T Nation

Defining Class

Question #1:

After looking through some of the threads around here, I am just curious as to how people here define rich, middle and poor in terms of actual numbers.

The reason that I ask this, is because from my personal experience, many people have a very subjective view of what these terms mean to them.

For example, to someone who is making 20,000$ a year, someone who is making 50,75 or even 100k a year could be rich, while the person who is making 50, 75 or 100k (especially if they have a family) might consider themselves to be working class, and would consider someone making 2,3 or 4 times what they make to be “rich”. And then you might even have people who are self made millionaires, “old money” multi-millionaires and billionaires.

Question #2: Now that you have defined the different classes, what do you propose people should pay in income taxes providing that you in fact believe in our current tax system?

As you said, it’s inherently arbitrary where someone draws the line at what they call rich, middle, or poor.

And certainly in fact an idea of sharp cut-offs just doesn’t make sense. Obviously, it’s a continuum.

Personally, and I suppose perhaps many see it the same though I don’t know if they do, I suppose most would consider a person rich if their assets are so large that their investment income alone allows them to live a lifestyle which is beyond that affordable to the merely professional class such as say most salaried-or-working-under-contract doctors.

Middle would be being able to afford your own home, support a family in reasonable comfort, own a reasonable vehicle, and own and enjoy common goods and service.

Poor would be be having a hard time paying the necessities.

Those in the gaps would be somewhere mid-category.

There is no reason that people earning enough to be able to pay for their necessities should not pay at least some small share of income beyond that point, assuming others are being charged income tax.

There is no reason that those earning higher incomes should have to pay not only the inherently higher amounts from paying the same percentage on larger amounts, but on top of that should have to pay a many-time-higher percentage. To do that is to demand they carry an inequitable percentage of the total burden.

Probably the most equitable thing, if having an income tax at all, is a flat rate on everything past some amount required for necessities, and allowing deductions for necessities such as unusually high medical expenses. It also would be equitable to allow other deductions for purposes of promoting desired change, for example, allowing deduction from income of health insurance costs to promote people buying their own health insurance rather than going uninsured, etc.

So not necessarily an absolutely flat tax, but not a bizarre system such as we have today where, for example, in the 2004 election it was revealed that the Kerry’s paid only 16% on a claimed income of $5 million, with that percentage not only being far less than for example what most of us pay, but obviously, given their lifestyle and the fact their assets are over one billion dollars, the $5 million figure was a completely on-paper-only feat of accounting in the first place. Nope, not that sort of deduction schedule.

it greatly depends on the cost of living where you are at. But for me poor is if you get hurt, or you crasha car you’re seriously fucked because you’re living paycheck to paycheck, middle class is where you can ride somethnig like that out. rich is where it’s irrelevant.

I want to see some numbers here. For example, let’s take individuals and families of four.

Phil brings up a point;

The “Devil is always in the details…”

I agree with what you guys have said, but at some point, numbers with ranges HAVE to be put on these philosophical divisions.

Mufasa

So, an extra dollar per year moves one from one category to another? Say, from middle class to rich?

Or is it instead a continually, slowly adjusting transition with intermediate states of being?

And won’t the effect-in-practice depend on individual circumstances? One person may be able to afford much more luxuries and invest more money than another with greater income. But is he really poorer or less rich or what have you?

For the sake of government programs and so forth, figures such as “poverty line” are needed but with regard to what is actually meaningful in life, distinct cutoffs are purely arbitrary.

for families 30k below poor 60k area would be middle and rich would be 200k plus and this would be albany new york kinda area different states would deff have different money classes.
if single 25k poor 45k middle 120k rich

when I use middle I mean they afford a house and day to day things but for big ticket items they have to save up for. were as poor would just be getting by in like and rich is being able to afford most wants

Rich is having enough assets such that they are working for to an extent that they pay for you to live in the lifestyle you want.

That number is impossible to identify as a level by which everyone who has that much is rich.

I figure I need about $2.5 million returning me 5% every year for me to be rich. Some folks will want more. Some will want less.

While purely arbitrary and from my experience, I would say that in Chicagoland for a family of four less than 100k is struggling, 100k to 500k is middle and north of 500k is going to set you pretty well off. However, I’ve always identified the words poor and rich with assets as opposed to income. There were plenty of mortgage brokers around here making over 500 per year and I never considered them rich.

As far as taxes, I hate our current tax structure. I really don’t care what rate it is as long as it is simplified. If we are talking about solely income tax, then it doesn’t really matter. Research has shown that labor markets adjust for after-tax wages anyways. This is true at both the top and bottom of the labor market: at the top executives and business owners structure their compensation to take advantage of capital gains and dividend tax advantages and at the bottom end day laborers choose to work cash jobs or reported wages based on how much they take home.

