There is an ownership class that receives preferential tax treatment and a labor class that doesn't.
A small business owner might only net $80k/year, but their incentives in regards to policy are more aligned with a billionaire startup founder than with an $80k/year middle manager, because their income doesn't come in the form of a W-2 job.
It doesn't really matter the amount of income you're getting, it matters a lot more in what form it comes. People who work for others and have a boss who determines their livelihood have more in common with each other regardless of how much they make than people who own businesses. Even movie stars have a union.
there's some overlap, but generally speaking the two groups see the world VERY differently. Your priorities change a lot when your day to day is about survival vs when it's about making sure you don't lose what you have.
There are limits. Most all celebs and sports stars are not really employees. They setup personal services companies that contract with the "boss" and then pay themselves a salary from the services company. Even thought they have a clear "job" and theoretically are paid a wage, such persons care more about taxation of dividends and the costs of offshoring money. If they choose to pay taxes, they determine for themselves where and when that money is paid. So while a working union actor may have much in common with the factory worker, the celebrity stars who earn millions do not.
The breaking point between the two groups, imho, is the personal services contract. Those who work for the agreed standard or union wage are workers and arguably lower/middle class. Those who negotiate their own pay structures are not.
Total realized capital gains in 2017 was about $650 billion, about 30% of which accrued to people who realized an average of less than $50,000 in capital gains per year: https://www.taxpolicycenter.org/model-estimates/distribution.... So you're talking about $460 billion in "ownership class" income annually, or 3.5% of all U.S. income. That's actually a very high estimate--because even within the top 1%, realized capital gains doesn't account for even half of total income.
So under your theory, 96.5% of all personal income in the U.S. is earned by the "lower class" or "middle class." It's a very weird definition.
Yes, if you only look at realized capital gains it is a small percentage. Because even if you have $50 billion in stock, you really don't need to be spending $1 billion / year or anything ludicrous. There is a limit to what one person or one family can consume, and the levels of wealth people can achieve are so incredibly far beyond that, that of course they don't need to realize a lot of gains to get the lifestyle they want.
Several years ago my job took me to do some work at the home of someone in the top 10 of the Forbes 400. I was chatting with one of his staff and this person had homes all over the world, one of the largest yachts ever made, private plane, etc. The annual cost for running everything was on the order of $50 million / year. Astronomical, yes, but as a percentage of their net worth practically nothing.
Yes, if they are in any way reasonably responsible they can live comfortably and have all their needs met. That's great. We should work on extending that possibility to more people instead of taking it away from one group of wage slaves and handing it to another. Meanwhile people making orders of magnitude more money are paying 15%, 10% or 0% in taxes. That's the "upper class" for all practical purposes.
Second, what we care about at the end of the day is the distribution of access to consumption. Income models that better than wealth. Mark Zuckerberg might have an unrealized gain of $1 billion, but he can't out-compete someone else for access to scarce resources unless he realizes that gain. Indeed, Zuckerberg's wealth in particular is just a proxy for the right to receive a portion of Facebook's profits in the future based on the future labor of Facebook's employees. It doesn't represent anything tangible that exists right now. It's realized capital gains, not unrealized paper wealth, that is the proxy for goods and services that could be used to meet peoples' needs in the present.
Third, the folks paying "15%, 10%, or 0% in taxes" represent an extremely small portion of total income. Eliminating the preference for capital gains, for example, would raise just a couple of hundred billion more in taxes (compared to the almost $7 trillion we already raise). It's something that makes a few people very rich, but they don't account for a very large portion of overall income.
Fourth, and finally, someone making $200k/year isn't paying "close to 50%" of income in taxes. In Maryland, it's just over 30%. We're one of the few developed countries that taxes the top 5% so little.
When 99.99% of people don't even have 0.1% of Zuck's net worth he doesn't need to realize anywhere close to $1 billion of gain to out-compete them. The distribution is so lopsided that he could realize gains encompassing most other people's entire net worth and it would be a rounding error in his accounting. That's without even getting in to the fact that at that level your brokerage will happily give you a low-interest loan to do things like buy a house or whatever you want so realizing gains is not at all necessary to have access to funds for consumption. "Realized capital gains" does not even begin to tell the story of the disparity in access to consumption.
