation. But there are three confounding factors:

First: We're in an unprecedented economic climate, yet we still apply many of the laws of economics written during the Gold Rush. Today, its reasonable to assume that many people have a "demand maximum"; outside of a few high value commodities (houses and cars being the two biggest), there's only so many CPI-included goods & services which can see significantly increased consumer demand given a larger money supply. Food doesn't really see increased demand. Housing and Living supplies don't. Maybe you splurge on a PS5 (if you can find one, see (3)) or a bigger TV.

Houses & Cars, being the two biggest areas people will splurge, and related to that, Rent, are seeing massive price inflation. Which leads to:

Second: All else being equal, the average consumer sitting near a "demand maximum" socioeconomic point should mean that they're sitting on more money in a bank account. But, most aren't. The fundamental reasoning for this is complex, but it boils down to: most of the money being printed by the Fed isn't entering consumer pockets. On the contrary, most Fed policies have hurt consumers more than helped; because of rising real estate prices, which are in no-small-part due to low interest rates, housing & rent prices have skyrocketed, which mostly hurts consumers. QE over the past decade has lined American company balance sheets to unprecedented values, but that money hasn't trickled down to front-line workers in any meaningful sense; all it really serves to do is inflate stock prices, which destabilizes the stock market and makes for fun Forbes headlines about the richest Americans getting even richer (on paper).

Third: Biggest: Supply chain shock. CPI is calculated based on the price of consumer goods. Supply & Demand overwhelm the pricing decisions of most consumer goods. Some products are experiencing demand shock; but nearly everything is experiencing supply shock right now. Blame COVID. Blame China & Russia. Blame capitalism's tendency toward hyper-optimization creating a brittle supply chain.

Overall point being: Many correctly associate the word "inflation" to mean "weakening of the US dollar", but then incorrectly extrapolate it to mean "weakening of the US dollar relative to other currencies". The reality is exactly what's written on the box: its weakening relative to what you'd buy with it. And if its happening to most currencies (as it is, today); its not a currency issue, it's a supply/price issue. I'd argue not only is it not clear that Fed spending is causing inflation; its most probable that it isn't, and Fed spending over the past two years has been a positive, invisible force against higher inflation.

Wage gains aren't actually that good. A lot of people are going to be surprised they moved up in tax bracket while their standard of living went down.

What is the relevance of tax brackets? Earning more nominally while standard of living going down is the same as earning less in real terms.

“Moving up” in a tax bracket never means earning less in nominal or in real terms. It just means you get less in your pocket of the extra you earned, not of the total you earned.

I feel like all the stupid comedy shows, especially in the 80s and 90s, making those episodes about getting a raise and earning less money, did a lot of damage to people's understanding of how taxes ACTUALLY work, and continues to ripple to this day, leading to comments like the one you are replying to.

While there's nothing to fear from taxes, there is the completely separate issue of the benefits cliff [0]. When you just barely make enough to no longer qualify for SNAP or childcare and you lose 100% of those benefits instead of it phasing out based on your pay. This benefit is often worth more than a normal raise, so while you you don't take home less in your paycheck, you do have fewer resources overall. Phasing out benefits instead of making them all or nothing is a simple way to address this.

0 - theguardian.com/money/2014/jul/20/benefits-cliff-minimum-wage-increase-backfire-poverty

Other benefits is certainly a valid point, from food stamps to scholarships to all kinds of things. And when people talk about those I totally sympathize because my family dealt with those issues of "too much for those scholarships but not enough to be able to afford over a certain tier of school." And when people talk about those things I agree entirely.

If inflation is 5% and you get a 5% raise, you're level in real terms, right? No, because that 5% is taxed at your higher tax rate, which is (usually) higher than your average tax rate. This is called bracket creep.

