Example: middle class versus the wealthy

[IHateMyJob2004]

A simple example. Municipal bonds ...

Municipal bonds are an example of job creation. Citizens buy municipal bonds from the government to fund projects. With those funds, companies are awarded contracts. Those entities hire people. Those workers spend money at restaurants, grocery stores, Wal-Mart, etc. And there is a trickle down effect from those secondary businesses that employ people. People all along the chain make income due to what starts at the issuance of municipal bonds.

Assumption:
Over the past 30 years the wealthy have gotten wealthier relative to the middle class. I am not debating this issue here. It is an assumption in this thesis.

Based on this assumption, the wealthy are spending more on municipal bonds relative to the middle class. So, the wealthy are job creators in essence more so than the middle class. No debate about it.

Theory:
Now, let's change things a bit. Let's change the regulations in the USA to give the middle class have more money and the wealthy less. Let's assume that the middle class have more money in order to be job creators due to having more free cash flow and thusly more of a means to invest in municipal bonds than today. And the wealthy have less to invest in municipal bonds than today.

The wealthy will still buy municipal bonds granted less of them. The middle class however will pick up the slack due to increased ability to invest in municipal bonds. And the same municipal bonds will be sold. Therefore, the middle class will be job creators to a greater extent than they are currently.

The end effect though is that those in the middle class that can invest there money (assuming they currently do not) have another benefit. They will actually enjoy a better quality of life via more disposable income.

And now for the shocker. The very wealthy probably will not be impacted. Perhaps some will go for the 5 series BMW instead of the 7 series. But really, are they hurt so badly that it is not worth making many more people better off?

We The People,
IHatemyJob2004

 

[dmcowen674]

France has the best idea

5-17-2012

http://news.yahoo.com/blogs/ticket/...-french-tax-increase-god-bless-140144896.html

Will Smith baffled by proposed French 75% tax increase: ‘God bless America’


During an interview this week with a French TV station, actor Will Smith said he supported the idea of paying higher taxes—but he was shocked when the reporter told him about a proposal from France's new president to raise the marginal tax rate to 75 percent.

"I have no issue with paying taxes and whatever needs to be done for my country to grow. I believe very firmly that my ability to sit here—I'm a black man who didn't go to college, yet I get to travel around the world and sell my movies, and I believe very firmly that America is the only place on Earth that I could exist," Smith said. "So I will pay anything that I need to pay to keep my country growing."


That's when the interviewer mentioned that France could have a 75 percent tax rate on income over 1 million euros.


"Seventy-five?" Smith gasped. "Yeah, that's different, that's different. Yeah, 75. Well, you know, God bless America."

 

[IHateMyJob2004]

Only responder is a troll, awesome.

 

[Pr0d1gy]

He isn't trolling, just giving an example of how the rich in this country view the rest of us. For example, a person in 1960 making top 1% money would have paid 70-80+% in federal taxes. Nowadays they usually pay nothing because they earn off of capital gains which iirc has a 15% tax rate. FIFTEEN PERCENT.

 

[Exterous]

But really, are they hurt so badly that it is not worth making many more people better off?

Are we talking about net worth or high income earners? If you are talking about people with a net worth of 2M+ and above then probably not hurt badly at all. If you are talking about people with an income of $350,000 (about where the 1% starts IIRC) and above they could very much be hurt. There is nothing to show that people making an income of $350k-1M are any better than the majority of Americans at managing their money - which is to say they are pretty shitty about it and generally highly leveraged

He isn't trolling, just giving an example of how the rich in this country view the rest of us. For example, a person in 1960 making top 1% money would have paid 70-80+% in federal taxes. Nowadays they usually pay nothing because they earn off of capital gains which iirc has a 15% tax rate. FIFTEEN PERCENT.

Yeah - there is a little bit of a difference between 75% and 15%. Its not how they view us its more I can't really imagine a lot of people wanting to pay a 75% tax on anything. Yes 15% is too low. Yes 75% is too high.

 

[Pr0d1gy]

If you are talking about people with an income of $350,000 (about where the 1% starts IIRC)

Yep that is about the exact yearly salary where the top 1% starts.

 

[dank69]

Are we talking about net worth or high income earners? If you are talking about people with a net worth of 2M+ and above then probably not hurt badly at all. If you are talking about people with an income of $350,000 (about where the 1% starts IIRC) and above they could very much be hurt. There is nothing to show that people making an income of $350k-1M are any better than the majority of Americans at managing their money - which is to say they are pretty shitty about it and generally highly leveraged



Yeah - there is a little bit of a difference between 75% and 15%. Its not how they view us its more I can't really imagine a lot of people wanting to pay a 75% tax on anything. Yes 15% is too low. Yes 75% is too high.

If your options are to either give 75% of your second million to the government, give it to charity, or reinvest it, what do you do?

 

[Hacp]

Most municipal bonds are now issued to pay 100K+ a year pensions.

 

[Exterous]

If your options are to either give 75% of your second million to the government, give it to charity, or reinvest it, what do you do?