I'm not going to argue the broader point about who is really "rich" but is this really true? My understanding is that there are ways to use assets to meet your needs without realizing capital gains. An obvious one is to borrow money with the asset as collateral, but I think there are others as well.
I understand your angle and I didn't downvote your other comment in this thread but your perspective emphasizes the math of income brackets and percentiles. However, people don't use that criteria when self-identifying their income class.
A lot of white-collar professionals making $200k simple don't consider themselves "upper class". It's not a matter of denial. I would bet that if you surveyed software engineers earning $200k, most would not use the label "upper class" to describe themselves because to do so would be strangely pretentious.
If a tiny 1000 sq ft Palo Alto house costs $1.5 million, a $200k salary does not feel "rich & wealthy". Therefore, reminding them they are in the top 5% of the income percentile doesn't change the self-identification of "middle class". From their perspective, it feels like middle class.
Yes, and that's a moral failing. Worse than being "pretentious" is failing to realize that you are blessed. Because that starts you down the road of thinking "since I'm middle class, other people should shoulder the burden of providing for the country's most vulnerable people, not me." That's the self-deception that results in even Bernie Sanders' "progressive" tax policy being identical to Donald Trump's until you get over $250,000.
Don't get me wrong I actually mostly agree with your point, I say that as a guy literally dying of cancer, but lucky enough to be in the best place in the world to have a chance. It's just that cost of living should factor into any estimation of class status. If you throw that out literally every American has a moral failing, even those living below the poverty line, which isn't a sensible way to look at it. Class needs to be defined as the purchasing power relative to the area that the person is in. Taxation status/rates doesn't need to take that into account.
The distinction, historically, was not about capital versus labor. It was about white collar work that allowed a lifestyle where you could have most ordinary things without worrying about money.
In the US, most people are taught from a young age that they should strive for high-income, high-status jobs (engineer, doctor, lawyer). Yet that was the path to success 50 years ago, not today. As the article mentions, you can have a huge income while still having lots of debt, being unable to afford a home, etc. - especially if you live somewhere with a huge cost of living, like the Bay Area.
When you are reliant on income, your money scales linearly with the effort and/or time that you put into your labor. (Actually, sub-linearly - the company you work for captures the majority of the value.)
Conversely, to become wealthy, you must build ownership in something. Then, your money accumulates exponentially as a function of your labor input.
One of the most successful people I know worked manual labor jobs, bought a small HVAC business, scaled it up, and now has contracts with most office buildings in one of the largest cities in the US. He is richer than 99% of FAANG engineers.
You can do this by buying index funds, too. That's sorta the whole idea.
> He is richer than 99% of FAANG engineers
Would he be richer than 99% of FAANG engineers who lived the same lifestyle he did during those years and invested the savings in a standard diversified portfolio?
This is essentially an example of survivorship bias. How many people starting HVAC businesses just go out of business within 5 years instead?
It's not much different than a FAANG engineer buying a bunch of Apple stock in 1998. They could have immense wealth or have gone bust if Apple had gone bankrupt as was the most likely outcome at the time.
But with a diversified portfolio we know the outcome, about a 5-10% gain per year over a long-ish period.
An SFFE who was similarly "lucky" with a high variance approach (in their case, by eg, investing in AAPL at the right time) like the anecdotal HVAC businessman would be much wealthier.
We have to distinguish what exactly we're asking.
Do economists and social pundits classify $200k income as "middle class"? Clearly some don't. Some sort of meta survey would have to answer who considers them "upper class".
However, do workers in America earning $200k as a salary from a job self identify themselves as "middle class"? Yes, they absolutely do.
This is how many people (in America) self-identify their class:
- lower class: living on welfare, food stamps, and federal subsidized housing; or including those struggling without any government assistance but working 2+ jobs to make ends meet
- middle class: workers with jobs in between lower class and upper class
- upper class: able to live off interest income of investments
That guy might not have quite the fancy apartment he wants but can pretty much pay for anything else he wants (a tesla, fancy vacations, every electronic gadget he wants).
