maybe I am naive but...Follow

I was really close to actually keeping track of how long it would take you to respond to that one! ;)

While 75 large may be big bucks elsewhere in the country-- and it is, based on my experiences in Alabama, Florida, and Lousiana --here in the Republik of Kalifronia an income of less than $100k is considered low income, particularly if you live in one of the major metro areas.

On a different topic, Smasharoo, you grew up in Boston. I have not been there since I was a kid so I have no memory of the town, yet every movie I've seen that takes place in Beantown (Good Will Hunting and Mystic River for instance) shows a dingy, working class neighborhood as being the norm. I suspect it is like people's expectations of California where it's Hollywood over the entire state, but I can't help think that Boston isn't too far off from those depictions. Shed some light on this for me.

Totem

I've been to Boston a bit, I've got a friend who lives in Cambridge and sometimes we go across the river for drinks. It's not a bad town at all.

No. Those definitions are correct. Economic layers don't look like a straight line. They look more like a pyrimid. Each lower layer is made up of a significantly greater percentage of the population.

Classes are not defined by some median value. That's a meaningless number. They are defined by what you are able to do with what you've got. Economics is somewhat based on the assumption that wealth will not be evenly distributed. Heck. It it were, it would be a disaster of epic proportions.

What do you think the average salary in the US? You say 28k. You are aware that if we evened everything out, that *everyone* would make 28k a year, right? Ok. So who's going to build a factory if they only make that much? Heck. Who's going to hire anyeone else to do any work? Can you afford to hire someone full time? Nope. I'm betting not. The whole system wouuld collapse in a day. You have to have concentrations of both income and wealth in order for someone to employ someone else. This isn't an opinion, it's a mathmatical certaintly. If that wealthy guy has 100 people working for him, it stands to reason that he must at a minimum, earn 100 times as much as each of them (technically 101 times if he wants to take home the same amount as his employees. More when we factor in costs beyond labor). Only concentration of wealth allows that to happen.

You are welcome to try to come up with a viable economic model where there is an equal number of "poor" and "rich", but I'm betting you can't. There must be more poor then rich, or no one has anything. This may fly in the face of some people's social ideals, but it is an unfortunate mathmatical and economic fact. Complaining about it is like complaining that the Sun rises in the East but you'd rather it rose in the West (ie: pointless).




Well. It is still "alot" of money. However, it's hardly an unobtainable sum. Lets say you make 28k a year. Could you survive on 23k a year instead? Probably. Lots of people do that, you could too. By decreasing your expenses by abit (taking rougly 20% of your income away), we have just freed up 5k a year to invest.

Government bonds over the long term tend to return 7-9% (we'll call it 8%). That's a nice, extremely *safe* investment. If you put that 5k into bonds each year, in 20 years, you will have 1/4million dollars in investment capital (right around 250k). Note, that you only spent 100k getting it (5*20=100).

After 28 years, you will have 1/2million dollars.

At the 36 year mark, you will have over 1million dollars in investment money.

That's assuming you never get a raise, and just put 1/5th of your earnings into a relatively safe long term investent (you can get better returns if you work at it). Most people will work for 40 or more years during their lifetime, so this is a doable goal. If you think 20% investment is high, that's what I invest. It does take a bit of belt tightening, but it can be done. The key is to just pretend you make less then you do, and budget and live according to that level. It works.

See... Here's where the Dems will ***** you though. If you do this, you can become a millionaire in your lifetime. Anyone can. It would be nice to be able to hand that down to your children, wouldn't it? Maybe you can use that to help pay for your children/grandchildren's college? Who knows? But if you have to pay tax on that like it was income (like if capital gains was removed), you'd lose half of that money right off the top. Estate taxes will take that away from you when you die.

But hey! You don't want your kids to benefit from your hard work and lifetime of scrimping and saving, do you? We should all start from the same point. Level the playing field, right?