Depends on how much extra work I had to do to get that second million. Most likely I would decide that it was not worth the effort to get that second million and then have to deal with those choices. Perhaps my company does not need to be that much more successful or I do not need to be that much more productive. Whether or not you feel this should be the case IMO people are very motivated by self interest. If there is not more in it for them then its usually not worth the effort*

I am curious about the 'reinvestment'. Does France differentiate between earnings from salary and investments (ie stocks and bonds)? It might not make sense to reinvest it if that invloves realizing gains from stocks in order to invest somewhere else

*There is a gray line as to when taxes make it 'not worth the effort' as it will varry by person and financial situation. There may be portions of diminishing returns as well. Definately a hard value to pin down although I suspect it lies in the sub-50% range.

 

[dank69]

Depends on how much extra work I had to do to get that second million. Most likely I would decide that it was not worth the effort to get that second million and then have to deal with those choices. Perhaps my company does not need to be that much more successful or I do not need to be that much more productive. Whether or not you feel this should be the case IMO people are very motivated by self interest. If there is not more in it for them then its usually not worth the effort*

I am curious about the 'reinvestment'. Does France differentiate between earnings from salary and investments (ie stocks and bonds)? It might not make sense to reinvest it if that invloves realizing gains from stocks in order to invest somewhere else

*There is a gray line as to when taxes make it 'not worth the effort' as it will varry by person and financial situation. There may be portions of diminishing returns as well. Definately a hard value to pin down although I suspect it lies in the sub-50% range.

How hard does work have to be to not be worth an extra $250K?

 

[BrunoPuntzJones]

He isn't trolling, just giving an example of how the rich in this country view the rest of us. For example, a person in 1960 making top 1% money would have paid 70-80+% in federal taxes. Nowadays they usually pay nothing because they earn off of capital gains which iirc has a 15% tax rate. FIFTEEN PERCENT.

0% in the case of municipal bonds

 

[OlafSicky]

Depends on how much extra work I had to do to get that second million. Most likely I would decide that it was not worth the effort to get that second million and then have to deal with those choices. Perhaps my company does not need to be that much more successful or I do not need to be that much more productive. Whether or not you feel this should be the case IMO people are very motivated by self interest. If there is not more in it for them then its usually not worth the effort*

I am curious about the 'reinvestment'. Does France differentiate between earnings from salary and investments (ie stocks and bonds)? It might not make sense to reinvest it if that invloves realizing gains from stocks in order to invest somewhere else

*There is a gray line as to when taxes make it 'not worth the effort' as it will varry by person and financial situation. There may be portions of diminishing returns as well. Definately a hard value to pin down although I suspect it lies in the sub-50% range.

I agree with you completely, as long as it's worth it to be an entrepreneur and put in time and effort into making money the country will grow. If it's not then we will turn into France where the most a person can dream is to get a government job and wait for his grandmother to die so they can get a 600sq ft apartment. If you want a growing country and a health society people need incentives to improve their situation once you take that away you have a banana republic.


If you want to break the 1% hold on wealth you won't do it by taxing them you will do it by cracking down on monopolies and stopping predatory business practices.

 

[Exterous]

How hard does work have to be to not be worth an extra $250K?

Avoiding a host of unspecificed finacial situations why would I want to work 100% more for a 25% gain? That equation doesn't seem favorable to me at all and sounds like a horrible business proposition. At that rate it would make more sense to not spend the time/effort/energy generating that income

 

[CPA]

Why does it matter who buys the bonds?

The fact that the rich buy bonds means absolutely nothing in regards to my willingness to buy bonds, regardless of my level of income.

 

[dank69]

Avoiding a host of unspecificed finacial situations why would I want to work 100% more for a 25% gain? That equation doesn't seem favorable to me at all and sounds like a horrible business proposition. At that rate it would make more sense to not spend the time/effort/energy generating that income

Why do you just assume you have to work 100% more? Is that how we measure how hard a person works? By their salary? Does a CEO who makes $1M/yr work 100 times harder than an immigrant making $10k/yr?

Maybe all you have to do to make that second million is invest more. maybe you just need to tell your managers to expand your business while you play golf. If you could double your salary while playing golf but the gubmint was going to take 75% of it, would you just say 'Nah, $250k free and clear isn't worth it'?

 

[glenn1]

Besides the obvious wet-dream nature of the OP scenario, simply redistributing wealth won't create the choices and mindsets that makes the wealthy so. Poor and middle-class people wouldn't have the self-discipline and ability to delay gratification in order invest the money in municipal bonds. Instead they'd blow the money buying beer/cigarettes/lotto tickets and flat screen TV/new car/etc respectively.

 

[Ausm]

<-----Still waiting for it to trickle down.

 

[LunarRay]

The rich man earns 10m $ and owns 4 cars.... IF 100 middle class folks earned 100k$ more and the rich man 0$ I wonder how many more cars than the 4 the rich guy bought and however many the 100 did buy would be purchased?

My probably ill provided example suggests that it is the middle class who create wealth for both the upper and lower class.... all are essential but the middle are the end all and be all in the economic cycle...

