Updated on June 3, 2020
Americans are rich by world standards. With an average GDP per capita income of ~$60,000 for 2020, America consistently ranks in the Top 20 richest countries in the world. Many of the world’s top income earners live right here in our great country.
Other rich countries that have a higher GDP per capita than America include Liechtenstein ($139K), Qatar, Monaco, Macau, Luxembourg, Bermuda, Singapore, Isle of Man, Brunei, Ireland, Norway, Falkland Islands, UAB, S. Maarten, Kuwait, and Gibraltar. Countries with similar GDP per capita to America include Hong Kong, Switzerland, and Saudi Arabia.
If at birth, you had the mental capacity to choose where you’d like to live for most of your life, living in a top 20 richest country will more than likely help you become a top income earner as well.
Even if you end up being the most mediocre producer, you are still miles ahead of much of the world. Too bad many of us can’t pick where we want to grow up and earn a living. As such, it’s nice to understand how we compare against the rest of the world to give us some perspective.
Let’s take a look at what the top income earners make in America.
What The Top 1%, 5%, 10%, 25%, and 50% Income Earners Make
Based on the Internal Revenue Service’s 2015 database below, here’s how much the top Americans make. For 2020, the numbers are all about 15% higher partly thanks to inflation.
Top 1%: $380,354 and up
Top 5%: $159,619
Top 10%: $113,799
Top 25%: $67,280
Top 50%: >$33,048
Summary Of Top Income Tax Data
Based on a previous 1000+ survey study on Financial Samurai in Fall 2019, about 80% of readers are in the Top 25% ($67,000+). Good to know that many of you are doing well.
The table also tells us a number of things about equality or inequality, namely that the top 1% of tax payers pay 38% of all income taxes yet only have a 20% share of total AGI.
Furthermore, the top 50% of tax payers pay practically all of the nation’s federal taxes (97.3%) while commanding 87.25% of total AGI. This table from the IRS is the source for the often politically bantered argument that 47% of American income earners pay zero federal income taxes.
If you do another little exercise and compare the top 25% of American income to the Top 10 per capita income countries in the world, you can once again see how lucky most of us are.
If only we could get all American wage earns to pay some taxes, it would go a long way to help shoring up our budget. Congress constantly holds the nation hostage by bickering over whether to cut $10 billion here, $50 billion there. All we have to do is make those who earn above the poverty line who pay no federal income taxes pay just $43 a month and we’d raise $60 billion a year right there for example!
Let’s have everyone contribute to the welfare of our country. We are all in this together! For those who are just struggling to keep their heads above water, let’s lend them a helping hand.
The top 1% income earner in 2020 is now earning at least $450,000 a year.
Who Are The 47% Who Pay No Federal Income Taxes?
Roughly 47% of Americans pay no income taxes. However, the 47% of Americans who pay no income taxes fall into three groups:
The working poor. The earned income tax credit and the child credit can help families making $50,000 or more pay no taxes or get money back. About 60% of those not paying income taxes do contribute to payroll taxes, meaning they must have some source of earned income.
The elderly. An increased standard deduction for those over 65, and an exemption on part of Social Security earnings, means that many older Americans pay no income taxes. Please remember though that the elderly have paid their dues through decades worth of federal taxation during their careers.
The low-income. A family of four claiming only the standard deduction and personal exemptions pays no federal income tax on its first $26,000 of income. The standard deduction per person is now $12,000 in 2020. Further, each family gets a $500 child tax credit.
As you can see, being poor or elderly likely means you don’t pay net federal income taxes. We’re all going to grow old one day, so let’s give this group a pass. The elderly paid into the system, so let’s take care of them. I don’t think any of us would rather be poor so we can pay no federal taxes, so let’s give them a pass too.
This leaves us with a low-income group that may have made some suboptimal decisions such as having children while not being able to support themselves. Children are estimated to cost anywhere from $100,000 to $500,000 from the ages of 1-18. Perhaps having multiple children on a low income is not ideal. But, how do you deny passion?
No Reason To Ever Complain
If you work in America, you can see from a top down and bottoms up perspective you’re doing fantastic. If you are in the bottom 50% of Americans who earn less than $33,048 a year, know that you can earn more if you want to.
Half the battle is just moving to a vibrant location such as the San Francisco Bay Area where billions of dollars are flowing in due to technology innovation. It’s not like you have to brave the high seas to reach America. It’s not like you need to ride a horse for three months to get from New York to California. All you’ve got to do is hop on a bus or a plane to be where the action is.
20 years ago, I remember making $550 a month working at McDonald’s for $3.65/hour. With wages 3X higher now, I’d be pulling in $1,650 a month or $20,000 a year! Heck, tack on driving for Uber for 20 hours a week part-time at $36/hour and you’ll make another $2,000 a month and be in the top 50% of income earners no problem. There’s an entire gig economy out there for freelancers to make extra money after work, or freelance full time. Why not take advantage?
If you are only working 40 hours a week or less and complaining why you can’t get ahead, you need to seriously re-evaluate your work ethic and expectations. Anybody can do it, you just can’t be delusional enough to think that you’ll be able to compete, when everybody in the world who wants to get ahead is working 60+ hours a week and getting paid much less to boot! Spend some time online understanding global wages from our biggest competitors in China and India. In order to maintain our incomes, we must constantly be updating our skills.
There are plenty of six figure jobs out there for the taking. You just need to have the desire, motivation, work ethic, and perseverance to get there. Did you know the San Francisco police chief makes $320,000 a year? Furthermore, when he retires, he’ll get a $200,000 a year pension for life! It’s not just doctors, lawyers, venture capitalists, bankers, movie stars and athletes who make healthy sums of money.
Even my friend who is a union electrician and is not allowed to work more than 35 hours a week makes $120,000 a year and gets a $5,000 a month pension when he retires at 55. Let’s not count the $30,000 a year he makes doing side jobs with all that free time. There are six figure earners in practically every single industry, including the non-profit industry!
Back to my point where if everybody earns a million dollars a year, nobody is rich. Living in San Francisco, it certainly feels like most are in the top 5% of income earners ($159,619). Train janitors and elevator technicians in the Bay Area can make over $250,000 a year with overtime.
I’m sure many who live and work in Manhattan, and potentially LA and Chicago feel the same way. The cost of living is expensive out here, and that’s predominantly driven by high wages.
Combine two income earners with these amounts, and you can really start understanding why surpassing what the government deems as wealthy ($250,000) is not too difficult.
In fact, I argue that in many of the larger cities in America, you’ve got to earn closer to $300,000 a year just to live a middle class lifestyle. It sounds crazy, but it’s true if you take a careful look at the budget I put together and if you believe a middle-class lifestyle means owning a home, being able to comfortable raise two kids, and save for retirement.
The Top Income Earners Pay The Most Taxes
The top 1% of income earners will likely continue to pay a higher percentage share of overall income taxes than their share of income justifies. If things were fair, the top 1% would only have to pay 20% of total income taxes since 20% is their share of total income. Alas, the rich pay almost double what they owe.