Sorry. Doesn't wash. Those ideas ***** over the middle class more then anyone. They are the ones that need that tax break the most. They are the ones for which it will make the difference between whether their kids can go to college or not. They are the ones who can build up wealth and become "rich", but only if they are allowed to keep it. It's about opportunity. Removing capital gains tax rates, and throwing in death taxes only provide huge blocks to prevent people making making that move from middle to upper class.


I'll say it again: Anyone *can* become wealthy, if they put their minds to it and work towards it. The real question is: "Do I want to be screwed when I get there?". Personally, I think people should be rewarded for hard work and good spending habits, not punished for them. But that's just me. I suppose it's easy to buy into the rhetoric that says you can never get ahead, so why bother trying? Just pass legistlation to take away from those "evil" rich people who clearly don't deserve it.

I'm sorry. I just see so much wrong with that idea. But if you want to believe it, then by all means, sit at home, buy more then you can afford on credit. Don't bother saving for your future. After all, nothings going to be there for you anyway, right? The only thing preventing most people from obtaining wealth is themselves. It really is that simple.

Only between 1970 and 1981 and 1988 and 1991 did the highest capital gains tax rate equal or excede 30%. And you had to make a lot of money by capital gains to qualify.

http://taxpolicycenter.org/publications/template.cfm?PubID=8695

Note: the table is only plotting the highest income and captial gains tax rates. The highest capital gains tax rate is currently 15%. I was taxed at 20% and qualified - but did not collect - food stamps. Highest captial gains tax rates are way lower than the highest income tax rates and this is before you consider how much money you have to earn to actually start paying the highest capital gains tax rate, versus the rather paltry income you have to make to begin paying the highest income tax rate. If married, filing jointly, you can make over $100k and have the top half taxed at only 5% - if it is captial gains. That is 2.5% for folks playing along at home. Check out the 1040 - schedule D form at http://www.irs.gov. Oh ya, and that is for 2003 taxes - when the top rate was 20%. Forms have not been prepared for this year with the lower rates. I grant you it is nontrivial to read, but just do the math on page 2 of the form.

I have no problem with a low (or zero) tax rate for capital gains which a person actually earns. If you (personally) improve your land, or say the breeding stock of your herd of cattle, and sell them for a higher value - more power to you.

However, the vast bulk of capital gains, anually, is from stock sales. I don't see why this is anything but income.

Further, dividends, which were previously taxed under income, are now capped at a 15% rate of tax - not that dividends are a major source of income for the ultrarich, but again, why is this anything but income?

Even if we want to have a special, lower tax rate for "wise" or "lucky" stock market transactions, I still think it should cap out far higher than the tax rate for the working class.

Further, it is so easy to move capital gains taxes,
on paper, overseas in contrast to income tax that the real ultrarich only pay a fraction of the actual captial gains rates. When you read about the KPMG probe,
http://www.cfo.com/article/1,5309,12360||T|321,00.html?f=home_todayinfinance
read carefully and you will realize KPMG is being investigated for not registering their tax shelter with the IRS. As far as I know they are not actually being investigated for an illegal tax shelter, only an unregistered one.

Listen, if you prefer, listen at: http://www.marketplace.org/play/audio.php?media=/2004/02/18_mpp&start=00:00:08:20.9&end=00:00:13:59.0

People have been talking about capital gains in terms of selling houses. You can't really spread that out over many years - thus the tax can be onerous. I'm all for a solution to that. However, I am talking about the bulk of capital gains which are stock sales which can be incremented - and will be if you own enough stock.

Lastly, even if you agree that capital gains tax rates were too high at 20%, the magnitude of tax cut should be proportional to the lowering of income tax. The top income tax rate only fell from 38 to 35 percent via the 2003 tax cut, but the captial gains rate was cut from 20 to 15%. Not only a larger ammount, but a larger percentage cut (of the percentage rate).

