Wealth in America

[Magic Man]

I made a point in another thread in response to a question that had been asked. That thread was closed, but I didn't want my response to go to waste. The question was how Obama could cut taxes on 95% of the population and only raise taxes on the top 5% and still come out without enough gain for his increased spending proposal.

The answer is this. The number 5% is probably a little unfair. If we stretch that out to a more likely number, we might be talking about taxing the top 25% a little extra. According to Wiki (Yes, I know, but you can check the sources, if you want), in 2004 the top 25% owned 87% or $43.6 trillion of the country's wealth. The middle 50% owned the other 13% or $6.5 trillion, and the bottom 25% owned no net wealth at all. For these purposes, they are using net wealth, meaning the sum of all assets minus liabilities.

Now, if we tax that top 25% a little bit more, say 5%, that comes out to $2.18 trillion dollars. If we then cut taxes on the middle 50% (for now we'll just leave out the bottom quarter), by that same 5%, we cut out $325 billion. That's still a net gain of almost $2 trillion ($1.855 trillion to be exact).

Now, we could narrow this down to the top 10%, too, who according to some, in 2001 owned 70% of the country's wealth. If we take roughly the same numbers, the top 10% owned about $35 trillion, while the rest owned about $15 trillion. With the same 5% tax hikes/cuts, we get a net gain of $900 billion.

And remember, that's only an extra 5%. For someone making $300,000 a year, that's taking home $13,750 instead of $15,000 a month.

Just wanted to clear that up.

 

[Zephyr]

But...but...SOCIALISM!

 

[Magic Man]

Good point. I hadn't thought of that. The sad part is that's what the opposition boils down to.

 

[Trey of Diamonds]

Well I'm for a flat tax but with that I think there should be regulations that say the executive management level can't make 600% more than the factory level employees in a company. For executive level personnel to increase their pay, the bottom level should be increased as well.

 

[Magic Man]

Well I'm for a flat tax but with that I think there should be regulations that say the executive management level can't make 600% more than the factory level employees in a company. For executive level personnel to increase their pay, the bottom level should be increased as well.

See, that's just a different way of accomplishing pretty much the same thing. I don't think we should limit the amount people can make, I just want those who make lots and lots of money to pay their share of taxes.

I did make one mistake, though. Owning that portion of the wealth doesn't necessarily reflect on how much you make. You could be worth 40 million dollars and not make a penny each year. So, that would imply some kind of tax other than income. But generally, people who have a lot of money make a lot of money.

 

[Trey of Diamonds]

See, that's just a different way of accomplishing pretty much the same thing. I don't think we should limit the amount people can make, I just want those who make lots and lots of money to pay their share of taxes.

I did make one mistake, though. Owning that portion of the wealth doesn't necessarily reflect on how much you make. You could be worth 40 million dollars and not make a penny each year. So, that would imply some kind of tax other than income. But generally, people who have a lot of money make a lot of money.

No arguements here.

 

[Alceste]

Excellent math-doing, mball. I love that stuff.

 

[Neo-Logic]

Assuming all your numbers, sources, and math is correct (I'll take a look later), it doesn't sound too bad.

Hey if that doesn't work out, I think we can save that much or more simply by finding a way to turn Rush Limbaugh and Bill O'Riley's hot air into a usable source of energy. Now that's truly renewable.

 

[Magic Man]

Assuming all your numbers, sources, and math is correct (I'll take a look later), it doesn't sound too bad.

Well, I'm not going to say the numbers are exactly right, but I will say they're in the ballpark. Also, remember that those numbers are from a few years ago.

I was really just trying to make the point that it sounds counterintuitive to raise taxes on 10% of the population and lower taxes on 90% and still come out ahead, when you realize the amount of money each group holds, it makes perfect sense.

Hey if that doesn't work out, I think we can save that much or more simply by finding a way to turn Rush Limbaugh and Bill O'Riley's hot air into a usable source of energy. Now that's truly renewable.

Now, there's a hell of an idea.

P.S.: I'd be interested to see what you come up with if you check my numbers, math and sources. Let me know, if you do take the time for that, please.

 

[Neo-Logic]

I was really just trying to make the point that it sounds counterintuitive to raise taxes on 10% of the population and lower taxes on 90% and still come out ahead, when you realize the amount of money each group holds, it makes perfect sense.

