It turns out, though, that the median family of four has an income pretty close to the average family of four, so this point is a little less clever than most of the folks who are making it believe.
How big is this bar? Time bring out the quadratic equation.
If the average net worth of a US citizen is $100,000 (it's less, but I'll go with that), and Gates has a net worth of $90 billion, and the average net worth of those people goes up $1M:
average worth = aw = 100000
n people
total worth = aw * n
Bill Gates comes in:
total worth' = aw * n + 90000000000
aw' = (aw * n + 90000000000)/(n+1)
difference = aw' - aw
= (aw * n + 90000000000)/(n+1) - aw * n = 1000000
= (100000 * n + 90000000000)/(n+1) - (100000 * n) = 1000000
=> n ≈ 944 people in the bar
> no matter how wealthy the population of the bar is.
That doesn't sound right. What if the population of the bar is as wealthy as Gates? The average net worth should change if you add another value equals to all the previous ones.
Am I reading something wrong?
What if the population of the bar is as wealthy as Gates?
My point is that you can't find 90000 people who are as wealthy as Gates. In fact, you can't find 90000 people whose average wealth comes anywhere close to Gates -- even the Forbes 400 average out at a paltry $6.7B, and you'd need to stock the bar with 83300 people with that level of wealth before Gates would fail to raise the average wealth by $1M.
I think the average wealth among the top 90000 people is around $100M, so you'd need to have around 89900 of them... plus or minus a few thousand depending on how the stock market is doing on any particular day.
Bill's net worth is $90 billion. It would be more accurate to estimate that everyone's average net worth of the bar population goes up by several billion.
The problem is that the people putting together these scenarios almost exclusively live on the coasts, where $270k/year can be average more often.
But just watch a TV show like House Hunters, and see how many people in America are struggling to buy a house that costs about the same as what people on the coasts spend on a fancy new car. There's your "average" person. There was one episode a few years ago where a guy in Atlanta had a budget of $46,000. Yes, just $46k for a condo. It was small, but it was home.
It should also be of no surprise that the politicians view $270k as an "average" family. They're all completely out of touch. Remember back in the early 90's when Bill Clinton said that anyone making $200k/year was technically a millionaire, because there's no reason they couldn't save a million dollars in five years. Red or blue, they're both clueless.
Aside from th fact that "average more often" doesnt make sense (do you mean more common?), its still not excusable because the data is so easily available. The county with the highest median household income isnt even half that (Loudoun County, VA at $115k), and Santa Clara county, home of most of "Silicon Valley" and a place many Americans would probably think as a home of a lot of high income families is 14th on the list at ~$91k/year [0]. A slightly older, longer list doesnt even put San Francisco in the top 100 counties.
Maybe the problem is that HN is full of people who make decently into the low 6 figures and spend large amounts of their time with others who make similar amounts.
How often have you heard some young single person complaining about how hard life will be in SF with only 130k salary?
I don't think that's even true for most of the coasts. I live in San Diego, which is I think the third biggest coastal city in the US, and the average household income here for a family of four is about $200k less than that.
How come so many people buy houses in the US, while most of us Germans rent? Even people considered of average income talk about their "condos" all the time.
I always think, how can they be average if they own a whole house?!
In the United States, paying your mortgage, taxes and insurance is often about the same price as paying rent (this varies with where you live of course). When you choose to put your money towards buying a house a portion of the money you pay each month goes towards paying off the principle of the loan, so you are "building equity". After 15 or 30 years you pay off the loan, then you only need to pay taxes, and insurance if you want. It makes retirement much easier if you own your own home. And in emergencies you can borrow money against your home or sell it to raise a lot of money.
You also have to pay for upkeep of your house, but an offset to that is that real estate can often increase in value over time. And the best thing is, it's your house. Pride of ownership is a real thing, it's nice to be able to do what you want, have a garden (if you have any land which many houses do), paint it how you want, add an addition, upgrade the kitchen or bathroom.
People who do not make a lot of money, but have a steady income and good credit can get a mortgage for a house they can afford, with just 10-20% down payment. But the poorest or those who do not have good credit must still rent, and even that is hard because many landlords check credit histories and want a big deposit up front.
>it's nice to be able to do what you want, have a garden (if you have any land which many houses do), paint it how you want, add an addition, upgrade the kitchen or bathroom.
Let's toss in a YMMV on this since sometimes home ownership in the US is also coupled with very restrictive HOAs.
