Why Income Inequality Is Going to Get Catastrophically Worse

[CosmicCowboy]

Lots of wealth envy in here. The whole secret (simple as it sounds) is to spend less money than you make, keep perfect credit, and invest the difference. Credit cards should only be used to earn tax free cash back and should be paid off every month. For most, the easiest way to initially build wealth is to buy housing (you can afford) instead of renting. With mortgage rates at 2.5% and residential appreciation at 5+% it's a no brainer. After that equity can be used to borrow money to make other investments. Then the equity from those investments can be used to borrow more to make other investments. In the current economy there is nothing wrong with "good" debt. Taxes and interest can be deducted against ordinary income while the money borrowed is turned into capital gains which can be used as collateral to borrow more money to make more money.

[pgardn]

Lots of wealth envy in here. The whole secret (simple as it sounds) is to spend less money than you make, keep perfect credit, and invest the difference. Credit cards should only be used to earn tax free cash back and should be paid off every month. For most, the easiest way to initially build wealth is to buy housing (you can afford) instead of renting. With mortgage rates at 2.5% and residential appreciation at 5+% it's a no brainer. After that equity can be used to borrow money to make other investments. Then the equity from those investments can be used to borrow more to make other investments. In the current economy there is nothing wrong with "good" debt. Taxes and interest can be deducted against ordinary income while the money borrowed is turned into capital gains which can be used as collateral to borrow more money to make more money.

you have to try really hard to hoard money and be a vicious businessman to get as rich as the people mentioned in Winehole’s article. What you have suggested above is how to get into the top 50% of US taxpayers, Not the top 0.01% in the country.
Jeff Bezos et al don’t just work hard at staying super rich,

there needs to be some change in tax laws that don’t hurt people like you.
I don’t know exactly how to go about it but it’s pretty clear people like you and I are really the backbone of our tax intake.
The bottom 50% only pay 3% of our federal taxes. you are describing how to get out of the bottom 50%.

[pgardn]

The middle class really has no meaning in this country.

[spurraider21]

It's a tax advantage because if he had to pull the 50 million from his 80 billion, he would be taxed at 20% capital gains (based on his tax bracket). So, in essence, to get the 50 million in liquidity, he would have to hand over an additional 10 million.

But, because he has the wealth to backstop the loan (even from non-realized assets) and can get a preferred rate (also largely because of wealth), this person can get the 50 million in liquidity for 5%-10% rate, meaning the sunk in cost for him is 2.5-5 million. On top of that, if the loan is structured as a business loan, this person can also deduct the interest payments.

I'm not saying this is illegal. I'm saying that having that kind of wealth does allow these people to have much more tools at their disposal to deal with sunk in costs like taxes, which is something a person without that exorbitant amount of wealth would not have.

You said they pay off the loan with money they’ve already been taxes on. In my hypo the 20 billion represents that money that’s already been taxed

[baseline bum]

https://www.propublica.org/article/t...oid-income-tax

What a joke a billionaire using tax credits for his kids. If that doesn't illustrate how much it's Bezos and other billionaires in a war against all of us I don't know what would.

[baseline bum]

The middle class really has no meaning in this country.

"Middle class" basically has a 'wealth tax' on them in the form of property taxes. But god forbid ever putting a wealth tax on billionaires.

[Winehole23]

What a joke a billionaire using tax credits for his kids. If that doesn't illustrate how much it's Bezos and other billionaires in a war against all of us I don't know what would.

if most of the wealth is definitionally untaxable, that's a great gig.

[Winehole23]

What a joke a billionaire using tax credits for his kids. If that doesn't illustrate how much it's Bezos and other billionaires in a war against all of us I don't know what would.

IIRC the article said a person making 56K might not pass the means test for the benefit.

[boutons_deux]

Capitalism's entire role is to amass more Capital by screwing everybody and everything out of their wealth, other Capitalists and esp non-Capitalists and the earth.

Capitalism is very soon going to install all-out fascism in USA and it's unstoppable, culminating Capitalism's strategy of 45+ years.

[Winehole23]

a wealth tax should be considered.

dragons sitting on dragon piles of gold (.01%) need to be given proper incentives to get their wealth invested more productively, rather than just amassing ever more grotesque piles of wealth for their heirs and assigns. extreme consolidation of wealth tends to business compe ion and innovation. it also makes it possible for a relatively small number of very rich people to influence elections and national politics.

[Winehole23]

right now, ins utional investing is crowding out would-be individual buyers of real-estate and farmland.

equities all screwed up.

[ElNono]

You said they pay off the loan with money they’ve already been taxes on. In my hypo the 20 billion represents that money that’s already been taxed

Correct. That doesn't make a difference in what I wrote. Additionally, that money to pay off the loan can come from profit on their 50 million investment.