The largest tax rate cut was for dividends - they cap at 15% instead of basically 38 or 35%, previously. The rate of tax on this income was cut over 50% - and most people aside from the ultrarich will get no (direct) benefit from this.

Granted, the middle class own lots of stock via 401(k) plans, but they don't get those dividends. They are rolled back into the 401(k) plans and dispensed as income (capital gain or regular I don't know) during retirement.

Flish. You said it would take 40 years if you saved *all* of you 28k salary. I just showed how all you needed to do was save 5k a year to do it in 36 years. Big difference. You can't live off 0 dollars. You can certainly live off 23k.

Look. If everytime I do something no more complicated then adding stuff up and maybe throwing division in there you are going to call it "voodoo", then you clearly have not even the basic mathmatic or economic knowledge of this topic. What's the point? I've proven you wrong on every single thing you've said. You've come up with absolutely *zero* support for the statements in your original post. Case closed...


Yossarian,. You bring up some interesting information. However, you are glossing over something. The "top" tax rate of capital gains is already equal to income. I think you are misunderstanding what "capital gains" is (not your fault, since everyone assumes it's synonymous with "long term" capital gains).

Capital gains is any gain from an investment rather then direct income (profits from a business, or payments rendered for services, etc). If you don't keep your money in the investment for a set period of time (1 year IIRC), then you are taxed on any profit from your investment just as though it were income.

Anyone who's ever done a "same day" sale of stock options knows that this shows up on your W2 exactly as though it were income (no difference at all, it's on the same line). It's much more correct to say that capital gains starts at your income tax rate and then gradually reduces to the "low" rate. You don't just magically get that rate. Of course, when detractors discuss capital gains, then tend only to mention that "the rich" only get taxed at 15% or 5% or whatever the rate-de-jour is. They skip over the fact that those people had to invest in something and keep that money there for well over a year to get that nice tax rate.

If you hold it for more then a year, then the percentage you pay drops in direct relation to how much longer you hold it. The point is to encourage people to do two things:

1. To keep money in investments for long periods of time. This stabilizes the market. If you don't provide incentive for this, then bull/bear trends in the market will be hugely exagerated. The capital gains tax structure is one of the things that have been added to our system to attempt to avoid the type of stock market crash that caused the Great Depression. It's no coincidence that we start seeing lower long term capital gains taxes in 1934.

2. To encourage people to invest in *other* people's enterprises. One of the reasons we don't have the same sort of capitalism that Marx envisioned (and which he predicted would be replaced with communism) is because of systems like capital gains. If you are going to be taxed on an investment just as much as income, then why the hell invest? The rich will just build their own factories and make their own products, control the means of production, and own the whole thing from start to finish. Investment puts your money in someone else's business. It's a way to help capital and entrepenuership meet. It's a good thing. It in fact helps the money of the rich get spread out a bit (oddly, exactly what people seem to think it doesn't do). Today, if you have a good idea for a business, you can get investors and start a business. Or take out a business loan and do it yourself (where do you think that money comes from? Yup, people who put money in bank IRA's and such are providing the seed money for such loans).

The point is that without reduced taxes on long term capital gains, we would effectively be turning the clock back on our economy and going back to the robber baron style capitalism of the 19th century. That would be bad.

There's a lot more to why we have capital gains then to just give a bene to the rich. It's a carrot approach to getting the rich to do with their money things that are better for our economy as a whole. You can't just get rid of it. Not unless you can come up with a better way of accomplishing what the capital gains tax structure does.

Here is nice graphs that compare recent presidents and how much they spent. Notice the graph comparing nondefense spending increases and where GWB ranks.

http://www.cato.org/research/fiscal_policy/bush/factsfigs.html

Flish. I'm talking about raw salary. If you can survive on a salary of 28k, you can survive on a salary of 23k. People do it all the time. Um... Taxes are taken out anyway. What difference does that make? You survive on 28k minus taxes. You can survive on 23k minus taxes. Or are you suggesting that no one can make 23k a year before taxes and still survive?