I can understand your point in a proportionate tax amongst multiple segments of the wealth populations - say top 50% for example. I think a lot of the proposed 10% of the population being taxed higher and alleviating such taxes for the 90% (probably much less in reality) is to shift the policy from the trickle down (rich people own businesses, therefore more $ with rich people = more businesses spending more money) towards the strengthening of the middle class as it stands today.

It probably also should be noted that the differentiation of the higher middle class from the 90% to possible be taxed is much more difficult than identifying the top 10% of the population. Mainly because the economic disparity between the top 10% and the other 90% is such that even with all the economic shifts taking place at a volatile rate, the top 10% still has enough buffer to remain top 10%. Unfortunately, same cannot be said for much of the middle class segments since their wealth is much more susceptible to market conditions and are constantly floating.

Take for example that many people whom we might consider to be the higher middle class or wealthy middle class (perhaps the top 20% - 30% of the 90%) are highly dependent upon certain variables that goes into calculating who is higher middle and middle-middle, etc. These are variables that affects the middle class much more than the top 10% - the equity in their home, the price of their home in comparison to their neighborhood, 401k accounts, other form of retirement/savings, # of months of reserves in their bank accounts, salaries/hourly wages - all of which are much more dependent on the market actions and tends to fluctuate much more freely. This is of course, in comparison to the top 10% whose wealth or assets are far deeper and able to be diversified across a wider range of exclusive portfolio options. The assets/wealth of the top 10% tends to be in different categories that the middle class often do not have access towards - large funds of investment such as hedges, long term bonds, blue chip shares, investment in multiple countries, investment in sectors/industries whose demands are far more inelastic and require larger capital for entry - such as petroleum, natural gases, etc.

So one of the fears of taxing more of the population beyond the top 10% is the fact that the consequences of increased tax towards the 90%/varying middle classes, is that it can have far more detrimental effects since it's hard to really assess the middle class wealth given all that has taken place in the last 12 months. However, it still is and always have been, easy to go over the top 10% because they're just so greasy and fat!

 

[Mathematician]

Well I'm for a flat tax but with that I think there should be regulations that say the executive management level can't make 600% more than the factory level employees in a company. For executive level personnel to increase their pay, the bottom level should be increased as well.

Has there even be a flat tax that doesn't negatively affect poverty? I'm not aware of any. Even the "Fair Tax" leaves the bottom tiers of society out to dry.

 

[Trey of Diamonds]

Has there even be a flat tax that doesn't negatively affect poverty? I'm not aware of any. Even the "Fair Tax" leaves the bottom tiers of society out to dry.

I'm not sure what you mean. Can you explain further? Thanks.

 

[Alceste]

P.S.: I'd be interested to see what you come up with if you check my numbers, math and sources. Let me know, if you do take the time for that, please.

I know you were talking to Neo, but since I am a nerd I want to play too.

I think, to begin with, it's a mistake to use wealth as the basis for your calculations, since I think we are talking about an increased tax on income. I have found some 2005 census data relating income on wiki (bless its little heart), but I will have to come back after "the Office" to crunch the numbers.

One thing it would help to know is whether the increase will be on the base rate, or the percentage paid on top of the base rate for additional income.

 

[OmarKhayyam]

What ALL these calculations miss is that the bottom 20% pay MORE as a % of disposable income that ANYBODY else.

Warren Buffet has been honest enough to point this out but the Larry Krudlows of the world just ignore it. Or say, "We are talking about federal income taxes." As if that made any difference.

And this is why the flat tax is so unfair. If I have $5000 in disposable income in a year and Krudlow has $5mil even if we both pay the same 5% who gets the harder hit? He paid more but he hardly missed it.

To me that $250 was big money.

 

[Alceste]

OK, I've done my thing, but it's not easy to piece this all together. The US census studiously avoids any clear and unambiguous tables on income inequality, so I had to cobble this together from various sources. Anyhoo, here it is:

Assuming for argument's sake the Obama administration really does intend to raise taxes only on households earning 250 K + a year (afraid I had to make this 200 K due to the available data), and everybody else will be the same or a tax cut, here's what I came up with:

____________________Total Income_______ Current tax___________ Proposed tax
Top 1 % _____________860 Billion ___________301 Billion______________ 344 Billion
Next 14 % ___________1.72 Trillion __________481.6 Billion ____________481.6 Billion
Bottom 80 %_________ 1.72 Trillion __________258 Billion _____________ 223.6 Billion
Total _____________4.3 Trillion _________1.0406 Trillion _______1.0492 Trillion

This assumes people earning 200 K and up will see a 5 % increase from their current bracket of 35 %, people earning 100 - 200 K will see no change, and people earning less than 100 K will see a modest reduction of 2 % (an arbitrary choice, since as far as I know he never made the size of this "cut" clear).