Therefore, it’s not worth constantly demonizing the rich for “not paying their fair share.” The rich are the ones who donate the most and employ the most people in the world.
On the flip side, the bottom 50% who earn 12.75% of total earnings only pay 2.7% in total taxes. But, as we learned above, most of the bottom 50% are elderly or poor. Nobody is asking the bottom 50% to pay more taxes.
It’s impossible to create a fair tax system that everybody will agree on. But we can look at the data to understand who is making the most and least income and paying the most and least in taxes.
Be A Top Income Earner By Being Your Own Boss
We are in the technology and internet age now. If you really want unlimited earnings potential, you might as well be your own boss someday. It costs so little now to just start your own website so you can brand yourself online, connect with like-minded people, find new job and consulting opportunities, and potentially make a healthy living online. Take a look at this income statement example of a friend with a simple personal finance blog.
I started Financial Samurai in 2009 as a hobby to help make sense of the financial destruction that was happening during the last crisis. Two and a half years later I negotiated a severance because I was making roughly $80,000 a year from this hobby. Nowadays, I’m earning more than I was making as an Executive Director at a large financial firm while working 80% less and having 300% more fun.
You can start your WordPress site like this one with Bluehost for as little as $2.95 a month. Come up with a unique and memorable domain name, find a free website theme, connect your hosting and you’ll be up and running in 30 minutes.
The best thing you can do while you have a job is work on your side hustle during off hours. You never know what might happen if you just start.
Top Income Earners Track Their Net Worth
The other action item wealthy people do is track their net worth. You can only truly optimize your wealth if you know where all your money is going. Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances.
I’ve been using them since 2012 and have made much wiser financial decisions since. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Your financial future is too important not to take it seriously. You don’t want to end up old and not have enough money because there is no rewind button!
Updated for 2020 and beyond
Thanks Sam. Your financial blog is amazing, I highly recommend it.
This is why I think it’s unfair. And the rich don’t pay enough, My easy way to look at it. All math. Use a roll of toilet paper. Each square is $25,000 in income. after 9 squares the 1st 6 brackets are covered. Yes that covers all the way to $204,102 and these people pay 35% in taxes, So they pay 71,435 in taxes and keep $132,666. go 13 more squares and the finial 7th bracket is covered $510,301 and they pay 37% taxes they pay $188,811 and they get to keep $321,489. so this is when taxes are not fair. But lets go on because if that is screwed up. Then check this out. we have just reached the 22 sheet. these rolls has 350 sheets in 2017 Bill gates made over 4 billion. You make sure you taxed the poor 10% and the middle class 22% so what about bill gates will lets look. it will take 114 more rolls to hit his income he made. But he only paid 37% on 4,000,000,000 and the disabled vet paid 10% on that $1,000 over the $24,000. then you have the nerve to say you need to work harder. how many people get rich stealing from others. How many ran a scam to get rich quick. you rich always want to raise our taxes. and lower yours. I don’t care what you pay but it should be like in the 1970’s at 80% you know Bill Gates would still make $80,000,000 after taxes. how much does a person need. Just enough to buy the congress right.
You did not look at the figures. Otherwise, you wouldn’t have that rediculous example. Half of tax filers don’t pay federal taxes yet they benefit. The ultra rich will always have avenues to mitigate liability, but they still pay a large share. Errbody needs to pay A share.
regardless of whether I agree or disagree that rich people pay too much or too little, I am disappointed in the question “how many people get rich stealing from others”. Perhaps we differ on the definition of stealing, but I just don’t see it that way.
But even still, just because someone might have done something wrong, you argue we should punish everyone similar to them. By that logic, we should cut all medicare, medicaid, social security, and other social services because “how many people steal from these programs” Your logic is divisive and flawed.
I think the fundamental question is what is equal, proportionate, or equitable, and what goal are you trying to achieve? Is it a balanced budget, fairness, encouraging income or wealth, etc. And rather than calling out extreme examples (i.e. Bill Gates or the vet) look to people in the middle of each bracket and what each policy would mean for them. With such varying costs of living, many people in these brackets, would struggle with increased burden. At the same time, many would face economic challenges if we cut back on spending. I think many people believe there can be more brackets, and higher taxes as we go up, but we also have to balance that with the reality that taxing the top fractions of a percent of earners won’t solve the budget challenges. While it may make people feel better, and could be argued as more equitable, it is certainly less equal and proportionate.
The top 1% don’t make $360K.
That is the split point, i.e., the minimum for that tax bracket.
Because it is not readily provided by the press, the Progs always imply that you need to make millions to be in the Top 1%.
And economics is not taught in schools anymore.
They are teaching islam instead.
Correct, that’s the minimum amount to be considered a 1% for that year. Even among the 1% there is a big divide of the working class doctor and. millionaire business owner.
FS,
Great article.
The IRS data is (for certain) very accurate but I wonder if it paints a picture that there are *less* well-off people than there actually are. If so, your point is proven even further.
Here is why I think the incomes reported to the IRS are lower than we realize:
* Small business owners are notorious for avoiding taxes by making everything a business expense
* Many high-paid freelancers such as hairstylists, makeup artists, photographers, painters, roofers, etc prefer to be paid in cash and also receive cash tips. This doesn’t apply to all their contracts, but they may receive a share of their income in cash.
* The “landed” well-off tend to derive their income from their assets. They only pay taxes when they realize gains on these assets, whether it is stocks/business income/real estate…
Almost all of these high earners come from the self-employed and entrepreneurial corner.
Anecdotally, there is a large number of expensive houses in US cities. Far more of these “wealthy” houses than there are high income earners if you go by the IRS definition.
What do you think? Is the income data skewed downward?
Not sure actually. There’s a lot of stealth wealth in America because of populist angry towards the wealthy.
Also, the average net worth in America is pretty huge now at $693,000 according to the Federal Reserve.
Actially adjust gross income is a bad way to tell. The main complaint is the wealthy have so manyloopholes available to them to get out of paying taxes. Those loopholes and breaks get applied BEFORE agi is calculated. It seems alll the info on gross income of the 1% has been censored but the last data I saw was in 08′ the 1% make 80% of the income before deductions. By 2018 they had 90% of the total income before deductions. So if that 90% gets adjusted down 80% I would say thete is an issue. Comapre that to the average earner at 63,000 who gets adjusted down to 38,000.
It’s crazy how poorly the top income earners are treated in our country. They are the job creators and the biggest tax payers in the entire nation. I believe there will always be resentment from the middle class toward the rich.
This resentment is exactly what makes it hard for the rich to want to have a healthy dialogue with the middle class. It’s definitely an issue to keep an eye on as wealth/income inequality continues to grow.