Only if 5% causes you to change tax brackets. 5% of $300k is a lot more than 5% of $100k or $50k/yr, but only if you were already at the very edge of a tax bracket will 5% cause you to change bracket. Eg the 22% bracket is from $40-$86k for single filers in 2021. Only if you were making $81k or more will 5% tip you over. For everyone else earning 40-81k, that 5% doesn't cause a bracket change.

To add to this, especially for non-Americans or Americans unfamiliar with the tax system, the very notion of "change tax brackets" is a misnomer.

If you make $41k, you still pay 10% on your first ~$10k, 12% on the next ~$30k, and 22% only on that last $1k.

So yes, you could be in a situation where you had been at the top of a bracket, and your incremental wages from the raise are taxed at the next bracket's rate. But it doesn't trigger any kind of situation where your entire salary is now charged at the higher rate.

Yes, of course, a 5% raise does not compensate for 5% inflation. But that's just because taxes exist, not because you are entering a higher bracket per se.

IMO, the whole pervasive narrative around tax brackets being something to fear is a fear-uncertainty-and-doubt move by those seeking to vilify the tax system. It's worked surprisingly well to those ends.

No, because 100% of that 5% is taxed at the highest bracket but a percentage of your old salary is taxed at your old bracket.

To simplify 100k split 50k @20%, 50k @ 40% is less than (105k split 50k @20%, 55k @40%) / 1.05

The fist is worth 50 * 0.8 + 50 * 0.6 = 70k, the second is worth (50 * 0.8 + 55 * 0.6)/ 1.05 = 69.52k.

but you're still earning more than if you haven't gotten that 5% raise.

I think his point is that while a 5% raise and 5% inflation should be a wash, since you now pay slightly more taxes than before your pay after taxes is slightly less value than before.

It's still very misleading to say "wage gains aren't good" though - the problem is not that you got a 5% raise, it's that inflation is 5% so you need a slightly-higher-than-inflation raise to keep up. If you didn't get a 5% raise you'd just be even worse off.

It’s too far to say that “”wage gains aren’t good”, but he makes a good point about wage increase, inflation, and tax brackets I hadn’t thought of before

I think it's a bit overblown personally, the percentage of tax you pay is not going to increase a notable amount even with 5% inflation and a 5% raise. The brackets also get adjusted every year, to account for his point.

Presumably the tax brackets are linked to inflation too

Pretty sure they're not.

US tax brackets seem to be

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adju...

1% inflation seems about right for the 2020->2021 tax year. Most indicators are lagging so if inflation started taking off during 2021 it wouldn't show up right away.

That shows nothing about the amount of the adjustment. Looking up last year's and running a few calculations, it appears to have been adjusted 1%! That's not adjusting for inflation. Not sure what it's adjusting for, but not inflation.

Headline literally says

IRS provides tax inflation adjustments

And links to https://www.irs.gov/pub/irs-drop/rp-20-45.pdf

"This revenue procedure sets forth inflation-adjusted items for 2021 for various provisions of the Internal Revenue Code of 1986 (Code)"

It's states adjusting for inflation for the tax year beginning March 2021. The document came out in October 2020 when inflation was 1.2%, I'm not sure when they adjust it and you may disagree with the measure of inflation

The year before was November 2019

https://www.irs.gov/pub/irs-drop/rp-19-44.pdf

Here's the one for 2021/2 (Nov 29th 2021)

https://www.irs.gov/irb/2021-48_IRB

Married Individuals Filing Joint Returns, lowest and highest bands:

Thresholds for tax year 2021/2 goes from 19750 to 19900 (0.7%) at one end, and from 622050 to 628300 at the other (1%)

Thresholds for tax year 2022/3 goes from 19900 to 20550 (3.27%) at one end, and from 628300 to 647850 at the other (3.11%)

And you’ll still be surprised that even though you’re in a higher tax bracket, your standard of living actually went down.

That's not how the progressive tax system in America works.

It is when inflation is high, which is exactly what we are talking about.