This whole thread is full of rich tech people trying to lump themselves in with people in far different economic circumstances because they are uncomfortable with the fact they they are rich.
The issue you're overlooking is that many $200k earners truly don't believe they are rich. It's not that they "secretly" think they're wealthy upper class and just want to lie to you.
It's not unusual for an employee earning $200k as salary from FAANG to feel like it's a middle class living. However, if that same person earns $200k/year purely as capital gains interest income from US Treasury Bills and therefore never has to work at a job for the rest of his life, that's the magic threshold to feel "rich". I.e. "FU money" means "rich".
(Yes, you can certainly disagree with those boundaries but I'm just trying to explain how people think.)
It's the necessity of working at a job that makes them feel like they are in the "middle class". It doesn't matter if it's a white-collar office job instead of a blue-collar factory gig. They can't be "uncomfortable with being rich" if they don't think they're rich in the first place.
I don't see how we can have productive discussions on social progress if we poison the well by slapping labels on $200k workers that they themselves don't actually believe.
On the other hand, take 2/3rds of my rent payment from me and all my neighbors. Please, take it! We'll all get to live in the same apartments, but the money will benefit society instead of our landlord. The vast majority of my spending is not on what things really cost, but on out-competing others for space in San Francisco. If you hobble us all equally we are no worse off.
- poverty: living on welfare, food stamps, and federal subsidized housing
- lower class: hourly wages, working two jobs to make ends meet
- middle class: salaried workers
- upper class: live off of investment income
Instead of defining middle-class on it's own, it makes much more sense to define it's boundaries (lower, upper) and middle is what the name implies, in between two classes.
Tier 1 (basic necessities) consists of goods and services that are essential for living in good health: food with adequate nutrition; shelter; access to health care; at least a basic education. That sort of thing.
Tier 2 (basic extras) envelops those things which are not strictly necessary, but are reasonable expectations for living a fulfilling life: family vacations (nothing exotic, maybe ~once a year); access to a college-level education; at least a modest budget for entertainment; owning one's primary residence; enough savings to provide continued access to this tier of items post-retirement.
Tier 3 (luxuries) are those things in excess of what an 'average' person would reasonably feel entitled to. In essence, they are the rewards for above-average financial success: more exotic vacations more often; luxury cars in the sub-exotic range; a home with custom fit and finish; 'basic' part-time hired help (lawn care, tutors, perhaps a nanny).
Tier 4 (super-luxuries) are those things which an 'average' would see as unattainable, even in their best years: a sprawling mansion or luxury penthouse in the city; exotic cars; private or chartered jet service; full-time, on-site hired help (private chef, valet, that sort of thing).
So how do these fit into the class structure? I tend to model it like this:
Lower class people can only attain the basic necessities (tier 1) by working multiple jobs or excessive hours, and/or with social or government assistance. When spending responsibly, items in tier 2 are unattainable.
Lower-middle class people can provide tier 1 items without assistance, but their access to tier 2 is limited or nonexistent. For example, maybe they can enjoy a family vacation every few years, but they are probably relegated to renting a home, and their retirement prospects are meager.
Middle class people can, with responsible budgeting, provide everything in tier 1 and most of tier 2 without going into excessive debt. With responsible budgeting, they can continue to maintain this lifestyle through retirement.
Upper-middle class people work for their salary or own small businesses. They never have to worry about tiers 1 and 2; those are covered. Their budget focuses on which tier 3 items they can reasonably afford. Assuming responsible financial planning, they can more or less maintain this standard of living through retirement (some modest concessions may be in order). When spending responsibly, the upper-middle class have little or no debt beyond a mortgage and student loans.
There are a few ways to fall into the 'upper' class. If you're far from retirement age and don't have to work, yet your amassed wealth and investment income are sufficient to maintain an upper-middle class lifestyle, then I'd put you in the upper class bucket. If you have access to tier 4, you are upper-class regardless of whether you choose to work. If your concept of a 'budget' revolves around how much money you give away, or which foreign jurisdiction makes the best tax haven, you're probably in this group.