Overall, that's a great description of why home ownership in the US can be beneficial once you've reached a certain income or rental price point that it makes sense.
I'd add that some people also have a hard time raising the 10-20% capital for downpayment even while they can afford the monthly mortgage payments, and so they are stuck in the renter's cycle.
US tax law heavily favors owning instead of renting. Mortgage interest can be deducted from your income before you pay taxes, so early on in the loan when your payment is mostly interest you are effectively getting a ~30% discount on your mortgage payment.
This was the only self-interested part of the new tax bill that I could get on board with. I think at one point it was going to get rid of the mortgage interest deduction entirely (now it keeps it below $750k, I think).
As a renter in LA, who never plans on being able to afford a house here, I was personally ok with them twisting the knife a little on folks that get a double break in not only the mortgage interest deduction rate but also get to keep their property tax low due to Prop 13. Whereas I pay ever increasing rent plus, to help fund public transit, we end up paying more in sales tax.
Politicians have encouraged home buying over the years, and there is a cultural ideal of home ownership (which goes hand-in-hand with owning and driving a car). This was a factor in the 2007-2008 financial crisis; banks had been encouraged to give loans to people with less income, in order to encourage more home ownership among the working class.
It's a combination of factors. First off, culturally, it's just one of those "things you do" if you're pursuing the American Dream. Many people believe that owning your own home is one of the major milestones to living successfully.
Secondly, for most people in the US who own homes, their home is their only source of equity or savings. Very few jobs in the US offer any type of pension, and many people don't have enough left over at the end of the month to put away in an independent retirement savings or investment account.
Not convinced by the bit at the end arguing that profiling mainly rich families is right because that's where the money is. If you want to look at where the money is, charts breaking down the overall changes in revenue--literally breaking down where the money is--are the right tool, and plenty of news outlets and think-tanks have been making those. (Like, I don't know, this: https://cdn.vox-cdn.com/thumbor/DxNLXVIK9jjf6JdZlijXboCAnIA=... -- also, interesting URL with the rescaling operations there.)
The point of looking at particular individuals and families is to translate it into impact on people's lives, and 1) a lot more lives are lived in those lower income ranges, so there's a greater multiplier to the impact there, and 2) the impact of a given dollar change in take-home pay is larger for someone less rich.
For an example of the second factor, like a lot of people in the US tech business, my life probably doesn't change that much if my take-home pay goes up or down $1K. If someone only has a couple K of discretionary income every year it's a bigger deal; if someone can barely make rent anywhere in their city or can't afford to fix the car they take to work when it has mechanical issues, it's crucial.
One of my bugaboos is people using the wrong metrics to try and describe problems.
In this case relative price level means nothing at all. It's all about job security, opportunity and margin. You comment about the difference of $1k is all about margin.
$30k income, single, no kids.
$52k income, single, 2 kids.
$75k income, single, no kids.
$85k income, married, 2 kids.
$165k income, married, 2 kids.
...
That's the kind of stuff people are looking for, right? The $165k entry is two earners - all of these are fairly realistic examples.
Those of you that think that something is missing from these examples - what do you think is missing? I mean, the low income earners even see a break. $30k income, single, no kids, and living in California goes from a federal tax bill of $2426 to $1970. (according to http://taxplancalculator.com/ )
Most everyone will get a break. There is a weird crunch for people making between $200K and $400K in a high tax state like CA or NY who will come out behind due to the loss of deduction on their property tax and state tax, and since they live in CA or NY, are probably barely middle class at those wages.
The bigger issue is that, for example, the Walton family alone will get 5% of the 1.5 trillion dollar tax break. The Trump family will get a huge break too. It's unlikely that the Walton family or the Trump family will suddenly start making a ton of economic activity because of their windfalls, but in the meantime government revenue is down, which means they have to start cutting services.
So most of the tax breaks for the lower earners will be eaten up over the next few years in paying for things the government used to subsidize for them.
I live in NJ, another state where the $200k-$400k will be hurt. Believe me, that is solidly middle class, even when a 1BR rents for $3k/month.
The real problem with these "tax breaks" is that the most significant breaks are highly specific and selective. This tax bill basically picks winners and losers. Worse still, the winners tend to be people with the kind of investments and lifestyle that Republican lawmakers have (e.g. the Corker kickback), and the losers tend to be professionals living in Democrat-leaning states (e.g. tech workers).