The least realistic notion many adopt as true is that the rich create jobs... IF they own a business do you really think they are going to incur the added expense of a new employee without the need to do that? They will hire as the last resort and only to garner more profit.. There is a simple break even analysis that every business uses or should use to determine the best way to meet a need and if the numbers point to doing this and they do that they go broke eventually... They may not even hire a body until they can see that the new body will be 100% productive where 90% productive is break even...

Bonds are simply a place to park money until a better use can be found that exceeds the yield considering risk, etc.

 

[ichy]

He isn't trolling, just giving an example of how the rich in this country view the rest of us. For example, a person in 1960 making top 1% money would have paid 70-80+% in federal taxes.

Nobody back then actually paid 80% in taxes. Marginal rates were high but there were so many exemptions/deductions that the rates were meaningless.

A 75% income tax rate is a crime against humanity.

 

[Genx87]

He isn't trolling, just giving an example of how the rich in this country view the rest of us. For example, a person in 1960 making top 1% money would have paid 70-80+% in federal taxes. Nowadays they usually pay nothing because they earn off of capital gains which iirc has a 15% tax rate. FIFTEEN PERCENT.

They didnt pay 70-80% in income taxes back then either. And the tax benefits of municipals afaik werent any different in the 60s than they are today.

 

[Exterous]

Why do you just assume you have to work 100% more? Is that how we measure how hard a person works? By their salary? Does a CEO who makes $1M/yr work 100 times harder than an immigrant making $10k/yr?

I'm sorry - I thought by explicitly stating 'Depends on how much extra work I had to do to get that second million.' people would understand that it depends on how hard that extra work that would be. I really don't know how to make it any clearer for you

Besides you asked how much harder the work would have to be so I GAVE YOU AN EXAMPLE! I never said it was true in all cases I just gave you something you asked for

 

[Genx87]

Why do you just assume you have to work 100% more? Is that how we measure how hard a person works? By their salary? Does a CEO who makes $1M/yr work 100 times harder than an immigrant making $10k/yr?

Maybe all you have to do to make that second million is invest more. maybe you just need to tell your managers to expand your business while you play golf. If you could double your salary while playing golf but the gubmint was going to take 75% of it, would you just say 'Nah, $250k free and clear isn't worth it'?

When you can just make up fairy tale ideas of how to make an easy second million anything is possible.

 

[Exterous]

The rich man earns 10m $ and owns 4 cars.... IF 100 middle class folks earned 100k$ more and the rich man 0$ I wonder how many more cars than the 4 the rich guy bought and however many the 100 did buy would be purchased?

Wait - are we talking about the rich as the top 1% or the top 0.1%?

 

[Genx87]

A simple example. Municipal bonds ...

Municipal bonds are an example of job creation. Citizens buy municipal bonds from the government to fund projects. With those funds, companies are awarded contracts. Those entities hire people. Those workers spend money at restaurants, grocery stores, Wal-Mart, etc. And there is a trickle down effect from those secondary businesses that employ people. People all along the chain make income due to what starts at the issuance of municipal bonds.

Assumption:
Over the past 30 years the wealthy have gotten wealthier relative to the middle class. I am not debating this issue here. It is an assumption in this thesis.

Based on this assumption, the wealthy are spending more on municipal bonds relative to the middle class. So, the wealthy are job creators in essence more so than the middle class. No debate about it.

Theory:
Now, let's change things a bit. Let's change the regulations in the USA to give the middle class have more money and the wealthy less. Let's assume that the middle class have more money in order to be job creators due to having more free cash flow and thusly more of a means to invest in municipal bonds than today. And the wealthy have less to invest in municipal bonds than today.

The wealthy will still buy municipal bonds granted less of them. The middle class however will pick up the slack due to increased ability to invest in municipal bonds. And the same municipal bonds will be sold. Therefore, the middle class will be job creators to a greater extent than they are currently.

The end effect though is that those in the middle class that can invest there money (assuming they currently do not) have another benefit. They will actually enjoy a better quality of life via more disposable income.

And now for the shocker. The very wealthy probably will not be impacted. Perhaps some will go for the 5 series BMW instead of the 7 series. But really, are they hurt so badly that it is not worth making many more people better off?

We The People,
IHatemyJob2004

After you take wealth from the wealthy how does your plan force the middle class to invest back in govt?

 

[LunarRay]

He isn't trolling, just giving an example of how the rich in this country view the rest of us. For example, a person in 1960 making top 1% money would have paid 70-80+% in federal taxes. Nowadays they usually pay nothing because they earn off of capital gains which iirc has a 15% tax rate. FIFTEEN PERCENT.

If you're earning in the top 1% You'll not be using those funds to buy much at all... you deposit your paycheck, dividend check and interest check into your bank account and then find the best place to park it....

What inducement does the rich need more than have no place to spend to park... Giving them 15% tax rate on those parked funds is insane. IF you feel the need to see those funds elsewhere then you dis-incentivize in those vehicles and incentivize in the desired ones. The FED sorts out the money supply issue which is a growth/inflation function anyhow.

Tax the rich to 90% will not reduce innovation... hehehehe, Starting with Ford we've innovated with all manner of varying tax rates... it is genetically produced and not subject to taxation. A dollar in the hands of the middle class does a lot more than ten in the hands of Buffett.