

How the rich soaked the rest of us - trustfundbaby
http://www.commondreams.org/view/2011/03/02-2

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fingerprinter
I have a personal problem with this, only b/c I and my wife are in the highest
bracket...but I will use actual numbers so I make this real.

Note: I will go through this twice. I am a US citizen living in AU (just
moved).

US. When I lived there I made between $120k and $150k. My wife, a doctor, made
$140k. In 2009 we had effective tax rate of 35%, which seemed very high to us
given our various deductions, charitable contributions and all the rest.

AU. We are now preparing for our combined AU and US taxes. Here is a quick
link to the AU tax table.
[http://www.ato.gov.au/individuals/content.asp?doc=/content/1...](http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm)

In AU, as we currently understand taxes, we have individual obligations rather
than household, so our breakdown is this. I make the same wage as in the US
(work remote). My wife's income went up significantly, though variably (her
pay is not a salary, but based on how many patients she sees etc). We estimate
her income to exceed $250k AU.

My tax rate will graduate to top out at 38%. She will graduate (any dollar
over $180k will be taxed at this rate) 45%. The effective tax rate will be
less than those (graduated system), but lets use those because they are round
numbers.

Note: as US citizens we are obligated to pay taxes in the US even if we do not
live in the country...ever again...the privilege of being US citizens.

This is crazy. I've said this before on HN, but I am clearly in the upper
middle class. I am by no means "rich" or "wealthy". Yes, I understand the
arguments saying I am, but it simply isn't so. Yes, we are clearly better off
than most people in the world. Yes, we are doing very well for ourselves when
compared to the average American or Australian. But there is hard work, luck,
timing, diligence, reading, learning and timing that went into all this as
well. And to see nearly half of my wife's salary above $180k AU become taxable
seems excessive. Think of it this way...to make $500k a year, she needs to
actually earn close to $1 million.

The problem is that we are at the low end of this spectrum. It would look
worse if we were at the high end of the spectrum, but wouldn't hurt nearly as
bad. Imagine making $10 million a year and seeing $5 million go to taxes. That
wouldn't feel great. However, you could console yourself w/ $5million still.
We cannot.

This is my point and the one I made to my wife. In a system like this, "making
it" requires windfall money. There is inertia required to get to a level where
you simply don't think about taxes anymore and given our position on the low-
end of the highest tier, we feel the most pain. Unless we can find a way to
"come into money" that far exceeds our level, we are working for the rest of
our lives...which means we are not "rich" or "wealthy".

I read the article on the Chicago professor who "didn't feel rich" and I read
the comments that blasted this. Unfortunately, it is true! We live well within
our means; we own our home we purchased for $160k 5 years ago...even if it is
worth less today, we have one car (a 10 year old used Toyota), we don't take
exotic vacations or anything like that. Rather we are paid down student loans
(my undergrad and her medical), maxing out 401k, IRA, two kids 529 accounts,
buying medical insurance and trying to plan for retirement. Yes, again, better
off than most, but not "rich" or "wealthy". We don't have F-You money (which
to me means living my life not worrying about money...who REALLY has that that
didn't get it through windfall or persevering).

My last point about not being rich is this: we need to work. With our net
worth if something happened to one of us, we could sustain indefinitely. If
something happened to both, we could sustain for approx 2 years with no
lifestyle change, or 3-4 w/ reductions, perhaps 5-6 w/ extreme reductions.
Those are nice cushions, but not "the rest of our lives" and we would still be
in a massive hole once we recovered...and we all saw what happened in 2009 to
thousands of people w/ massive layoffs and being out of work for 18+ months.
Unless you are financially set (probably over $3 million in the current
market...but more likely close to at least $4million as an individual), you
are a working stiff, plain and simple.

I am a working stiff....it doesn't matter what "class" of working stiff I
am...

~~~
MaysonL
Please note: in most cases, you can claim foreign income tax as a credit
against US income tax, which will probably totally eliminate any US tax
liability.[1]

[1] I am neither a tax lawyer or an accountant, merely a retired working
stiff.

------
orijing
> Consider two further points based on this graph: first, if the highest
> income earners today were required to pay the same rate that they paid for
> many years after 1945, the federal government would need far lower deficits
> to support the private economy through its current crisis; and second, those
> tax-the-rich years after 1945 experienced far lower unemployment and far
> faster economic growth than we have had for years.

A professor of economics should know better than to throw around statements
like these in order to pander to those who are less educated. There were so
many factors that contributed to the low post-war unemployment than high
marginal tax rates for the rich.

Second, he should be aware of structural changes in the global economy. With
globalization, the effects of "winner-takes-all" economics are augmented
significantly. In addition, the US isn't the only industrial powerhouse
anymore--Europe and much of Asia have recovered.

> Second, the richest Americans take the money they save from taxes and invest
> big parts of it in China, India and elsewhere. That often produces more jobs
> over there, fewer jobs here, and more imports of goods produced abroad.

This argument, especially coming from an economics professor, makes me highly
uncomfortable. The "fixed jobs" (zero-sum employment) mentality is so wrong
that I'm ashamed for him.

> The largest single recipient of such interest payments today is the People's
> Republic of China.

It's clear that the author is writing this explicitly to pander to general
population's level of attention to actual economics and instinct to give
kneejerk responses to articles like this.

> Those hedge funds and brokers likewise use part of the money rich people
> save from taxes to speculate in the US stock markets. That has recently
> driven stock prices higher: hence, the stock market recovery. And that
> mostly helps – you guessed it – the richest Americans who own most of the
> stocks.

The stock markets are shooting higher because corporate earnings are bouncing
back--in part because of increased productivity and reduced hiring--not
because of some conspiracy by the "rich people" to make other rich people
richer. They are chasing earnings.

While I don't disagree with his belief that the tax cuts are misplaced, I
found his arguments less than compelling.

------
TomOfTTB
I don't necessarily disagree with him but his analysis leaves out a very
important point. In 1960 it wasn't really possible for rich person to live in
a country like Singapore or Taiwan and still maintain relationships in the
United States. That's no longer the case. With cheap flight travel, video
chat, and other means of communication it's very easy for someone with the
financial means to travel back and forth with very little effort. And
countries like Singapore, Hong Kong, and Taiwan know this.

Given that fact it's in those countries best interest to woo rich Americans.
Which means the United States now has to compete.

Meaning the US can't reasonably raise the tax rate on the top 1% higher than
what it would cost them to fly back and forth from the United States if they
made a place like Taiwan their own.

~~~
krakensden
Does anybody actually do this? It seems like it would be easier just to pay an
accountant to hide your money convincingly in some sort of offshore account or
company than to do all that pesky flying, and awkward moving to the other side
of the world.

Which brings me to another point, the rich are people too, and I doubt very
many will ever care enough about their money to uproot their entire social
life.

~~~
TomOfTTB
The people discussed in this article are people are rich enough to be able to
influence politicians with their own personal money. To people with that kind
of wealth I don't think flight travel and hotel expenses are that big a deal.
They could easily continue to live most of their life in the United States and
simply call a foreign country their home for tax purposes.

------
kazoolist
What a nonsense article. I expect better from HN, frankly.

It's not as though the wealthy aren't paying their fair share. Breaking down
the amount of total federal income taxes by income bracket:

The bottom 40% of tax payers paid less than 5%. The next 40% paid about 25%.
The next 9% paid about another 30%. And the top 1% paid the remaining 40%.

Furthermore, returning to 90% tax rates for top earners is going to do a lot
more harm to the economy by taking away the wealthy's incentives to work and
invest than supposed (and I think dubious) speculation-driven-price-increases.