The relatively small breaks that the majority will receive are temporary, and represent a minefield of exceptions that can leave people with no break at all (e.g. the loss of exemptions). There is a reason Republicans are picking oddly specific examples of people the bill will benefit -- most people will not see much, which is not a very compelling story.
I was going by what sort of lifestyle you can live with that income range. You can rent a nice apartment in a nice part of town and support a family on your salary. You could also go out to the suburbs and live in a largish house. You get one or two trips abroad with your kids each year.
We are not talking about country clubs, yachts, or first class airfare here. It is not the 1%. It is between working class and upper class. What else would you call it?
200k-400k is in no way "solidly middle class," nor is that true in any area in all of The United States. That income is very much upper class and puts you in the top 5% of earners in NJ, so it is in no way "middle" anything.
Upper class is a stretch. $200k is enough to live in a nice apartment and travel once or twice per year. It is not enough to pair a yacht with your condo (it is not even enough to afford most of the >1BR condos in Jersey City).
Maybe "upper middle class" but I don't see how anyone outside of the 1% can reasonably be called "very much upper class."
looking at it by a $ per family is wrong and gives the wrong impression of how it affects families. If anything the bad part is that it makes the system even more progressive and the US has one of the most progressive system in existence.
now why is that a problem, because it favors having politicians cater to this group by creating all sorts of carve outs so they can get back some of these taxes paid usually by supporting the same politicians.
No, that can't be right. I saw that only the five richest people in America with solid gold toilets are getting a tax break, and that everyone else is going to be fed into a wood chipper. It was on TV, so it must be true.
If $400K is 'middle' class in CA or NY, how exactly are 'lower' class people expected to live? By roasting pigeons in a fire barrel under a highway underpass?
As someone who went from earning $25K to $85K to $300K, I have near-zero empathy for the tax bills that any American family making above $200K faces... Or any of the owner class that is coming out as the big winner with the new tax bill.
Here's the thing. If you're making $400K in CA or wherever, you're not middle class. You're an upper class worker. You still need to show up to the office to do your 9-5-5, or your 6-9-6, or whatever it is you get paid for. Your interests are not aligned with those of your CEO, or even the CEO of the shitty temp sourcing company down the street, who makes half as much as you do. But you are also not, by any means, middle class.
You can drop out of this rat race in five years of frugal living, and retire far more comfortably then the poor sap filling orders at an Amazon warehouse will after 40 years of back-breaking work.
I've had this argument before, but basically, with $400K a year, you can afford two cars and a 2000 sq ft house with good schools, and maybe a nice vacation.
So yeah, you're not hurting, but you're not wealthy enough to retire and maintain that lifestyle.
Sure, you could "live frugally" and retire after a few years, but you'd literally have to live in a tent and then retire somewhere that isn't California. That might be ok for some, but for others it isn't.
I don't know how people making less than $200K a year live here comfortably. I mean I do know, because I know people like that. They live in a house that they inherited from their parents, they don't do anything out of the house, and they live near bad schools with high crime.
Let's do a simple budget for a $400K household. This puts you in the top 1.2% of incomes, nation-wide, by the way. Say, 40% of that goes towards income taxes (A bit of a high estimate, even, since taxes are progressive, there are deductions, your 401K isn't taxed, but whatever).
That leaves $240,000.
Two adults, so $40,000 goes to your 401K, no questions asked. It's the responsible thing to do. You're already saving as much as a median SF household takes home, but that's fine.
Two cars. You can buy a working car that will probably last you seven years for $10,000, or ten years for $20,000. Let's ammortize it at $2,000/year, with another $3,000/year in gas, insurance, oil changes, tires, etc.
That's $190,000 left over. Let's say you take two nice family vacations, for another $20,000 total. That's not living frugally, since you're spending more money on fun then what someone making your coffee makes in a year, but that's fine, you're definitely middle class.
Let's say you save another $50,000/year. Kids need braces, your car may get dented, you might want to order tex-mex every once in a while, you want to build that retirement fund.
You're left with $120,000/year in cash, to spend on food and housing.
If you can't figure out how to live on that, I hate to break it, but you're mismanaging your money. The median SF household lives on $77,000/year - that is BEFORE taxes. Half of them manage to raise at least one child on that. $400,000/year is completely out of touch with what normal middle-class people can spend. You don't need two Model Ss, Junior doesn't need to go to a top 5% elementary school, and you can probably make due without a two-week trip to Spain and another to Hawaii.