We could sit for hours and argue to death whether a flat tax is more “fair” or “moral” than a graded scale, but at the end of the day it won’t make a difference. The marginal supply (both on a macro and micro level) of labor will not change over the long run.

That being said, I’m all for making it a much simpler tax code so that everyone can make those choices more easily and so that businesses are incented to invest in human capital.

[quote]hazarddude334 wrote:
for families 30k below poor 60k area would be middle and rich would be 200k plus and this would be albany new york kinda area different states would deff have different money classes.
if single 25k poor 45k middle 120k rich

when I use middle I mean they afford a house and day to day things but for big ticket items they have to save up for. were as poor would just be getting by in like and rich is being able to afford most wants[/quote]

Thank you. You are the only one who gave me some numbers. Even then though, if we were making a taxing system, I don’t think that using geography would be feasible, especially as it could be easily cheated.

If you want numbers…

I explained why cutoff values where those right on the edge if they earn a dollar a year more then they move from say “middle-class” to “rich” make zero sense whatsoever and are not useful in my opinion.

But if you want numbers that are example values and don’t in any way represent boundaries, then for example for a single person on their own, if these are long-term sustained income levels:

$10,000/year. Poor. Because this fits the qualitative standards I described above. It is hard for this person to pay all necessities even if spending essentially nothing on “nice things” and optional nice services to have. He or she will probably have to in fact get a roommate or ne a roommate or do other things to squeak by.

$50,000/year. Middle class for reasons also described above. Unless medical or other expenses are way high, necessities can be met without particular problem and some money is left over for “nice things” and optional services.

$500K/year: Rich though if this has been earned for only a few years, only really starting to get there.

But it sounds like you want figures where transitions are and I truly think that does not make sense at all. There are tremendously broad range where the transition from say middle-class to rich is a transition not an on/off black/white yes/no change; and also a quite substantial transition from poor to middle-class.

Wanting that is like knowing how many pounds is big for a six-footer. “Oh, you’re 249 lb, you’re not big. It takes 250 lb to be big.” Right.

You ain’t rich till you’re worth 5 mils.

Or so an old man tells us…

[quote]lixy wrote:
You ain’t rich till you’re worth 5 mils.

Or so an old man tells us…[/quote]

USD or EUR?

He clearly was joking and didn’t in fact consider there to be any particular figure, but if talking assets not long-term-continuing income, $5 million is a reasonable lower end figure.

Why?

Because the income one can derive from that, if not (like a lottery-winner) blowing out the principal and winding up back at zero, may be say 5% per year.

Which would be $250K, which is a nice professional level of income but hardly a super-luxurious one.

Those apoplectic, if there are any, at someone who would say (McCain did not) that having – not considering long-term income, just assets – a million dollars is not rich are not thinking about the fact that $1M yields only about $50K/year income, which is hardly rich.

[quote]Bill Roberts wrote:
He clearly was joking and didn’t in fact consider there to be any particular figure, but if talking assets not long-term-continuing income, $5 million is a reasonable lower end figure.

Why?

Because the income one can derive from that, if not (like a lottery-winner) blowing out the principal and winding up back at zero, may be say 5% per year.

Which would be $250K, which is a nice professional level of income but hardly a super-luxurious one.

Those apoplectic, if there are any, at someone who would say (McCain did not) that having – not considering long-term income, just assets – a million dollars is not rich are not thinking about the fact that $1M yields only about $50K/year income, which is hardly rich.[/quote]

Unfortunately in this day and age, if you are only getting a 5% return you are losing money each year.

Which makes saving that much more unattractive which is bad for the economy.

Orion, you’re right, if the 5% is from say CD’s or bonds then the value of the principal is slowly being lost. So a given dollar value of investment does not, in that event, indicate even as much real wealth as my example had it.

On the other hand, if the 5% is from dividends then historically the value of the principal is at least maintained over longer periods of time and often increases, though slowly when inflation is considered and not reliably over any given say 5 year or even 10 year period.

Also certainly agreed that the dis-incentive to saving is really bad for our country.

[quote]Bill Roberts wrote:
Orion, you’re right, if the 5% is from say CD’s or bonds then the value of the principal is slowly being lost. So a given dollar value of investment does not, in that event, indicate even as much real wealth as my example had it.

On the other hand, if the 5% is from dividends then historically the value of the principal is at least maintained over longer periods of time and often increases, though slowly when inflation is considered and not reliably over any given say 5 year or even 10 year period.