Note that not having to work for a living is itself a luxury. In general, if you have the means to maintain the standard of living a certain class without working (and being far from a typical retirement age), then I would put you in the next higher class. For example, if you're 45 years old and could maintain a comfortable middle-class lifestyle without working, I'd say that makes you upper-middle class.
If you're a software engineer making $200,000 and talking with a teacher making $39,000, you're making more money but fundamentally you have most things in common. You're living similar lives, it would make sense to be neighbors, friends, date, etc. (Part of this is social class, but not entirely.)
Now consider encountering a hedge fund manager who flies everywhere in a private plane. If you met this person at a party, you'd probably wonder why they were there talking to you. You'd have essentially nothing in common with them. This person is fundamentally in a different class. I'm not sure where upper class starts, but based on personal experience it takes much more than $10 million.
> None of this is to say the Times' "middle class" are the real victims; the 95 percent of Americans below them are doing even worse.
No, please... tell me who the _real_ victims are. </snide>
Not to get too far off the rails here, but i think this article is too wrapped up in conversations about Lower/Middle/Upper wage-bands. That's a distraction from the more serious conversation we could be having about Class, which is distinct from wage-earning.
Class is about control:
Ruling Class --> Management Class --> Working Class
If the terms of your lifestyle are dictated to you by a boss, you are working class.
If you can't stop working forever, today, you are working class.
If you're not powerful, you are working class.
There's a very slim chance that anybody reading this isn't working class...
When we think about other people "below" us, we're not recognizing that these are our brothers and sisters in a continuing struggle for freedom from oppressive social structures.
Wages come from bosses. If you have a wage, you're probably working class.
We would all do well to remember that most of us are on the same page.
We shouldn't let the Managing Class tell us we're different from each other, because we get different wages.
Incredibly, my Dad was able to provide these things being the sole earner in the family as a construction foreman.
The US census has various methods for establishing a sensible subdivision of space for deriving statistics like this, including metropolitan areas, micropolitan areas, and combined statistical areas 
The examples of Medina WA and penthouses in NYC don't fit any of those.
Trying to make arguments about cost of living aren't going to help one bit when it comes time for a politician's promises to be paid for.
That leaves you at least $90,000 free and clear. If you can't live comfortably and save for retirement with ninety grand a year, you either have some outstanding expenses (severe medical disability, etc.), or you're making some very bad decisions.
No, no they're not. I make less than $200k, and I paid an effective tax of ~25% last year. (CA's state income taxes are pretty high.) Extrapolating to $200k, I'd pay ~$50k in tax.
> food might be as high as $1000
Way too low. Finding lunch in SF is easily $10/meal, especially with the extra surcharges a lot of restaurants (and I mean that in the "fast lunch eatery" sense, not the "host-seats-you-at-nice-table" type, though those too) are now charging. I'm doing ~$4k/yr on food for two, and we rarely eat out.
I think your point is sound, but I think you're going to have closer to $60-$65k/yr. You also need to account for PMI & taxes on any home purchase. (The PMI will likely depend on how much you've got. Most people who are looking to buy homes probably won't have enough as they're too young, IMO, but then, they're also probably not experienced enough to pull $200k, unless maybe they're in a nice spot at a FAANG, but not everyone is.) You do mention this, but 401(k) savings is going to further reduce that, you probably want to put some in an investment too, and I think you'll find that $60k disappears rather quickly.
On the lower end ($40k/yr or $3.3k/mo), you should be able to find a studio in SF for that or for a bit more, a 1 bedroom (median 1 bed is ~$3.6k/mo in SF). (I'm not saying that's good, just that it shouldn't be as bad as you think.)
It's possible I lowballed some things, but see my other comment. https://news.ycombinator.com/item?id=20415130
They seem to have zero interest in re-calibrating those high brackets into something more meaningful to account for the 100 years of continually inflation.
At $250k it's perhaps less relevant, but it's basically impossible to assess how "high income" $50k/year is when rent is anywhere from <15% to >50% of that value.
The line between middle and upper middle has more to do with disposable income and which consumer habits they hold.