Let's look bottom up. A typical house in my neighborhood is about 1800 sq ft, 3/4 bedroom, so enough to have say 2 kids. It's about 2.2 million to buy said house. So that's about $8000/mo in mortgage, assuming you somehow managed to save $400K for a down payment. You'll also pay about $2000/mo in taxes. So that's $120K/yr just on housing costs.
But my neighborhood is the "poor" neighborhood. Most of the folks who live here make about $200K-$300K a year.
Over in the $400K neighborhood, their houses are about 2000-2500 sq ft, and cost about $3.5M. Keep in mind the median home in the US is about 2200 sq ft, so these houses are right in line with the US median.
At $3.5M, assuming they can save a 20% down payment, they'll be paying $14,000/mo in mortgage and $3,000/mo on property tax. So that's $204,000 a year just on housing to live in a median size home with good schools.
Using your math, after taxes and 401K, that leaves $38,000 a year for everything else. Or if you skip the 401K, it's $78,000 in post tax money.
So like I said, you aren't hurting, but you aren't crazy rich either.
They see a break, but it isn't a structurally meaningful one. $500 is certainly short-term beneficial when you are making $30K--it is not enough, by at least an order of magnitude, to create long-term benefits, even if the knock-on effect of those tax cuts was not to ensure that the person making $30K a year ends up spending more than that $500 poorly replicating the government services that will be cut to pay for the top end of it.
Even setting aside all that, that these tax cuts are functionally useless except as a transfer of wealth to monied interests, they expire in ten years besides. It's a more complex problem than what a calculator can really express without losing the ability to give a Nice Shiny Number out the other end.
> The $165k entry is two earners - all of these are fairly realistic examples.
$165k houshold income puts them barely outside the top 10% of households, though [0]. Its not unrealistic, per se (its not the top 1%, for example), but ~90% of households make less than that, so its not particularly useful, either.
The thing is, the top-10%-but-not-1% band gets hit the hardest with taxes. You are not living on tax-advantaged income from your investments (i.e. you are still working for your money), but you are in a fairly high tax bracket (you could be paying more than 40%, maybe even more than 50% of your income in taxes). That is the income band with the highest marginal tax rate (i.e. the tax rate per extra dollar of income).
How about someone making $75k/yr. who itemizes deductions, because they live in a high-property-tax state? Or someone making $75k/yr. who has 5 kids and receives an exemption for all of them under the current code?
We could go on all day coming up with scenarios that are missing from tables like these, some which represent winners, some which represent losers (somehow, that table seems to have no losers...). There are bigger issues with the bill. There are a bunch of hidden traps for the middle class that people are just beginning to understand. Already there are concerns about the new provision allowing 529 plans to be used for private elementary schools, and the way that will create incentives that hurt the middle class while benefiting the wealthy. The bill also picks winners and losers by allowing some professions to use pass-through corporations to reduce their income tax burden, but not others (architects and engineers, but not software developers).
What income group do these media outlets think their readers belong to? If anything this kind of reporting might show why "bottom half of earners in America" are turning towards stuff like Breitbart etc.
I'm sure Breitbart is blindly trumpeting the tax cut, just without the profiles/statistics showing what types of people it helps. There's a reason these outlets are showing "typical" families making $250k. That's how they can show that "typical" families benefit significantly.
Most news outlets also stand to benefit significantly because it is primarily a tax cut for businesses.
Here are the current headline on their front page which mention 'tax cut'. "Trump: Patriots Owner Robert Kraft Building Factory in N. Carolina After Tax Cut Bill", "Bank of America Paying $1,000 Tax Cut Bonuses to 145,000 American Workers", "Ted Lieu: Tax Cuts Make Poor People Jealous", "WINNING: Germans Fear Job Losses from U.S. Tax Cuts…", "‘Avengers’ Director Joss Whedon Has Two-Day Twitter Meltdown Over Trump, GOP Tax Cut Vote", "Winning: President Donald Trump Signs Historic Tax Cut Bill".
Put "typical family" into the Breitbart search box.
The first match is for http://www.breitbart.com/economics/2017/09/30/mainstream-med... . In it, "Gary Cohn, the White House’s chief economic adviser and its lead advocate for the GOP tax overhaul" talked about the effect of the then-tax plan on "a typical family earning $100,000 with two children that has been a standard deducter, has used the standard deduction and continues to use the standard deduction".
(You'll notice that Cohn used $100,000 of income, which is the same income that Texas Sen. John Cornyn was quoted as tweeting.)