I get tired of hearing that the wealthy don’t pay their fair share. I ask my left leaning friends what is a “fair” income tax rate. Almost none of them have an answer or if they do it is less than the effective tax rate that my wife and I pay(44.1% last year on our gross income). My tax rate if I would have stayed in California this year would have been 37% federal and 13.3% state. My wife is an executive at a fortune 100 company so all of my income is taxed at the highest marginal rate. If you add social security(on most of my income) and Medicare taxes, my effective income tax rate would be about 59%. Is it right or “fair” that I have to work for the government for 7 months every year before I get to keep any of my income?
We made the decision for me to retire this year and move to another state with lower taxes. It was no longer worth my time to go to work when most of my labor was going to pay the government. We no longer employ a gardener, pool service, or nanny which amounts to about $1900 per month in savings. Along with the income tax saving and lower property taxes, our take-home pay is nearly identical to when I was working(My salary and bonus put me in the top 5% of income earners) Many on the left don’t realize that as you increase the marginal income tax rates people will work less or like me, stop working altogether. I’m guessing now that the SALT deduction is capped at $10,000, the high tax states will find out that a lot of their citizens will be moving out of state like we did to escape the exorbitant taxes.
The other fact that gets overlooked is very income level are fluid throughout someones life and very, very few stay in the top 1% for very many years. 73% of Americans get to the top 20% of income for at least 1 year of their lives. Only 0.6% will stay in the top 1% for 10 consecutive years. Many view the 1% ers as a group that is born that way and stays there their entire lives and that is the exception rather than the rule.
Whilst I agree with everything you’ve written some people don’t want to make more money, although they do want to complain about not earning enough! There are two types of people in this world – the talkers and the doers. It’s the doers who make shit happen – most people reading this are doers -> go and get everything you deserve!
Hi,
Lord’s blessings to you, your family, friends and colleagues.
Profanity and colorful language is
painful to me.
I usually stop reading and listening when I hear & read it.
I automatically assume the person is not literate/ well read.
I gather they are not reading books and they do not have the words to describe their point or feelings. I could be wrong.
People like me who avoid profanity and colorful language stop reading/ listening when they experience it.
I hope my feedback was helpful.
In recovery meetings there is a saying, take what you like, leave the rest.
Blessings,
Sam
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FullyFreeFilms.com
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Romans 3:1-25
I love this blog! I am in the 94th percentile in terms of net worth, according to the online calculators, but I certainly don’t feel “wealthy.” Reason is that I was talking to a buddy of mine that has also done well, and we conclude that when you make it, you are even more protective and appreciative of what you have and what it took to get there. I think that many times folks need a win, a boost if you will, to give them some confidence. It pays to to walk the line in every regard (e.g., don’t drink or do drugs, don’t get into debt, get a lot of education, always retool your skills, network, etc.). Any know that one thing can bring down an entire lifetime of work in an instant. Boring makes wealth, and that often means spending more time in school and staying up late working on your moneymaker instead of hanging out at the local bar all night.
Hi Sam,
Great post. I agree with you; if you want to be rich be your own boss. Luckily, blogging helped me to become a full-time blogger and be my own boss!
Thanks for sharing!
Just noticed Joes comment about “lazy zionists”, whom probably went to Harvard and out earn him 20:1, but whom, probably, aren’t even Jewish.Most Billionaires, Gates, Buffet, Slim, Trump aren’t. Some, like Zuckerberg, are. None are lazy. You sir, are lazy.You blame others for your own troubles.
You are a also a bigot, and I’m so glad you will never be prosperous.
If I could take away the Salk vaccine(damn Zionists), lasers and GPS (damn Einstein), the atom bomb that won the war (damn Einstein Slizzard and Oppenheimer) from your life I would, but alas, you benefitted and ignore it. Over a third of US nobel winners were jewish, hardly lazy eh?
To Financial Samurai: read the comments. While religious bigotry probably isn’t contagious to anyone with an IQ over 100, leaving those comments up is like forgetting to flush the toilet.
Bob
I love that phrase “forgetting to flush the toilet”.
Bigotry is just wrong and here, inexcusable
Most comments are fair enough and there are anecdotes for every reason why someone can or cannot get ahead. I believe there are simply not enough opportunities in the USA for well qualified people to get a paying job that is reasonable to their potential. Rather in my world, I’m often seeing lesser qualified people (for many reasons) running the show and making most of the money. Let’s not forget about luck. There are some people whom are just lucky to have been given the opportunities they have. Not saying these folk are not hard working, just saying they were more than likely not the best in many ways to get a great paying job, they were just lucky……Working 50+ a week may be needed at times, but I don’t think people competing in that or standardizing that is good for our society, nor should it be necessary just to get ahead in life.
Money goes to people’s heads. Everyone can discuss all the anecdotal evidence they want, but the concern is the distribution. Yes, if you work hard, you have a chance of succeeding, and some people do. But more of the people that work hard should succeed.
This doesn’t square up with our taxes. Under $300000 and paying 28% as homeowners. Working 60 plus hours. We would love to pay 23%.
Excellent article. I will add that living your life being grateful for what you have and counting your blessings is a surefire way to be happy. You can always be worse off, and if you complain too much, the universe might teach you that. Love your life!
Thanks Sam. Your thoughtful insight is always appreciated. Got some new financial goals to strive for!!
I think there is a flaw in this logic here, the top income earners at 380k, this figure is probably only taxable income for a year, there are many other ways this group gets rich that aren’t accounted for here.
the gap between the wealthy and poor is huge, much more so than its made out to be here. Its obvious when the owners / majority shareholder / CEO’s etc have personal jets and multiple houses but the people who clean their buildings make minimum wage.
there is also the problem that minimum wage puts you in the “poor” category
I agree with the statement that we are doing better than most of the world even in the poor category, it beats living in Saudi Arabia or Iraq etc, and there are many more 3rd world countries than 1st world ones. However that doesn’t mean there isn’t room for improvement
I also agree that the working poor and the elderly have a completely legitimate reason for their taxable income.
I do not agree that people who cannot afford children and have them anyway should be given a free pass, this is a policy that creates more financially dependent people by not being a financial burden on this group, however this statement is only true if we start providing health services like abortions and such and stop letting religious extremists prevent us from doing so. if abortion is available to this group, they should suffer a higher financial burden for each child they have rather than getting more credits and everything. I hate to say this but we need incentives to make this group of people think twice before creating more burden on our financial situation
I also don’t agree that we should thank the rich, yes the American economic system has provided us with so many technical advancements, but these 1% or .5% etc. have many lawyers and tax professionals at their disposal to help them exploit every tax loophole possible where the average American with mere basic knowledge of how this works and files on turbotax does not. Much of this money is not treated as personal income either since its tied to business. say a CEO is the majority shareholder also in a company that does not pay him dividends, his company grosses 1 billion dollars in a calendar year, have of this in foreign banks and so forth due to outsourcing jobs, where is this money accounted for? its not shown here to really show you the gap in income.