Also certainly agreed that the dis-incentive to saving is really bad for our country.[/quote]

Not to confuse the matter further, but if we are going to talk about wealth in the terms of having enough to fund a professional level of cash flow without working, we need to look at the after-tax INVESTMENT income as opposed to simple interest income. Investment income can be derived from a number of ways: interest from taxable bonds or cd’s, interest income from tax-free bonds, qualified dividends, non-qualified dividends, various harvesting of capital gains (losses), annuity streams, tax-advantaged real property income, royalties, pension or pension-like streams of income, tax credits, etc…

The tax treatment of all these various sources is different from the next.

One question for you: I am curious as to what you mean by dis-incentive to save. Do you believe that there is no incentive (potential return for risk taken) for capital accumulated?

By disincentive to save, I mean any cause that yields less motivation to do so.

It does not have to be so severe as to leave zero incentive to be dis-incentive.

I don’t at all believe that there is no incentive, but rather that there is less incentive than ought to be the case and than what could well be the case.

And if Obama’s elected, we’re dealing with a mentality where, when asked by Charlie Gibson (!) that since it was a fact that increasing the capital gains tax rate did not increase revenues to the government, but decreased them (Gibson had this as fact, which it probably is at least broadly speaking) then why, Senator Obama, do you want to do it?" Obama’s reply was, “Because it’s more fair.”

If we have politicians in power that want to raise taxes on capital gains even knowing that doing so will reduce revenues, just because they think it’s “more fair” to “punish the rich,” then incentive to save will be reduced yet further, and the economy will be damaged by such actions.

But, it will be “more fair,” don’t you know!

[quote]Bill Roberts wrote:
By disincentive to save, I mean any cause that yields less motivation to do so.

It does not have to be so severe as to leave zero incentive to be dis-incentive.

I don’t at all believe that there is no incentive, but rather that there is less incentive than ought to be the case and than what could well be the case.

And if Obama’s elected, we’re dealing with a mentality where, when asked by Charlie Gibson (!) that since it was a fact that increasing the capital gains tax rate did not increase revenues to the government, but decreased them (Gibson had this as fact, which it probably is at least broadly speaking) then why, Senator Obama, do you want to do it?" Obama’s reply was, “Because it’s more fair.”

If we have politicians in power that want to raise taxes on capital gains even knowing that doing so will reduce revenues, just because they think it’s “more fair” to “punish the rich,” then incentive to save will be reduced yet further, and the economy will be damaged by such actions.

But, it will be “more fair,” don’t you know![/quote]

Without bringing politics into the discussion, which I understand is hard to do, one of the best economic ideas that I have seen floated out there is the elimination of capital gains tax on small business investments. We sometimes forget that the vast majority of America is employed by companies with fewer than 100 employees.

One of the true risks we face as an economy is too much of our own personal savings (most of which is in the hands of the baby boomers) being drawn towards risk-free capital investments. This is a perfect way to incent the investment side of job creation. It is about time we all move on from talking about “saving” American jobs and start talking more about what we are going to do to “create” more jobs.

[quote]Bill Roberts wrote:
If you want numbers…

I explained why cutoff values where those right on the edge if they earn a dollar a year more then they move from say “middle-class” to “rich” make zero sense whatsoever and are not useful in my opinion.

But if you want numbers that are example values and don’t in any way represent boundaries, then for example for a single person on their own, if these are long-term sustained income levels:

$10,000/year. Poor. Because this fits the qualitative standards I described above. It is hard for this person to pay all necessities even if spending essentially nothing on “nice things” and optional nice services to have. He or she will probably have to in fact get a roommate or ne a roommate or do other things to squeak by.

$50,000/year. Middle class for reasons also described above. Unless medical or other expenses are way high, necessities can be met without particular problem and some money is left over for “nice things” and optional services.

$500K/year: Rich though if this has been earned for only a few years, only really starting to get there.

But it sounds like you want figures where transitions are and I truly think that does not make sense at all. There are tremendously broad range where the transition from say middle-class to rich is a transition not an on/off black/white yes/no change; and also a quite substantial transition from poor to middle-class.

Wanting that is like knowing how many pounds is big for a six-footer. “Oh, you’re 249 lb, you’re not big. It takes 250 lb to be big.” Right.[/quote]

The government has all kinds of lands in the sand drawn. For example, ever since I have been married and owned a house (for ~5 years), I was in the same income tax bracket;in this rough time frame, I used to get over 2000$ back in income tax refund.

Then I started a new job and made 13K more than I did at that job and guess what? I was in a new bracket and now I only got back 500$ at the end of the year.