Other media sources misinterpreted that as saying that the typical family earns $100,000, when "the average American family makes $74,000 a year".
Breitbart's article complained about "the difficulty of persuading a skeptical mainstream media that the proposal would cut taxes for the middle class."
I found no article describing how the tax cut would benefit the typical family.
I think there's also the "I haven't made it yet, but I'll get there" mindset of a lot of readers. If someone hopes to be making $250k someday, then being assured that when they do they won't be penalized for it is reassuring.
The inverse may be true, that Breitbart's readership may skew poorer than cable news or traditional print media, but poorer people in general probably don't read much news, so an argument that the average income of reader base affects the framing of the coverage probably isn't accurate. Most of Breitbart traffic comes from social media and is optimized for engagement, a la buzzfeed.
This reflects my understanding. Poor people read less news and vote less. But when they do vote, they prefer government programs. Which lately has meant they prefer Democrats by narrow margins.
I doubt enough people are turning to fringe conservative news sources--defined as "so far to the right even Fox News wouldn't go there"--like this to call it a trend.
The conversation is repeatedly borked by differences in COL. Touting the national median income and then claiming someone earning $100k in SF (where the median income is ~$100k) is "out of touch" is frustrating.
Someone earning $100K in San Francisco is still significantly above either the average or median in purchasing power in the United States. Like, to an embarrassing degree. It is not as far above the average as somebody in lower-COL areas, of course, but it's not the same thing.
I find it annoying when people equate COL with cost-of-housing. One doesn't scale with the other. You can afford to pay a much larger percentage of your income in housing when your rent and income are both high, because hardly anything else is especially scarce like housing in a crowded city. That's the most important reason why one lives in a city that I know of - everything except housing is more abundant and higher quality.
If you limit the amount of real estate interest and tax deductions the price of houses should decrease theoretically because the house will be less attractive.
If you limit state taxes there should be a net migration to lower cost states.
In general I think the tax changes are bad for most people in the long term but high income earners probably skew toward professions who might be able to set up corporations and get the pass through rate on some of their income.
It's interesting to think about how a progressive tax code is meant to tax those who can afford it the most, but it ignores COL differences so the taxes fall disproportionately on those in high COL locations.
Salaries versus COL, and the impacts of the perception of both, are not (usually) linearly correlated, but which side of the line any given locality falls upon is hard to predict. Salaries in San Jose, for example, are significantly better relative to COL (in part because of the halo effect from the rest of the Bay Area) than they would be in Los Angeles, where cost-of-living is high but a commensurate lifting of salary has not been seen. But considering this as a general note of unfairness rings pretty hollow to me. It's a relative scale problem; my yearly net is going to be more actionable and more usable than that of someone in a low-COL area because the work usually isn't there to begin with.
As an example, from the numbers I've seen whenever I've talked to companies out there, I would probably take home between 40% and 50% more money if I relocated to San Francisco from Boston; I'm very good at what I do and my set of skills is in high demand. I'd probably pay between 20 and 25% more in expenses, including taxes. The biggest increase would, of course, be housing costs--but I would have more disposable income that I could then (because that kind of money is buy-capital money--unlike, say, a tiny pacifying bribe to look the other way while the rich monumentally loot us) use to invest and reap consistent returns in a way that is functionally unavailable to most people living in, say, the Lakes Region of Maine, where I grew up and where the average household income is about $41,000.
> it seems like a policy that basically subsidizes lower COL locations.
I would put it differently. I would have said it is a policy that is (slightly) less "progressive" in high cost-of-living areas than it is high cost-of-living areas. (Where "progressive" means those with high incomes paying a larger percentage of their income in taxes.)
So when we look for examples to illustrate the tax code, it makes sense to use a bunch of pretty wealthy families, because the big pictures is that nobody else really has very much money.
This is a good point. If someone is going to highlight what a federal tax cut does, they have to go to people actually paying federal taxes. Most people in lower incomes brackets already pay near 0 in federal tax. This is why tax cuts do not really help those who need help the most. To help those who really need help we have to spend money on things like healthcare, education, and jobs programs[1].
[1] As an aside, people rightfully rip on military spending waste a lot, but it is still a decently functioning jobs program.
On the other hand, a tax cut helps a husband and wife working 60 hour weeks each, who barely have time for each other, in order to pay for the mortgage, health insurance, and try and save for retirement, and pay over 60% of their money to the government (40% fed tax, 14% state tax, 10% sales tax).