It's purely about deciding to set that money aside. Pretend you make less money then you do, and put the extra into something that will benefit you long term. The fact that you can't seem to comprehend this only gives weight to my statement that the difference between the rich and the poor is a persons willingness to do more with his money then just spend it.

You are insisting that if you earn 28k, you *must* spend all of it on your day to day living. You don't. You can always just pretend you earn 23k instead. What do you think people who earn 23k a year do? Starve? Nope. They just have 5k a year less money then you do. If you got a new job tomorrow that earned 33k a year, would you put that extra 5k into investment? Or would you just insist that you *had* to have that to survive and spend it? I'm betting that you'd spend it. In fact, if you did earn that much, and I told you that if you just pretended you earned 28k, you'd respond exactly as you are now. And if I raised that salary another 5k to 38k, you'd still be saying the same thing.

It is your own complete unwillingness to actually put away money and save/invest it that is preventing you from accumulating wealth. That's not my fault. That's yours. You are your own obstacle to success. Not the government. Not the capital gains tax rates. Not the "wealthy". You. Until you change your approach to spending, saving, and investing, you will never be wealthy.


What's really amusing is the blindness you show about saving and investing seems to have nothing to do with how much money people have. Again. What percentage of big money lotto winners are bankrupt within 3 years? Almost all of them. Why is that? They spend every penny they have until they run out. That's why. Just like you do. You can't concieve of not spending your entire salary. Why expect that you'd change your habits if you suddenly had a lot of wealth? That also throws a total hole into the idea that people who are wealthy stay wealthy just because they inherited their money. Someone who inherits a 20 million dollar estate can blow that money in 3 years just like someone who wins a 20 million dollar lotto prize. If they don't, it's because somewhere along the line, they learned the correct way to handle money, and to generate wealth rather then spending it. The same rules apply for them, they just don't make dumb mistakes. Seems like they've "earned" it to me...

Sigh...

Flish, you just aren't getting it. How did you get to the spending level you are at? Did you *always* earn exactly 28k? From the day you were born? Maybe your first job you ever had? I'm betting not.

You started out making maybe 15k working an entry level job. Over time, you gradually increased your salary by working your way up, or switching jobs. However, as you did this, you increased the amount you spend to match. That's why you don't have anything left over.

At some point in your past, you made less then you make today, right? Let's say for the sake of argumet that 5 years ago, you earned 23k instead of the 28k you earn today. If you had freezed your expenditures at that level back then, then you would have 5k more a year to invest/save today. Your own lack of foresight is why you have no money today.


Do you expect to never earn more then 28k for the rest of your life? Probably not. Here's what you do. Everytime you get a raise, or in some way increase the amount you earn, don't increase your spending. Continue to live as though you earned 28k. At some point, you will have that extra 5k a year to invest.


I don't understand why you can't see this. It's really simple: You don't have to spend every penny you make. When you increase your salary, you don't have to increase your expenditures to go with it. That's what's holding you back. You don't have that magical 5k a year to invest purely because you've always increased your spending to match your earnings. That's the habit you need to break if you ever want to accumulate wealth.


I'm serious here. I actually like you and Dall. I'd like to see you guys have a happy and full life. I'm not telling you this to prove some kind of voodoo ecoomic idea. I'm telling you this because it will really help you in the long run. If you do what I'm telling you to do, you will have a better life for yourselves and your children in the long run. You will be able to save money and get ahead in life. Yes. It's a long process, but when you two are old and grey, you'll be glad you did it. Ultimately, you don't get to take anything with you when you die. However, you can pass the fruits of your labors on to your children (assuming folks dont take it all with estate taxes). You may think it's more important today to have that slightly better car, or live in a slightly better neighborhood, but when you are that old couple, I can guarantee you that you'll value what you saved and passed on vastly more then the slight cost you incurred getting it. At that time, it will be so much more important to you that you provided for your children then that you had slightly nicer things during your own life. Things fade away with time. They break. You buy new ones. In the end, they aren't really that important. I really hope you figure that out eventually.