Are you referring to business owners? Or paying for full time help around the house?
I encourage everyone to stop looking at income as a class-definer :)
This myth is particularly pernicious in the area of taxes. The top 25% minus the top 1% earns half of all income. These people need to be taxed like upper income people, not middle class people. Confiscatory taxes on the "top 1%" (or people making $10,000,000 per year, or wherever the line keeps getting moved to) can't raise sufficient revenue to fund a modern welfare state.
In the U.K. and Germany, the 40%+ tax bracket (both countries have a top bracket of 42-45%) kicks in around $60-70,000 of individual income, or about double the median income. In Sweden and Denmark, the top tax brackets kick in around 1.5x the median income. The second highest tax bracket doesn't kick in until 6-7x the median income.
In Sweden, about 15% of people pay the highest marginal tax rate. If that was the case in the U.S., the top tax bracket would kick in above $120,000 household income. That makes total sense. These people are very well off and should be subsidizing the rest of the country.
- dependency: allowances, public welfare, UI, grants, bursaries, inheritances and trust funds, scholarships etc.
- labour: paid for fungible work. (piece work, hours of labour)
- time: paid for individual time spent. (salary)
- knowledge: paid for things that can be taken and reused e.g. analysis, opinion, assessment, advice, teaching.
- performance: paid for outcome only you can deliver. e.g. litigation, sports, music, prizes, bonuses, gambling.
- risk: paid for taking/holding risk, priced-in compensation for perceived potential loss. e.g. leverage, brokerage, insurance, liquidity.
- capital: charging rents on a capital asset. e.g. real estate, dividends, loan interest, franchise fees, IP licensing.
- power: taxation, tributes, bribes, etc.
We can dress up the amounts people make and make up vanity excuses, but these are what you get compensated for, and there is definitely a hierarchy. Everyone likes to think they are middle class, but what really defines social position is how and for what you are compensated.
But then race is a large factor, as well as money.
In the UK money rarely buys you class. You are born into your class, and unless you have elocution lessons, or go to a grammar school (or a sink school for the opposite direction) then you stay like that.
There are a lot of definitions floating around for the middle class, but a family in the 92th percentile is probably more similar to a family at the 50th percentile than a family in the 97th+ percentile.
To wit: No matter how little is earned, saving and investing a percentage will result in relative wealth over time.
I have seen it work for people. I have not seen it fail. I believe it.
Does that mean they shift from "worker" to "capitalist" over the course of their life? I'd say there's some value in having a term distinguishing those who will predictably be in that state from those who will not be, no?
In 2019, where if you have a credit card to create an account on AWS, you can create a product that has a near zero marginal cost.
That being said, it does strike me that in the Marx era it was most likely easier to be successful as a regional provider of some commodity while globalization means that even a manufacturer is effectively competing against the entire world.
If you do, and it sells, you're an owner / producer.
If you don't, you're a worker / consumer.
The whole reason for this discussion is the lack of sharp categories when talking about class.
I live in a 10 x 18 room, in an apartment with 3 room mates that has an acceptable kitchen and a cramped living room.
I save > 50% of my income, which is nice.
But I also spend ~ 80k / yr on medical expenses.
I guess I'm upper class if "hoping to retire to a remote part of the world at around 35, and live off ~20k / yr til I die" is a reasonable hope. But also that's just ... ill.
I hate the "upper / lower / middle class" model because I don't think it really is a meaningful way of slicing society anymore? It's a very post-WW2 idea of how our society is organized and what's desirable.
I'd tend to start slicing along a set of lines like:
-- urban / rural
-- degree of community support / culture
-- type of labor (knowledge, service, manual, ...)
I'm working on building long term community structures (one of my low-key goals is to buy and convert a church into a community space). Because the "I'm X class!!!" is dumb; it treats people as totally not dependent on their community. Unless you're willing to pay for community builders to do their work, you're not going to have any real community.
(btw, this is why I can't stand people skeptical of affordable housing and the like: why do you think it's pleasant to live in neighborhoods with a robust variety of people? because often people that aren't working all the time can do things like maintain a community garden. Which is only possible if they can live in your community.)