I have two problems with an otherwise informative article. The author declares that people shouldn’t have so many children yet conservatives scream about providing birth control or abortions for those with low incomes. The author also states that to move up in income, the poor can simply work more hours in their regular or a part-time job, yet again, conservatives scream about the poor not spending time with their children and their lack of parenting skills. I also don’t see the moneyed class helping to provide decent child care so the poor can improve the job status. This article simply shows the hypocrisy of the wealthy and conservatives in our society and provides an alibi for their “I’ve got mine and to hell with the rest of you” philosophy.
Hi Lee,
Don’t give up! I’m the author of this article and here are some articles that can help you forge forward:
How To Make Six Figures At Almost Any Age
Spoiled or Clueless? Trying Working A Minimum Wage Job As An Adult
Abolish Welfare Mentality: A Janitor Makes $271,000 A Year, So Can You
I don’t mind getting torn up in the comments as I realize a lot of people are frustrated and angry about something. The comment section helps alleviate that stress. But at the end of the day, it’s YOUR LIFE you’ve got to take control over. After the venting is done, take action to change it if you are not happy.
Best,
Sam
I graphed the income distribution data for 1967, which is within the range from 1960-67 in which we had the most balanced economy in terms of not having swung overly far toward a government induced equality. Yet it was still within the years with relatively high equality, that is, not nearly the extreme inequality we have currently. 1967 was the first year for which I could find solid data for the 1960-67 range.
I also graphed the data for 2012, a year in which inequality was fairly extreme. Both sets of data were graphed on the same chart and the income represented logarithmically so that we could get salaries ranging from $1,000/yr to a million/yr on the vertical scale. The horizontal scale represents percentile linearly from 0 to 100 so you can see exactly how the income distributes across the total population. The 1967 graph was significantly kinder to the lower 20% of the population than the 2012, despite being in the days before there was much reduction in the earlier intense economic and educational repression of minorities, including repression of opportunities even for well qualified minorities.
I then assumed that equality is not a natural goal. We all have different levels of both ability and motivation to earn. So for me, the famed Gini Index is based on perfect equality as an ideal. In my view, this is fundamentally unnatural and therefore fundamentally misinformed. This and the assumption of zero-sum game economics is the mistake of the far left as well as Marxist thinking in many respects, although they are usually not quite the same thing.
The graphs of 1967 and 2012 were both similar to the way a normal distribution would look in this graphic format, with income represented logarithmically. Both these sets of real data look essentially linear as plotted on the vertical logarithmic income scale versus horizontally linear percentiles between the 30th and 70th percentile. In this format, that translates to a straight line that multiplies income by the same factor for the same distance we move horizontally anywhere along the line representing an increasing percentage of the population with less income.
So I decided to postulate an ideal distribution that was similar, but with a slope that was as much less steep than the 1967 graph as that graph was to the 2012 graph. Put another way, I hypothesized an ideal situation in which the distribution would be as much better than the 1967 as 2012 was worse. Just like a normal distribution of IQ or the length of our noses, I hypothesized that the combination of ability and motivation to earn in a homogeneous population that had no repressed minorities would also be normally distributed.
I therefore made the slope of the linear section lower than 1967 by the same amount the 2012 was higher with the income distribution perfectly normal under this condition and in this format. This ideal consequently represented a true normal distribution instead of approximately normal as in the real data. All the data were modified in a manner that reproduced exactly the same distributions as the original data, but which assumed equal total income for equal populations. This is the only way to compare apples to apples.
It was amazing how much better off the lower 50% in the ideal distribution was while the upper 20% hardly sacrificed a thing. There was even an inflection point at the 70th percentile at which all three graphs were at the same income. Nevertheless, the very bottom still had people who were earning less than would be necessary to live on. I assumed that this will always be so, just as there are always people with very short noses or very low IQs. We need to do something about that if we’re going to be a gentle, compassionate society without our heads stuffed way up somewhere very unrealistic.
Then I looked into the question of how much the top 30% would have to sacrifice to allow the lowest 30% to live in minimal but adequate comfort. These populations are outside the middle linear section on all three graphs This also made no assumptions about how to implement the distribution; no assumptions about government or any other kind of involvement. I merely looked at income distribution with no tax assumptions or any kind of specific safety nets. The question was simply how much raw, untaxed income would the top 30% have to sacrifice to create livable conditions for all in the lowest 30%. On the hypothetical ideal distribution I found that only about 7% of the average income from the top 30% would provide a 24% boost in the average income of the lowest 30%. Of course, in practice it would be more sensible for these average results to be progressively distributed on both ends.
Now if you’re going from around $25K/yr to over 31K/yr, that makes a huge difference in your potential quality of life, assuming you’re not addicted to alcohol, gambling, crack, or heroin. The difference is still greater for the extremely low incomes assuming a graduated relief scheme. If you’re going from 100K/yr to 93K/yr, that has enormously less impact on your quality of life. This is even morally justifiable in that those on the high end of the income distribution typically use a lot more public infrastructure than those on the low end. It is only right that they pay for it accordingly. I found this to be a very interesting and informative Gedankenexperiment (i.e., thought experiment, a term first made famous by Einstein, who used Gedankenexperimenten to develop his theories of relativity, not that what I’ve done is anything comparable in case there is anyone silly enough find the motivation to assume I think so).
Some very awkward statements are being made here: “A poor guy can go make $30+/hr. with Uber” – he cannot even buy gas to get to a bus station; also, I would very much like to be able to pay at the 23.27% tax rate of the average top 1% of earners. It would leave me $291,845 on which to make ends meet. Yet the lower 50% of earners only have less than $33,048 before taxes. If in the higher earners (those 25% averaging $67,280) paying 15.68% average, there was a doubling of taxes, their after tax amount would still be $46,180 or over $13,000 more than the gross of those at the 50% level. It is not the 1% that need to pay more but those 50% or below should be returned double the current withholding amount to encourage more working wage earners. Give us more information on the top 1/10 % of earners (those 140,000 earners, or 10% of the top of the 1%): How much do they earn? What would be the potential tax reduction for the balance of earners if they paid 50% over $500,000 in earnings; stepped up to 75% for those earning over $100,000,000? Since we are being told all this other historic information, educate everyone on the potential changes a few various scenarios could give and show that this would eliminate the US national debt. Using knowledge attached to computers could help everyone be more understanding and more unified.
In my opinion, it is reasonable for rich people to pay more tax because they use more resources than poor people. Moreover, rich people can make money easily with stocks, capitals. Generally,working more than 40 hours per week is not a good way to become rich. The first step is to have a good financial plan, so one can have an egg in his hand. Then he can hatch this egg and wait patiently for a few hens.