Unfortunately, again due to lack of data, I had to group the bottom 4 tax brackets (10 % - 25 %) together as 15 %, which is again a bit of a guess.

Anyway, as it turns out, giving 80 % of households a 2 % reduction and taxing the top 1 % of earners an extra 5 % ends up producing an extra 8.6 billion bucks.

If the bottom 80% only received a 1% cut instead of 2, that would be an additional 25.8 billion bucks. If, on top of that, the 100 to 200 K bracket received a modest 1% increase, it's an extra 43 billion bucks. There are loads of ways to juggle it, but I think the point gets across.

Granted, it leaves a long way to go before Bush's debts are paid at that rate, but it doesn't take any government income into account apart from income tax, which is only 45 % of US government revenue.

 

[Alceste]

What ALL these calculations miss is that the bottom 20% pay MORE as a % of disposable income that ANYBODY else.

Warren Buffet has been honest enough to point this out but the Larry Krudlows of the world just ignore it. Or say, "We are talking about federal income taxes." As if that made any difference.

And this is why the flat tax is so unfair. If I have $5000 in disposable income in a year and Krudlow has $5mil even if we both pay the same 5% who gets the harder hit? He paid more but he hardly missed it.

To me that $250 was big money.

"Paid more" my butt. If by some lapse in reason they implemented a 5 % flat tax for 2009, you'd still lose your $250, but Krudlow would GAIN $1,500,000. Why do you think the rich want it so bad? I only wish the math-challenged poor could see what kind of "fairness" the flat tax promotes.

 

[rageoftyrael]

Okay, i'm completely ignorant on this, but i find it hard to believe people are making more money this way. Please educate me on the flat tax.

 

[Alceste]

Okay, i'm completely ignorant on this, but i find it hard to believe people are making more money this way. Please educate me on the flat tax.

Here's an example. The top 20 % of the US population currently earns 80 % of the total income earned. These people make about $100 K a year and up and (when they pay taxes at all) pay 33 to 35 % tax on this income.

Any "flat tax" must be set at a rate somebody making $10 or $20 K a year can afford, so 33 % is obviously much too high. In countries where it has been applied, the rate is usually set at about 10 or 15 %. This is the current tax rate for the bottom two brackets in the US - 0 to 30 K per year.

So, for about 30 % of the population (the poorest third of America) there will be no change. Anyone making more than 30 K gets a 10 to 25 % tax cut, with the most significant impact being on the top 20 % - the people who already earn 80 of the total income of the US. These will be the people getting the 25 % tax cut, which in the case of investment bankers (for example) could equate to millions of dollars of additional income per year.

Now, currently out of about a trillion dollars in tax revenue, the top 20 % pay about 800 billion of it. With a 25 % tax cut for this group, you would knock out about two thirds of this revenue. The (roughly) 200 billion currently collected from the poorest people would remain the same. So, it would cost the US gov't about HALF their total income tax revenue, which translates into reduced government services (think FEMA, FDA, etc).

Hope that helps.

 

[rageoftyrael]

Holy crap! That is the dumbest crap i've ever heard! Just more the poor stay poor and the rich get richer, eh?

If that goes through, i'm gonna grab the nearest assault rifle and go nuts! That would in NO way help our current position. God, i just want to find a rich person and ring their stupid rich neck. Lol, just kidding, but seriously, what kind of crap is that? How can this even be thought of seriously?

It's like "hey we need money" okay, let's make sure we get less with a stupid plan that only helps the rich! Yeah, smart.

Thanks for the explanation.

 

[Alceste]

Holy crap! That is the dumbest crap i've ever heard! Just more the poor stay poor and the rich get richer, eh?

If that goes through, i'm gonna grab the nearest assault rifle and go nuts! That would in NO way help our current position. God, i just want to find a rich person and ring their stupid rich neck. Lol, just kidding, but seriously, what kind of crap is that? How can this even be thought of seriously?

My best guess is that a lot of Americans aren't too good with math or thinking.

Thanks for the explanation.

No problem.