It doesn't change one bit the fact that they can leverage their wealth into actual cash at a lower rate than the tax they would have had to pay to obtain the same money from their unrealized assets.

[ElNono]

Lots of wealth envy in here. The whole secret (simple as it sounds) is to spend less money than you make, keep perfect credit, and invest the difference. Credit cards should only be used to earn tax free cash back and should be paid off every month. For most, the easiest way to initially build wealth is to buy housing (you can afford) instead of renting. With mortgage rates at 2.5% and residential appreciation at 5+% it's a no brainer. After that equity can be used to borrow money to make other investments. Then the equity from those investments can be used to borrow more to make other investments. In the current economy there is nothing wrong with "good" debt. Taxes and interest can be deducted against ordinary income while the money borrowed is turned into capital gains which can be used as collateral to borrow more money to make more money.

We're pointing out it's an uneven field. Not sure why you call that 'envy'. Half of Americans live paycheck to paycheck (probably worse after the pandemic), what property do you think they're going to buy with that?

The fact that you or I have a good living doesn't change that. As you point out above, it takes money to make money, and if you have lots of money, the current system gives you preferential perks.

Supposedly this comes at the cost of you and I having a higher tax rate. But if that doesn't hold, then how is it 'envy' to point it out?

[spurraider21]

a wealth tax should be considered.

dragons sitting on dragon piles of gold (.01%) need to be given proper incentives to get their wealth invested more productively, rather than just amassing ever more grotesque piles of wealth for their heirs and assigns. extreme consolidation of wealth tends to business compe ion and innovation. it also makes it possible for a relatively small number of very rich people to influence elections and national politics.

so if a guy (not a millionare) invests most of his money into a startup business which is successful and triples in value, and now the guy gets a wealth tax bill based on a valuation of the company (which is not liquid money he has access to), you're putting him into a position to sell of pieces of his company just to make the bill

i care about this kind of thing much less in the context of inheritances (aww, poor kids have to sell a house they got for free)... but for any business owner? seems a bit rough. though a wealth tax starting at people with net worths above a big threshold, in the 10s of millions, that could make sense on paper

but the assessment or appraisal of somebody's net worth is always going to be tricky and very difficult to enforce. IRS would need a lot more resources to be able to meaningfully go after that

[spurraider21]

Correct. That doesn't make a difference in what I wrote. Additionally, that money to pay off the loan can come from profit on their 50 million investment.

sure, but then in order to pay it off, that profit from their investment must first be taxed. but thats the same for anybody who gets a loan for a business. get a loan, start a business, profit off business, pay taxes on profit, pay back loan. im just not seeing how this is beating tax obligations. i definitely buy that these people get more favorable loans than the general public, but for obvious reasons (generally lower risk given their ability to leverage other assets)

It doesn't change one bit the fact that they can leverage their wealth into actual cash at a lower rate than the tax they would have had to pay to obtain the same money from their unrealized assets.

im still not seeing this, though... the money that is used to pay off these loans has to be taxed at some point, at the same rate as anybody else. now this can certainly defer or stretch out tax obligations... you can take out a 50 mil loan and pay it off with money taxed over the life of the loan, rather than just paying a lump sum of capital gains after selling off an asset, but that 50 mil you pay back is still eventually taxed.

if thats the issue, then i get it.

[SpursforSix]

so if a guy (not a millionare) invests most of his money into a startup business which is successful and triples in value, and now the guy gets a wealth tax bill based on a valuation of the company (which is not liquid money he has access to), you're putting him into a position to sell of pieces of his company just to make the bill

i care about this kind of thing much less in the context of inheritances (aww, poor kids have to sell a house they got for free)... but for any business owner? seems a bit rough. though a wealth tax starting at people with net worths above a big threshold, in the 10s of millions, that could make sense on paper

but the assessment or appraisal of somebody's net worth is always going to be tricky and very difficult to enforce. IRS would need a lot more resources to be able to meaningfully go after that

Agrees. And the bolded is exactly right. And I don't think the IRS will ever have the resources to accurately tax on this basis and incorporate true net worth (which would be hard as to define). It would almost have to be on a case by case basis review.

[Ef-man]

We're pointing out it's an uneven field. Not sure why you call that 'envy'. Half of Americans live paycheck to paycheck (probably worse after the pandemic), what property do you think they're going to buy with that?

The fact that you or I have a good living doesn't change that. As you point out above, it takes money to make money, and if you have lots of money, the current system gives you preferential perks.

Supposedly this comes at the cost of you and I having a higher tax rate. But if that doesn't hold, then how is it 'envy' to point it out?

Exactly, it is hard for a large percentage of US workers earning minimum wage to create wealth.

Throw in an accident, medical problems, having kids and poof goes whatever savings you had.

[CosmicCowboy]

Exactly, it is hard for a large percentage of US workers earning minimum wage to create wealth.