You're claiming that 40% of their total earnings are lost to federal tax? In this example, what types and how much income are you proposing? Doesn't seem realistic to me.
even when I was young I questioned the cost of putting 15-20 people on an airplane, the cost of daily breakfast of 15-20 people, let alone the fact they they appear to be affluent and live in a small mansion. When I got older I began wondering what the parents did for a living, but I never investigated it enough to see if it was explained.
Glad to see i'm not the only one that questioned it.
I think this is often a dumb complaint and it shows itself in other contexts sometimes. There's a natural floor to income, it's $0. But there is no ceiling. So naturally if you want to give a sampling of scenarios covering most people, most examples will be high earners (even if there are fewer of those) because how many meaningfully different scenarios are there between $0 and $50k of income?
EDIT:
Another corollary of this explains part of why income inequality increases over time. As markets become more global, the upside for successful enterprises goes up - there are a lot more potential customers. So today someone at the top of their field can have a much higher income than he could in the past, whereas the income floor at $0 is unchanging.
The author makes a valid complaint about the examples these senators used to promote the tax bill but he doesn't further my understanding of the bill. In fact, what little he says about it seems wrong:
> All changes to deductions, for example, only affect people who itemize their deductions (almost always high earners)—and within that group, only the subset whose deductions topped the new, doubled standard deduction. And this means that if your income is in the bottom half, your tax return won’t showcase many of the ways the law is changing.
Let's break it down:
> Most people who itemize are high earners.
From what I found[1], 1 in 3 tax filers itemize. Most deductions come from mortgage interest and state and local taxes. I pay a mortgage and a hefty NJ state income tax. Am I a high roller?
> The amount you pay in taxes will not change unless your itemized deductions top the new standard deduction.
That's exactly wrong, right? If your itemized deductions top the new standard deduction then you will still itemize, so your deduction won't change. If you do not itemize (looking at you, non-high rollers) then your deduction will double. If your itemized deductions are lower than the new standard deduction (peasants like me), your deduction will increase to the new standard deduction.
Also, I can't tell if he's saying you won't pay less in taxes, or if he's saying "your tax return won’t showcase many of the ways the law is changing". The latter is vague enough to be non-falsifiable. The former is just wrong because the tax rate is changing for every bracket but the lowest one.
This is a contrived example, but a single filer making $50k who took the standard deduction last year would have remained in the 3rd tax bracket (25%) without the bill. With the bill, he'll deduct an additional $6k, which drops him into the 2nd tax bracket, which is now 10% (down from 12% a year ago). That's a nice chunk of change for a deadbeat!
Complaining that rich benefit disproportionately from tax cuts while ignoring the negligible taxes paid by those under median income is politics as usual. It is the opposite side of the "fair share" argument when demanding more hand outs be paid by those with more money than the writer.
In a healthy, civic-conscious society, it is understood that those who have help those who don't and that this is a moral and ethical good. What we are seeing now with the profound selfishness of the modern American civic system (in some social quarters on the left, in most social and economic quarters on the right) is a breakdown of that mutual understanding and spirit of civic duty. Which leads to those who have incomprehensible amounts of money being defended by those with merely a lot of money against those with no money by characterizing the notion of ensuring a basic standard of living for those with no money as something like "handouts" instead of the mutual cooperation to keep a working society that people, not just rich people, actually want to live in.
There is a statement about the need to get over oneself somewhere in there, but finding it is an exercise for the reader.
Something you didn't touch on is that there may be a different viewpoint on whether people are getting "handouts" based on assumed counterfactuals. Say one person makes $30K and another makes $5M. What is the "fair" amount of tax and who is getting a handout? The rich person may think "society provides people with $10K of support per capita, so if I pay more taxes than that, it's generous and if someone pays less, they're getting a handout". The person making $30K may reason that "if it wasn't for society catering to the privileged, nobody would make millions, so nearly all the excess over the average income is a handout if not paid in taxes". It all depends on where you anchor your assumption of what is deserved.
Recall that for someone "making" $5M per year, the majority of income that high is inevitiably extractive and exploitative and comes from ownership and power, not the output of their actual work. One could argue if they deserve any of it beyond their actual real wages at a fairly evaluated rate, which might cap out at $1M in a democratic society. FDR proposed a 100% marginal tax rate on the highest earners, his opponents argued him down to something in the 90s, spawning the most productive period in US history.