I'm trying not to be too sappy with the whole "for the children" thing, but it's kinda hard to avoid. When talking about wealth, one of the key reasons for accumulating it is to give your children a better life then you had. Anyone can do it. It just takes a bit of spending discipline.

I'm going to ask just one question Flish, and I want an honest answer:

At some point in the future, when you salary has risen to 33k a year, will you then be saving that extra 5k a year? Or will you increase your spending to match?


Just answer the question. You don't even have to post your answer. I just want you to honestly think about it, and then make an honest assessment about whether it's possible for you to invest that money instead of spending it.

See... You say you have listed the typical expenses of someone "in your area". But you left something off. You are listing the expenses of someone "in your area", and "who makes 28k a year". I'm positive that the people in your area who make 23k a year somehow manage to have 5k less in expenses then you do. In the same way, people who make 33k a year might have expenses that add up to 5k more then yours.


The choice, literally, is yours. You really do have the power to change your life. All you have to do is to first realize that your own spending habits are keeping you from wealth, and then to change those habits. You certainly make more money then the bare minimum to survive. You could spend less if you choose. It's completely up to you.

There's no voodoo here Flish. There really is't...

Ok. Fine. I'll answer your question. Earlier, you asked this (which I assume is what you're going on about?):



I already kinda answered this in a roundabout way when answering something Yossarian asked.

First off. It's important that you realize something (because you seem to keep confusing it). Just as governments don't make "profits", government's dont "invest". Not in the same way you and I do. Businesses invest (ok, anyone can, but this is the largest single block that fits in the "I" part of the economic equation). Business investment generally results in increased GDP over time. Thus, governments "invest" by lowering taxes on businesses. By letting businesses keep more of their profits, they encourage businesses to invest more, which (theoretically) will increase the rate at which GDP increases. Since the GDP is what we ultimately tax down the line, this does count as an "investment", in every sense of the word, since the government takes a loss today in the hope of a larger gain down the line.

Bush decreased taxes by some amount (I'm getting tired of looking up the numbers, but this whole thing is up the page a bit). He did this by "borrowing" money (think of it just like a business loan). He increased the deficit by some amount (again, the numbers are up higher if you want to read them). This resulted in an increase in the per-year interest on the debt of 42 billion dollars. You with me here? His borrowing money costs us 42 billion dollars a year.


Ok. However, the growth rate of GDP increased during that same time period. You can argue that it had nothing to do with the decreased taxes if you want, but whether you believe they are related or not, the Republican strategy says that decreasing corporate taxes will increase GDP rate, the Republicans decreased corporate taxes, and amazingle enough the GDP growth rate increased. Anecdotally, we can say the two are related.

As I noted earlier when talking to Yossarian, if we today bumped the tax rate back up to the exact same level it was before Bush lowered it, due to the increase in GDP growth, we would collect 82 billion more dollars in tax revenue. What that means is that by decreasing taxes for one year, and then raising it again at some later point, we pay 42 billion each year in increased interest on the debt, but we will gain 82 billion in tax revenues.

Thus, Bush's "investment" earned us a net 40 billion dollar a year "profit" (see! there I go using your terms).


Now. It's not all roses of course. That's an ideal situation. We can't say what effect raising the taxes back from the ~16% Bush is running back to the ~20% that clinton was. We may lose some GDP efficiency (and some of that net tax gains). We also have to take into account future interest rate increases. We ultimately should take that extra 40 billion a year and budget it back into paying off the debt we incurred.