Throw in an accident, medical problems, having kids and poof goes whatever savings you had.

Who makes minimum wage?

[Winehole23]

damn Marxists

[Winehole23]

so if a guy (not a millionare) invests most of his money into a startup business which is successful and triples in value, and now the guy gets a wealth tax bill based on a valuation of the company (which is not liquid money he has access to), you're putting him into a position to sell of pieces of his company just to make the bill

i care about this kind of thing much less in the context of inheritances (aww, poor kids have to sell a house they got for free)... but for any business owner? seems a bit rough. though a wealth tax starting at people with net worths above a big threshold, in the 10s of millions, that could make sense on paper

but the assessment or appraisal of somebody's net worth is always going to be tricky and very difficult to enforce. IRS would need a lot more resources to be able to meaningfully go after that

I quite agree, not that it would be tricky to implement (just set a high initial threshhold, as originally was done with the income tax ) but that more study and more resources are needed. IIRC Sleepy Joe upped the request for the IRS this year.

[Will Hunting]

so if a guy (not a millionare) invests most of his money into a startup business which is successful and triples in value, and now the guy gets a wealth tax bill based on a valuation of the company (which is not liquid money he has access to), you're putting him into a position to sell of pieces of his company just to make the bill

i care about this kind of thing much less in the context of inheritances (aww, poor kids have to sell a house they got for free)... but for any business owner? seems a bit rough. though a wealth tax starting at people with net worths above a big threshold, in the 10s of millions, that could make sense on paper

but the assessment or appraisal of somebody's net worth is always going to be tricky and very difficult to enforce. IRS would need a lot more resources to be able to meaningfully go after that

That's the concern I have with a wealth tax. Appraising real estate for property taxes is somewhat simple because you have straight forward valuation methods and sales comparables. Valuing someone's illiquid, closely held business that's unique and doesn't really have any comparables is almost guaranteed to end up in court every time.

IMO fixing the estate tax, raising the cap gains tax and implementing a VAT would accomplish what a wealth tax does only in a more reliable way.

[Will Hunting]

And yes, any kind of a wealth tax should only be on people worth well into the 8 figures. Imposing a wealth tax on small business owners with a net worth in the 7 figures would be counterproductive. Small business owners worth <$10 million really aren't the problem that's driving wealth inequality.

[ElNono]

sure, but then in order to pay it off, that profit from their investment must first be taxed. but thats the same for anybody who gets a loan for a business. get a loan, start a business, profit off business, pay taxes on profit, pay back loan. im just not seeing how this is beating tax obligations. i definitely buy that these people get more favorable loans than the general public, but for obvious reasons (generally lower risk given their ability to leverage other assets)

I don't disagree with any of that, but it's immaterial to the point. This person can leverage his wealth/net-worth into actual cash at a lower rate than it would cost him to obtain the same cash by selling out part of his assets and paying the tax on them.

The point being that wealth isn't some abstract indicator. It can be leveraged into actual money, at rates that are generally lower than capital gains.

im still not seeing this, though... the money that is used to pay off these loans has to be taxed at some point, at the same rate as anybody else. now this can certainly defer or stretch out tax obligations... you can take out a 50 mil loan and pay it off with money taxed over the life of the loan, rather than just paying a lump sum of capital gains after selling off an asset, but that 50 mil you pay back is still eventually taxed.

if thats the issue, then i get it.

It's not just stretching and deferring. You can deduct the loan interest from your taxes. You can also deduct "excess business losses" if you were to incur in a loss. While this isn't different than some other business owner, it's actually convenient for this particular person that didn't actually need a loan to begin with.

[ElNono]

And yes, any kind of a wealth tax should only be on people worth well into the 8 figures. Imposing a wealth tax on small business owners with a net worth in the 7 figures would be counterproductive. Small business owners worth <$10 million really aren't the problem that's driving wealth inequality.

Correct. This has to do with the whales.

[spurraider21]

I don't disagree with any of that, but it's immaterial to the point. This person can leverage his wealth/net-worth into actual cash at a lower rate than it would cost him to obtain the same cash by selling out part of his assets and paying the tax on them.

The point being that wealth isn't some abstract indicator. It can be leveraged into actual money, at rates that are generally lower than capital gains.

but i guess the disconnect i'm having is that in order to pay off those loans, they are going to need actual cash anyway, for which they have to pay the same income tax/capital gains anyway. so sure, you can borrow X at a lower rate than if you sold X amount of assets... but to repay the loan for X, you are going to need X amount of cash + interest (presumably thru income or capital gains)

It's not just stretching and deferring. You can deduct the loan interest from your taxes. You can also deduct "excess business losses" if you were to incur in a loss. While this isn't different than some other business owner, it's actually convenient for this particular person that didn't actually need a loan to begin with.

i thought that was just for mortgages or student loans