I don't necessarily find it convincing that the benefit from living in society to an individual is capped, but on the other hand, I don't find it convincing that the benefit from some individual to society is capped either.
We may consider perhaps one can only truly earn $1M. But, what if someone has an idea that benefits a billion people to the value of a dollar each? You may not think, for instance, that Facebook in particular qualifies, but the point is, it seems to me possible in principle. Or, what if someone invents something that saves a million lives? You can't put a dollar amount on that, maybe, but surely it's worth more than $1M, because courts put that much value on just one life frequently.
All in all, the existing situation, where taxes are a percentage of what you make kind of makes sense to me. It is consistent with believing that living in society is a multiplier.
Politics as usual, to me, is where people point to the progressive taxes in the US system and say "poor people don't pay taxes" while ignoring the regressive taxes. And then try to stimulate the economy every which way except the one way that makes sense - cutting taxes on consumption. Granted sales taxes are not federal, but there must be federal levers that could be pulled.
I remember reading about how Japan was desperate to increase inflation a bit and then they raised the VAT or something like that - and I was bewildered at why they were shocked that inflation promptly wilted further.
It's disheartening that you hear more about a national sales tax/VAT rather than trying to go in the other direction and eliminate sales taxes, not to mention making capital gains rates the same as all other income.
This has been driving me nuts, I'm glad someone is writing about it. I don't think this is happening to show how much the tax cuts are giving back to people, I can't help but think that the reason only high earners are shown as examples is to paint this legislation as only benefiting high earners. If this is the case it has been broadly successful. Apparently half the country is buying into a narrative that their tax bills are going to go up, and I'm not sure where that idea is coming from. ( https://www.monmouth.edu/polling-institute/reports/MonmouthP... )
If the low income earners were included two things would be clear. 1) Many low income earners don't pay federal income taxes at all, many actually get paid by the IRS instead 2) Low income earners actually still benefit by getting either lower taxes or higher credits.
At this point, there is no way of having a reduction in tax bills that doesn't overwhelming favor the top 50% of earners, because they pay almost all the federal income taxes. In 2015 the top 50% of those that filed tax returns paid over 97% of income taxes (the last table cell at the bottom all the way on the right https://www.irs.gov/pub/irs-soi/15in03etr.xls )
EDIT: Based on experience on this board I knew this post would be downvoted, but I'm not exactly sure why. Please help make me a better contributor by telling me what I did wrong as you downvote, thanks!
> Apparently half the country is buying into a narrative that their tax bills are going to go up, and I'm not sure where that idea is coming from.
Well, you could try reading some analyses of the bill, which are pretty clear about what they're saying:
>By 2027, more than half of all Americans — 53 percent — would pay more in taxes under the tax bill agreed to by House and Senate Republicans, a new analysis by the Tax Policy Center finds. That year, 82.8 percent of the bill’s benefit would go to the top 1 percent.....In 2018, the bill is an across-the-board cut for all income groups, but the biggest cuts are reserved for the upper middle class
And your last line is a non sequiter, because there are many taxes that are not personal income tax - some of them are even dealt with in this specific bill.
Edit: I didn't downvote you, but I was tempted to because I can't imagine that you don't actually know that the bill contains temporary tax cuts for most people and permanent tax cuts for the very wealthy, so it reads as though you are building a strawman.
> At this point, there is no way of having a reduction in tax bills that doesn't overwhelming favor the top 50% of earners
This is completely true.
The reason the top half pay all the taxes is the top half have all the goddamned money. And that, of course, makes sense: the top half have the only realistic chance at accumulating enough labor-derived money to buy into capital and they've been doing exactly that for the last fifty years. Capital is not linear per-hour. Capital is a multiplier. That's why they have all the money. That they have all the money is the core and the source of the mess we're dealing with right now.
Which means there is another question to be asked: should taxes be lowered? As someone very firmly in that top half, I am benefited by having people in the lower half of the income distribution not starving and dying in the streets, not dying of easily preventable injuries and illnesses, and not being so crushed by debt that revolution looks appealing.
So are you. It's not about you, and it's not about me, but it's about us. We need to do better by us, so we can all keep this thing ticking along.
And I gotta say, it's important not to miss that even that Bloomberg article elides a really, really important question: how much of that net $915 from that hypothetical renter now goes to (poorly) covering for the cuts in other services that will be necessitated to avoid budgetary disaster? It's a hard question, because nobody really knows, but it's a question whose answer will impact the people at the bottom of the income distribution the most, by far.