You might also be asking: "Well, then why didn't they do that after the first year? Why continue running a deficit and "borrowing" more money?". Valid questions. However, it's the "long term" investmet. We could have reaped that 40 billion per year gain after just a year or two. Um... But, since interest rates are currently low, so the interest on the debt is also low, it makes sense to take advantage of that fact and borrow a bit more, keep taxes low, and see if we can get more then a 40 billion per year increase out of the trend.


There are no guarantees here. However, you asked what Bush was doing long term, and I just answered it. He is investing (in a way). In an interesting way, he's doing the same thing I told you to do. Take away from what you have today in order to have more tomorrow. The specifics are a bit different since governments don't earn a "salary" like people do, and they invest differently, but you're probably heard Reps talk about Dems using "tax and spend" policies. That's analgous to what I'm talking about when I say you don't gain wealth over time becuase you spend everything you earn. The Dems tend to look at taxes purely in terms of how big a pie they get, and the budget is just how they split up that pie (tax for "income", spend for "benefit"). The Reps look at not just how big a pie they have today to spend, but look for ways to make that pie bigger tomorrow. If that means we have leaner times today, then so be it. Just as you'd have leaner times putting that 5k aside each year to invest, so the government has to run leaner (in this case a deficit), in order to increase that pie size tomorrow.


You'll probably assume this is all voodoo too. Unfortunately, the old saying still holds true: "You can lead a horse to water, but you can't make him drink". I'm giving you all the answers to the questions you've asked. You are just refusing to believe that it could be true. Heck. At this point, I don't even care if you believe that's what Bush (and the Reps) are trying to do economically. You asked for an explanation and I gave it to you. Bush is certainly being consistent with Rep economic strategy (ok. More or less). You don't have to believe in that strategy to accept that *he* believes that what he's saying about different economic strategies is true (and most Republicans agree with it as well).

I'm actually far more concerned with your seemingly complete inability to accept that you can save money, even if you aren't "rich". You said in your last post that you would save money if you could (and claimed that the Reps wouldn't).

Ok. Then why aren't you? At some point in the past, your salary raised from a point lower then it is today, to what it is today. Why didn't you take some of that increase and invest it?

Asked differently: At what point are you going to start investing instead of just spending? You are mirroring the Dem "tax and spend", with your own "earn and spend" approach to economics. Will you start investing when you make 30k? 40k? 50k? When? What are you waiting for? You need to realize that it's extremely hard to reduce a budget once you increase it to a certain level (as you've pointed out by listing your expenses). The correct way to start investing is literally to stop increasing your expenses as you make more money. If you get a raise, don't spend it. Calculate the difference in your pay, and put that aside for investment. This is the only way you'll ever manage it. I can guarantee you that no matter what your salary, if you always increase your expenses to match, you'll *never* have any left over for investment. You have to start investing *before* you have lots of money, not wait until you do.

Upward mobility is nice and all that, but if you ever want to accumulate "wealth", you have to at some point sacrifice your upward mobility in exchange for long term prosperity. Um... And you have to do it sooner, rather then later.

I'm serious here. You are free to agree or disagree with everything I've said about Bush and Rep economic strategies. But if you walk away from this thread with one thing, please take what I've said about personal investment and saving practices to heart. You are literally ******** yourself over if you don't listen to what I've said and put the ideas into practice at least to some degree. If you do exactly what I've suggested, and you start right now, I can promise you that in 20+ years, you will consider it the most important decision you made in your life (or one of them at least). I'm not making this up, and there's no voodoo here. These are real numbers, real investments, and an incredibly simple way to accumulate real wealth, if you're just willing to set aside some of your luxuries today, and willing to stick it out long term. This isn't some shoddy scamish "get rich quick" scheme. It's not "easy", but it's the best way to accumulate wealth and make a better life for yourself in the long run.

Flish asks, "Can you name one concrete thing that either Bush has done for us as Americans?"

Yes.

Tax breaks. I have already said how much I am saving this year even though I am making more. How can that get any better except to pass more tax breaks?

RACK BUSH!

Totem