The biggest problem with this article, is the assumption that the ultra wealthy make money by working. They make money because the return on capital is greater than the underlying growth in the economy. If you have even a basic level of mathematical competence, you can recognize the macro economic implications of this. Capital will accumulate in the hands of the few, not due to their hard work, or expertise, but because they already have more capital. We no longer have capitalism, we have financialism. The economists, the policy makers, the politicians, everyone has been corrupted by the financial sector. In a real capitalist economy, finance is a support function. In financialism, it is a profit center, and this structure can only be supported in an environment of private sector credit expansion. It is also essentially a system of theft. The financial sector is stealing the wealth of the nation, while adding no real value. It is sad that people are too stupid to recognize it. A start is reading Pikkety’s Capital in the 21st Century, or listening to Michael Hudson.
It’s always better to focus on equity and wealth than income. B/c income gets taxed. Wealth skates on by.
See: Focus On Building Wealth Over Building Income
On what planet do Uber drivers make $36/hour? That’s… way off.
I do. But actually, I make closer to $100/hour due to making money through referrals. It’s all about leveraging the internet.
See: Blogging For A Living: How Much Can You Really Make?
You are leveraging an angle, and if enough people do that, the angle goes away. It is the same for most of the recommendations you make. If they were done by a significant portion of people., they would cease to be an angle worth working. Most of your advice will work for a few people, but they are not suitable policies for widespread application.
Hi everyone. I have a big issues with those who complain about their financial position. I’m 29yrs old and a Financial Planning Director at a fortune 500 firm. My wife and I are in the top 10% of wage earners in this beautiful country and I was NOT handed my success. People in my generation seem to have forgot what this country allows us. Freedom and democracy (yes, more of a republic) allow you the privilege to work and fight for your dreams. Too often people think they should be handed a certain lifestyle as it’s their right. After putting myself through community college, while working 40hrs a week, it became clear that I needed a 4yr degree to achieve the lifestyle I wanted. I didn’t complain about the cost. I went out and obtained a student loan to cover only the cost of tuition and books. It’s paid off now. Only had to take out around 20K. I roomed with a few other guys to save money, had two jobs totaling around 53hrs per week (I was making over 3K per month in college!), took more classes per semester than the average (night classes mostly), was involved in intramural sports, was apart of a fraternity, and was dating my now wife the whole time. More importantly, went I started all of this there was a month when I had $1.87 in my checking account and $0 in my savings. My only credit card was maxed out and I was dead broke. Instead of giving up or reaching out for a hand out I put my head down and obtained that second job. I didn’t have time to drink, smoke, watch TV, or spending money all of the crap most of us think are fixed expenses. Wake up people. Stop complaining and work for what you want. If you don’t want a big house, early retirement, kids, traveling money, or nice cars then don’t work hard. You get out what you put in. It’s that simple.
A second option is to concentrate at getting better at what you do so you can command more money per hour and work less. I have a small painting business primarily residential repaints. I worked hard at it and worked long hours for many years. I never felt I was getting ahead even though I did have a good life I just seemed to miss too much of it while I worked. I set a goal to earn the same relative amount while working far fewer hours (20 hours per week) I set about doing this by concentrating at being better and faster, raising my rates, and increasing the number of bid opportunities so I could be more picky about the jobs I took. It took me seven years but three years ago I met my goal. I work around 1000 hours per year and have an income that allows me to own two reliable vehicles a 3 bedroom one and a half bath house on 8 acres and the time to enjoy it.
An extra 5% tax on the bottom 50% of wage earners, by your own numbers, would produce about 54 billion in taxes. An extra 5% tax on the top 50% of wage earners would more than eliminate the deficit. (And yes, I would be included in that, I’m somewhere in the top 10% by your numbers.)
In order for the bottom 50% to pay an addtional 5%, they would need to sacrifice food and housing two weeks a year, since pretty much all of their income goes to those necessities. In order for the top 1% to pay an additional 5% a year, they wouldn’t notice the difference.
And many in the bottom 50% are already working multiple jobs, much longer than 40 hours a week in order just stay where they are. 80 hours a week at minimum wage is still in the bottom 50%, again by your numbers. And of course, working that sort of schedule leaves you to tired to do much to improve your life. To say nothing of child care costs, eating out more because you don’t have time to cook, etc.
To borrow a phrase: Why do you tax the rich? Because that’s where the money is.
I would agree. Everyone should have skin in the game, but expecting to erase the deficit on the backs of the poor seems pretty callous to me. Poor and working class people already pay taxes well and above the federal income tax: State taxes, property taxes, licensing fees, sales taxes, gas tax, etc…. This includes those who pay NO federal income tax at all.
While it is true that the top 10% of income earners pay over 69% of all taxes, the top 10% by wealth also control over 71% of total US wealth. So while income and wealth don’t always correlate, the burden on the top is probably about right and should probably be even higher on the ultra-rich – those with incomes over 5MM per annum.
There’s an interesting article in the New York Times today on how “Top 1%” income varies by a factor of 10x depending on where you live…
To be in the top 1% of incomes nationally, you need to take in a minimum of $389,436. In New York (Manhattan), you need to be making $1,425,000 annually to be in the top 1%. People making $389,000 in New York are only in the top 10% for their region!
https://www.nytimes.com/2016/09/25/business/your-local-1-percenters-may-not-be-as-rich-as-you-think.html
There’s 168 hours in a week you do not need exactly 8hrs of sleep per night 6-8 hrs is suffcient, some people need more some need less. Anyways that gives you roughly 120hrs you can be working…and for anyone who wants to only work 40 don’t complain when i’m under 30 driving a maserati, owning two business with a vacation home and retired before 40 and 100% debt free and making 6 figures doing nothing because i chose to hustle my ass off and build not one, but two business and invest in myself. You need to find a demand for something, and supply it… You are either helping someone else follow their dreams or working on following your own. 9-5:30 are bankers hours. In order to get ahead you have to be above average and do more then the average person…
Thanks for sharing your thoughts! Banker hours are more like 9am – midnight actually, but who’s counting. I used to get in at 5:30am and leave at 8pm all the time. Killed me. Got fat. Got sick more often. But it helped me break free at 34 due to aggressive savings and good income. Back in shape.
Related:
The Average Net Worth For The Above Average Person
Are There Really People Who Work 40 Hours A week And Complain Why They Can’t Get Ahead?