> how much of that net $915 from that hypothetical renter now goes to (poorly) covering for the cuts in other services that will be necessitated to avoid budgetary disaster? It's a hard question, because nobody really knows, but it's a question whose answer will impact the people at the bottom of the income distribution the most, by far.
Yes, I think that is the main point, and what we should be talking about. I feel like as a country we have lost the ability to have a discussion at that level of depth. So instead we dumb down our arguments to the point where we mislead people just so they will accept our point of view.
>> At this point, there is no way of having a reduction in tax bills that doesn't overwhelming favor the top 50% of earners
>This is completely true.
I think there are plenty of ways to go about restructuring taxes that make this false. Any jiggering you do with the lower brackets for lowering their rate can be equally compensated by the top brackets starting a few thousand dollars earlier.
Maybe I'm misunderstanding you, but the poor don't pay much (income) taxes on the first place--cutting them to get to those sorts of numbers may be a negative income tax rate. As I understand it, the problem is pretty dumb to have: the imbalance is such that, without significant improvements and expansions of governmental services, there's no money to extract.
We have a hand-to-mouth debt peasantry in this country. It's stark once you start digging into the numbers.
It could be that people with capital have all the money because capital gains rates are significantly lower than earned income rates. Maybe we could adjust that so as not to continue distorting the economy?
I am not an economist (minor in undergrad, but whatever), but intuitively this sounds like a fair action to take. I'm exactly in the class of Americans who will be capital owners (and I have a leg up, I work in tech, we're the only people who turn labor into capital with such a miniscule overhead), I'm pretty okay with paying my way.
I wonder if equalizing rates would harm the software industry though - maybe the entire information economy as we know it is largely a product of the discrimination against labor leading to overinvestment in the industry with the highest returns per person. I can also see equalizing rates crashing the prices of investment assets. If it's worth doing in the first place (because the distortion is large) then it is necessarily going to be disruptive.
For all we know, not favoring capital only delays the singularity...
Many people correctly surmise that the benefits to individuals are temporary and will sunset, after which their taxes will be higher than when they started.
Also, provisions such as repealing the individual health insurance mandate lead to an increase in other expenses, though admittedly those are not federal taxes. I work for a health insurance company, and earlier this year the company filed with the state regulators to say there might be close to a 50% hike in premiums, depending on whether or not the individual mandate was repealed. Whatever your feelings are about that politically, the increase in premiums will be real and directly related to that bill, and the money is fungible so people can't be blamed if they consider it an increase.
One more thing, a deficit funded tax cut today means a tax increase tomorrow to pay for principal+interest. People could be thinking of that when they say their taxes will go up.
It's mathematically impossible to pay back a "deficit" in general I think, once the time period in which it occurred is over. But more to the point, the deficit and the debt are important despite the fact that the debt is not expected or desired to be paid off. In order to maintain our way of life, the growth of the debt needs to approximate the growth of the economy in the long run, and be reduced if it overshoots. This is a concept I rather think some conservatives have given lip service to in the past. Are you one of the "fiscally responsible conservatives" I used to read about? The idea that there is a middle ground between hyperinflation and paying the debt off isn't terribly difficult, I would've thought.
I am not a conservative at all, but I can do basic math, and I can tell you with 100% certainty that the federal government's debts will never be paid back.
If the US federal government is well run, there is no reason to pay the debt off, as a liquid market for treasuries is beneficial, and the debt can grow forever with the economy...and if the government is poorly run, it would presumably default at some point.
So while I more or less agree it is at least 99.9% certain the debt will not be paid off, I feel like you are making some implicit point with your comment about "basic math" and "100% certainty" that I would not agree with. Why belabour the obvious?
If there was some reason the debt needed to be paid off, I don't see why in principle the US couldn't stop running deficits, as we have oscillated between trillion dollar deficits and much smaller ones.
The reason the articles focus on families ranging from the median up is because the vast majority of people below the median income don't pay federal income taxes. [1] The bottom 40% actually have a negative effective federal tax rate. So going from 0% to 0% isn't exactly informative. The title of this submission (originally Please Don't Show Us Another “Typical Family Earning $270,000 a Year” in case it is changed) is misleading. The $270k number references another article [2] that looks at a wide array of different possible income groups. The lowest it goes is a married couple with one child earning $40k as their effective rate goes from 1.29% to -1%. Nowhere is it ever stated or even implied that $270k is a typical family.
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