Because they haven’t adjusted the amounts for the tax brackets with inflation. So it’s a double whammy. Your money is worth less, even though you got more of it. And now Uncle Sam is taking more of it.

I cannot figure out why the US writes laws in terms of nominal value while maintaining an inflationary currency. The majority of lawmakers agree that a law should be x with respect to the current value of USD, why don't they also agree it should be x+inflation for a future value of USD? Maybe with a circuit breaker for hyperinflation. They don't have to rely on third party inflation numbers, because the Fed is a government agency.

Do some lawmakers only support a law because it will have a lower (min. wage) or higher (tax) real monetary significance in the future?

Probably, even if it is only accidentally. The Congressional Budget Office produces long-term estimates on things, and I'm guessing they aren't ignoring inflation. So, for example, a proposed law has $X ramification, according to the CBO, over the course of 10 years where X is an acceptable amount. If you were to adjust to make the law account for inflation, X would change, potentially into something not acceptable.

I think two of the biggest falsehoods many people seem to believe about finances is that one, you don't want to move up in tax brackets because then you will suddenly be making less money. And two, that somehow businesses and business owners can just "write off" expenses so that those expenses don't actually cost them any money.

There are a few edge cases where these can be technically true but they are rare and limited in scope and magnitude.

I think you are misreading the comment at the root of this whole thread. They aren't saying "if you go up a tax bracket, ALL of your income goes down because you pay more taxes!" but instead saying "you might make more money but despite that, you will not be able to buy more things." I don't think tax brackets have anything to do with this besides being tied to how much you make.

>you might make more money but despite that, you will not be able to buy more things.

I'm not sure how else to read that. If you make more money, you can buy more things. Even if you go up a tax bracket. If you make twice as much money and that moves you up a tax bracket, you won't be able to buy twice as many things, but you can still by more things than you could when you made half as much. Maybe 1.8 times more things.

That’s not how taxes work

https://www.investopedia.com/ask/answers/071114/can-moving-h...

I think they mean if you are 1% away from a new tax bracket and get a 5% raise, 4% of that is at the higher tax bracket. So while you still make more money you make less than you would have if the entire 5% were in the lower bracket.

As others have already noted, that's not how tax brackets work. The real problem might be government programs like Medicaid - it's hard to tell if eligibility requirements are inflation-indexed, and since it seems to be determined at the state level, I'm almost certain it won't be in every state. So it's possible that increased wages, while it still increases post-tax income, actually reduces net disposable income after taking Medicaid, CHIP, etc. into account.

Tax laws are confusing, alot of people think that since they made more they are in a new tax bracket and every dollar they made is subject to the new higher tax bracket rate. This is incorrect, every dollar made at and above that high tax bracket is subject to that higher tax rate, every dollar made below is subject to the previous tax bracket.(and this is after 401k and other tax writeoffs).

Clarity here, this is how it is, where you live I presume.

Other places do have more horrid, retroactive taxation.

But that said, tax rates are typically based upon cutoffs. So the more you make, the more tax you pay.

So this means that if you get a raise to meet inflation, you could see your raise more heavily taxed, if it is above the next tax bracket.

Eventually, with enough inflation, and no changes to tax regs, you could see the very poor, taxed like the well to do, a few years before.

There are also some tax benefits, which have income cutoffs, and also programs which have income cutoffs.

With inflation at historic lows for 25 years, there is little institutional knowledge about how fast >10% inflation can erase buying power, and at the same time big raises mean nothing..

totally sorry, yes you are right, I forgot to mention I live in the US and that is how tax laws here are set up. And as a caveat I am assuming all income is salary.

Being highly paid in salary you are subject to very high taxation where someone who receives most of their income in stock and sells after holding for a year would have dramatically less taxes on the same amount of money received. Its why these CEO's making $1 a year(and having stock grants in the 100's of millions) are a slap in the face to the working engineer who incurs substantially higher taxes as a percentage than the CEO making 100x his salary.