Obviously the people who read this article and agree with it have never had a need and only know how privileged people live. I would like to know how a person raised on a 40 cow dairy in northern Minnesota who started working at the age of 10 5am get on a school bus at 7 am arriving at school 8: 20 return home at 5 pm finish chores around 7;30. At age 15 work 20 hrs on weekends to buy a car and pay insurance. During the winter months never getting paid more than 20$ a week for working 7 days a week on family farm. And 100$ a week during weekends.. from 1979 to 1987.. who’s parents never cleared more than 1400$ a year even though they worked 7 days a week no less than 12 hrs a day every day of the year never missing a day no matter what, sick or injured make more money? Then join the United States military making 700$ month after 7 years making 1100$ Even though being promoted 6 ranks before being injured and discharged..attend 5 years of college becoming educated take a job starting at 24,000 after 7 years making 25,500$ quit after working 140 hrs in 13 days with no overtime being salary. Get denied a 1$ hr pay raise quite to find better job spend two years unemployed applying to more than 40 jobs in 20 different states. Have to take a minimum wage job at age 32 bring home 48$ a day , even though owning 3 homes. Finally due to military injuries can no longer due physically the only work I know. Become unemployed, apply for veterans disability in 2004 have to sell everything except for the home I live in.. no children or family. Wait 7 yrs and day that sheriff is going to evict me from my home finally get approval from va for 100% disabled save home and pay all debt in 2011 . Lose ssi due to being unemployed for more than 5 yrs and now live on 3000$ a month unable to ever make more… no savings no 401 or stocks no assets..age 50 no ssi till 65 but will have to wait until 70 just to get more than 700$ a month…. so please tell me how I can get rich you uppity privilege fucks who obviously don’t have any clue what it means to work your ass off only to be looked down on by your arrogant ignorant ass! Non of you ever gave or served anyone but your self! I have never been able to live how I would want to because my military service left me having to live the best I can but now knowing I sacrificed my life so you can tell me I just need to try harder.. it makes me sick to think my life was wasted giving you your easy life and for what. A ignorant President who has purposed reducing my benefits from 3000 to 300 and letting ssi give me the 700 $ that I earned working 21 years never making over 25,500 a year until now on disability that I had to give lord and bone to get…every person making 75,000 a year should pay no less than 40% taxes why? Because you owe people like me with out people who sacrifice their life you would have nothing! Your food comes from people who work sun up to sun down most never make more than 10$ hr many make less just so you have cheap food… you have no clue how much you would pay if farmers were paid the same as you! If the people who feed you or ensure you are safe by protecting this nation made what you make! Which is what they should and you should be working for minimum wage or less… non of you provide food or security for anyone but your self…think if you had to pay 10 x more for your food you wouldn’t think it’s so easy to just work harder or you just need to want it more…pathetic take a long look at your life and honestly answer what is your true self worth when your life is only possible because of me and my people….I grow most of my food I have never needed any one of you yet you have needed me and my kind every day of your life and you have no clue till now! Please I want you to look at how the American farm is suffering from the trade war. Look at how 22 veterans commit suicide every day because they are broken providing security for your privilege ass… and now American farmers have surpassed veterans in this on average 25 family farmers are killing them self… so please enjoy your safety and enjoy your meals because the truth is it is covered with our blood just so you can think you have what you have because you earned it when really it has been given to you and you have never deserved any of it.
I know that I am not a proper writer so you don’t need to point out my dyslexia I know. But I really do want to hear what you have to say.. it will only provide more proof of the things I have said about you by the way you reply… I know this also… but I am still looking forward to seeing your message.
Your humble servant.
R Wacker
Disabled veteran
Army 86-93 Staff sergeant
North Dakota state university
92-95 deans list honors
Alpha Gamma Rho
Mr Wacker, thank you for your service to our country. Now, did you do it for free? You act like there wasn’t a benefit to you. Didn’t it allow you to escape that miserable farm job for $1400 per year?!
What’s with the hating on people making more money than you? Did you serve them or not? When I give someone a gift, I don’t expect a return. When I service someone as a professional, I expect payment that is fair market or fair payment from my employer. I wouldn’t spend 7 years there for a measly $1500 raise over that time!! Geesh man, have respect the your skills and time…. move on to something else or somewhere else to get your worth instead of boiling over with anger and resentment. I had kind of a similar situation with my last job, also of 7 years. I started it in 2011 during a down economy in healthcare…because Obama wrecked the healthcare and student loan industry for years. I went from making $70k range per year to $140k with a 10% of income into my 401k as benefit. Sounds nice huh? After the gubermint took a huge percentage of it to taxes then kicked me in the nuts further by not letting me write off any of my $1200 a month payment towards a $300k student loan debt at 6.5 to 8.5% interest! That’s thank you fuck tard Obama. I could explain that further but you numb nuts wouldn’t get it.( I went back to school in 2008) All I’ll hear about how rich I am. This was 2011 time frame. Health costs also sky rocketed to $1200 to 1400 a month as a high deductible cost plan…again thank you fuck terd Obama. So, because of the economy he worsened and increased unemployment, I was stuck in my job too…until changes in 2016 when Trump unleashed this monster economy. Oh, btw, I doubled my income before but had LESS money in my pockets. Let that sink in. I didn’t buy anything new either; kept same house and cars etc (not 3 houses!). That also required a huge sacrifice of time, energy,and stress. Plus that 300k investment. I had to sell an awesome home I built to pay off 150k of that school loan. So here it is 2019 and was at 150k something earlier in the year. I paid 1100 to 1400 per month since summer of 2011. The original loan was 150k then went to 180k over the course of school. I have paid in 115k but the balance was still 154000!! Boo fucking hoo right?Now it’s 139k. No worries, since our GREAT prez fixed things and the economy is humming, I changed jobs and can make extra money if I choose. This year I will make 222k with additional hours increasing that to 258k then an extra job adding just over 10k. Instead of degrading me for getting my keep you should congratulate my work. Now, there are some downsides to this money I’m making. I travel by plane every week on my dime and stay away from my family 7 days working 104 hours then I’m off 7 days unless I choose to work a little bit although I haven’t yet. I work nighttime, holidays, and weekends. I deal with life and death in high stress situations. I had to go to expensive and stressful training spanning a little over 8 years total. It’s risk and reward. I pay my huge share of taxes too.
I have no control over the little people. I can’t control their work ethic and drive to earn money. I can’t control their crazy ideas to buy cars they can’t afford or housing. I have a pretty nice house now and I won’t lie but the vehicles are nothing special. Me and the wife share the hotrod luxury mini van, my daughter drives my Poopus (Prius) and my son has an old BMW, 2007. The newest car is 2014. My other daughter is 18 and will need a car too. I don’t have one at my awayjob either but would like one.
You are making more money now not working at 3k a month than your best working year at 26k. So why are you complaining about that? Find a side hustle, listen to Paula Pant’s Afford Anything to get help. If we’re living in America then we are lucky with many opportunities! This is a blessed nation. Open your eyes and rewire your thinking. Instead of blasting rich people, ask how you could do the same. I did. I’m a few years younger than you and also grew up without internet resources. My dad was a Sgt first class with 23 years and injured in Vietnam. He works with his injuries while looking for some disability I’ll add. I didn’t have a silver spoon and was closer to poor growing up. My parents did the best they could and I will do the same for my kids. Take the chip off your shoulders because there are always examples of people who have it worse than you. No offense, but I don’t think you would have climbed the hill I did to get where I am.
We are waiting on a reply Wacker
The problem with this idea is the false notion that starting your own business is the only way to survive in an American economy. Owning a business is fantastic, so long as your business is not overburdened by BS regulations and taxes, so much so that operating a business is choked financially. Even so, there’s also nothing wrong with manufacturing workers being satisfied with fair wages; LIVING wages. Unfortunately that is something of an American past-time. Apparently the communist mentality infecting our nation is work is considered a devalue, but yet highly valued by share holders, corporate managers, and CEO’s. If you are a worker, even with a Master’s Degree, then you are not entitled to the “good life”. This fits pretty close to Marxism where only business owners, Wall Street crooks, and lazy Zionists are entitled to a good life.
What about the people thst do work a ton and still dont get ahead
I’m sorry, but this article is utterly delusional and disingenuous. It almost seems like it was taken off a Wall Street Journal editorial by some right-wing corporatist hack (no offense).
First off, I would argue there’s a HUGE difference between the 1% (doctor) and the 0.1% (hedge fund manager). The doctor probably ends up paying between 30-40% effective tax rate because all of his/her income is earned (through labor). In addition, the doctor actually contributes to society. Whereas the hedge fund manager has long-term capital gains taxed at 15% or lower (like Mitt’s multi-million dollar Roth IRA). And what exactly do they do, aside from moving big numbers around from one account to another on a computer screen?
With the recent Panama Papers scandal, the obviousness of big companies and rich elites not paying their taxes was made clearly evident for all to see. Ironically, you can rightly argue the richest are NOT paying their fair share of taxes.
Second, in a society and government which provided the infrastructure, security, and means to become successful, it’s completely reasonable to expect the highest earners to contribute back to society in the form of higher taxes. Why should a company be able to undergo corporate inversions and restructuring in order to avoid paying US taxes, when the company, for all intents and purposes, was created and flourished in the US? Talk about unfair.
Speaking of paying taxes, what about the regressive tax structure we currently have in place that phases out social security tax after $100k or so (I don’t remember the exact number at the moment)? The poor and middle class are on the hook for this, and so much more. I would argue that until the bottom 50% have access to free health care, education, child care etc. that makes it possible for them to rise from poverty and become successful, they should be exempt from taxes.
From what I’ve learned and watched in my classes, the rich are highly unlikely to want to pay more for employees. In fact, in order to make more money, they’d try to hire fewer workers – give them a slightly higher wage – and make them work more.
So sure, they pay “more”, but in the end, other people end up losing jobs or making sacrifices.
I feel like this biased article is stating “equality” for the wrong group of people. Making “charities”? Like what? Many big corporation leaders spend a portion of their money lobbying for laws that would benefit THEIR companies, not for the people, so they can keep making more money. And at what cost? Killing the environment and the lower-income.
Excellent job pretending that FICA does not exist.
I’m in the top 10% of wage earners, yet I refuse to work more than 40 hours a week. I don’t have to. I focus on quality instead of quantity. I’m highly skilled and well educated. I work smarter, not harder. I’m doing my part and not twiddling my thumbs. I don’t expect to retire early and have no wish to. I’d be bored out of my skull. Incidentally, it helps tremendously to love what you do for a living.
On the other hand, in a married household with two young children and both adults working full-time jobs, it’s all about balancing work and home. I understand the belief that working more hours gets a hard worker the “keys to the kingdom” (whatever that is). But I’ve learned that’s a delusion, a myth. Too many people work like dogs their entire lives, and at the end of it have nothing to show for that hard work. If more money makes you happier, gives you better well-being, then great – go for it. But it’s not true for everyone, it’s not a guarantee, and it certainly wasn’t true for me. I’ve no desire to climb the corporate ladder or play the competition game or work myself to death in the (often vain) attempt to “retire early”. It’s exhausting and nowhere near as fulling as the time I spend with my family. That’s my choice. That’s my happy.
There’s too much emphasis here on money being the savior of all things, that money equals morality, and the implication that more money is never ENOUGH money. It’s a little disturbing. Thanking the rich for paying more? That’s disturbing. Have you ever tried to live on less than 30,000 a year? That’s tough. Less than $23,283 (the poverty line for a family of four)? That’s almost impossible. Yet you think they should contribute MORE in taxes? The people who pay more in taxes are the people who can AFFORD it – who can actually live and still prosper while paying more. The utter ignorance here is astounding.
My question to you is why is a couple having 2 children when they only make $23,283 per year combined in the first place? That is one person in this family of 4 making $11 an hour working 40 hours per week. I’m sorry you made poor life choices, but why should I be paying for it? This is not ignorance! I worked hard and from nothing to make it to the 1%. No handouts, no family money, just me wanting to be more. If I can do it, anyone can. Why should I pay more when other pay none? Roughly half of Americans even pay taxes. The bottom 90% of those half only pay roughly 30% of the taxes. So 5% of the entire population pays 70% of the taxes. ENOUGH!!
Your stats are deceptive. 45% pay no taxes because they have no taxable income or they get enough tax breaks to erase liability. The highest income homes pay a highly disproportionate amount in taxes because they make an extremely disproportionately high amount of money. This would hold true even if we had a simple flat tax.
There’s a bit more to it than “poor life choices”. No one chooses poverty. That’s a cliched falsehood that makes us feel better. Should our society, the wealthiest in the world, be so precarious that one catastrophe, one illness, or one stupid mistake, condemns a person or family to lifelong poverty? No. Yet our society does. It absolutely does. And once a family is sent into poverty, it is incredibly difficult to rise out of it – the statistics prove this.
I consider myself privileged enough to give the poor some empathy and help they desperately need. I don’t begrudge my contribution. Like you, I’ve worked hard. I’ve earned my way. I live well. I’m in the black. I pay my taxes. I don’t complain about paying more than others less fortunate than myself.
So Yes, you should pay for it. Because you can afford to. Because it’s the right thing to do.
Just in case someone else stumbles across this article, as I did, and questions whether poverty is, in fact, a choice: I think my experience is relevant. I started work at 17 and did everything “right”. I worked for a few years right out of high school, then put myself through the first two years of a college degree with the intention of transferring to a 4 year university. In that time, my husband and I used our tax returns to save up to buy our own home, which we accomplished. It was a struggle, but a bearable one. We had one child, but our lives were on track and we could afford to have her at the time. This was before the ACA existed, when a lot of lower income Americans didn’t have health insurance if their jobs didn’t offer it, and since neither of our jobs did, we had to go without. Then I found out I had cancer.
Luckily, I survived, but it had a devastating effect on our financial situation. Not only were we suddenly saddled with incredible medical expenses, but I was permanently disabled from the surgeries I underwent in the attempt to save my life, and we were left a single income family with a child we didn’t regret, but struggled to provide for. It can be very tough out there.
It doesn’t matter how hard you’ve worked if some tragedy comes along and sweeps the rug out from under you, and without some kind of social safety net, you’re just out of luck. To then have to listen to the blissful ignorance of people who believe that you just “made bad choices” is insult on top of injury. The great majority of the bottom 50% work just as hard if not harder, with far less to look forward to in terms of class mobility, than the middle class…we don’t want hand outs, but we should be able to work our 40 hours a week and live off of that without having to turn to the federal government to supplement our income off the backs of the average American taxpayer.
All this high and mighty “look at me I’m somebody” capitalism will be going out the window in a few years as efficiency approaches the point where we have business owners, and a few engineer and service jobs. Leaving 90% of the population at the point where they have to make the decision between killing the rich to eat or dying. A cruel heartless world can get pretty cruel when it has to. If there’s no help for the disadvantaged or down on their luck, they will survive using other means.
Problem…
We have SO many that don’t have the skills to do some of the jobs they are in, or just do as little work possible, and others who do the lion’s share of the work.
How do we figure out who gets paid what when some are simply lazy?
Who decides what medical care is “necessary”, what are “acceptable side effects ” & who is allowed to have what medical services in a socialist society?
Can Bernie Sanders or one of his followers tell us more details about his plan? Who decides what will be covered under this medical plan?
What other services will be afforded to young people with babies? Children? Older parents that may need some help in their homes?
What happens should rich people leave the country?
What will we do with huge homes? Cracker box homes?
How will people learn self-responsibility?
What do we do about abusive hierarchy in the workplace in infrastructure jobs?
Where will these new jobs come from without these people having a place to work?
What about underserved medical areas with not enough doctors in needed specialties?
What do we do with older Americans that can work, would like to work, yet can only work part-time?
How does he expect to get his plans through Congress?
What is to stop subsequent Presidents, governors, county & city council persons from getting power hungry and turning this country into another dictatorship – at the federal &/or state &/or local levels?
Who divides up land for people to live on? How will this be implemented in terms of housing?
What happens when people want to live in nicer, more temperate areas vs. Deserts and colder areas? Will this not stress the environment?
If the top 20% pay 84% of the federal tax that would leave only 16% of the federal tax paid by the remaining 80%.
Questions are, how much of the federal tax is consumed by the states to fund state and local programs? Does the bottom 80% actually pay a federal tax at all if the states are consuming 16% or more of federal taxes? More likely the states consume more than 16%. That would mean the bottom 80% do not fund federal programs at all. Do we, bottom 80%, believe we are entitled to something in which we don’t pay for? Or are we being greedy to live off the top 20% when they are paying to have our freedom protected? I find it insulting to have someone tell me I don’t pay or give enough to them when I already feed and protect them.
If you want to really know you are paying an actual federal tax then 2 things you need to do. 1) Are you in the top 20%? 2) How much do the states consume from federal taxes to pay for its own state and city programs?
Your article is purely statistical, you obviously didn’t grow up “poor”. There are lots of reasons why people in poverty stricken areas do not advance economically. For one the education they get is usually very poor. People often don’t get the information and guidance they need to be successful. When you’re poor, you’ll most likely go to a shitty public school (second rate education), live in a crime-stricken neighborhood, and you’ll have have very few opportunities to get involved with cool programs that require money. If you’re informed enough to know about and how to apply scholarships, you’ll apply for those, but it’ll already be an uphill battle for you because your education sucks and there are plenty of students from upper and middle class families applying for these scholarships too. Of course those students have a better education then you, and probably know more people who have been successful, so they’re better suited to win these scholarships. The list goes on and on. Income inequality is not a product of people not wanting to work hard. It’s a product of our society. I encourage you to visit a school in a poverty stricken area. See the culture, and how keeping crime out of some schools becomes a bigger focus than the education a lot of times.
Have a read of this post:
Spoiled Or Clueless? Try Working A Minimum Wage Job As An Adult
“If things were fair, the top 1% would only have to pay 20% of total income taxes since 20% is their share of total income. Alas, the rich pay almost double what they owe.”
I disagree and would say, as a tax professional, that this extremely deceptive for many reasons:
The federal income tax isn’t the only tax. Payroll taxes, property taxes, sales taxes, import taxes, gas taxes, cigarette taxes etc… Some Americans may not pay federal income tax but they still pay taxes.
We have graduated (progressive) tax rates for annual income because people need each marginal dollar less. The standard deduction + one personal exemption is $10,300; unsurprisingly, people need their 10,000th annual dollar earned far more than their 100,000th or millionth.
Everyone in the American economy is interdependent, but you wouldn’t know it looking at corporate salaries of the .1%. A full year’s work for my CEO is allegedly worth 400 years of work of the average accountant or analyst that actually creates a supports the product that brings in the money in the first place. It’s easy to get tunnel vision about how you personally work hard and earn your salary, and easy to forget the higher you’re promoted and the more you earn, the more you rely on the labor of other people to even have a job in the first place.
The other overlooked aspect of the economy is aggregate demand. For the economy to work, it isn’t just about doing skilled labor to earn a salary – it’s about spending money because aggregate demand is what actually creates our jobs. As you’ve pointed out, the bottom 90% save on average 4% of their income while the top 1% save 38%. The reality is that poor people are far better job creators than the rich because they actually put the money they make back into the economy. 0% interest rates, stock buybacks… we don’t have a shortage of saved money in the U.S. We need more spending by those who have the money and the moral obligation to do so, and if they won’t, you tax them.
We do tax folks who don’t spend all of their wealth through the Estate Tax of wealth over $5.4M per individual.
When you talk about CEOs making 400 years worth of work, that is the top 0.1%, not the top 1%. Don’t confuse the two, as so many people seem to do.
Check out: Income Profiles Of The Financially Free
Your whole arguments flawed, in my eyes, due to your understanding of what is ‘fair’. Paying 20% of taxes for taking 20% isn’t the way taxes do or should work. If that was the case we could privatise everything. The only reason they only take 20% is because they have enough money to support themselves. The reason one supports state intervention is because we realise that the system we grow up in inherently favours those born in richer areas and at birth no one is by any means given the same opportunities. regardless of how much you want to talk about rare bottom to the top success stories, the fact is that if you come from a poor area you are far far more likely to end up in a poor earning job than if your parents had the money to pay for a private education and bring you up in a wealthy area. Those are the kids that will end up in high paid jobs, and those that grew up in poor areas will, statistically, end up in a worse situation financially. You won’t suddenly see a year of students in an extremely poor area graduate and move on to become bankers and lawyers, just as you won’t suddenly see a year of privately educated students turn to crime and drug dealing to support themselves. These problems aren’t to do with work ethic and motivation, and if they are it’s a product of the environment that these children have grown up in. Was it anyone’s fault that they were born where they were born? Is it right for us to blame someone for having poor parents and just let them deal with that situation? That’s why we tax, because we recognise the unfairness of the situation – to at least try and put people on an even playing field, because currently that is not the way things are. The bigger the wealth divide the more we pull apart society. Poverty equals crime. Fact. Privileged people who don’t have to face that reality abhor the poor and the criminal with no thought as to the social causes for the situation. It creates a class war. That’s why I think when you say ‘fair’ I think your wrong. Example. if there are two people in front of you, one is a millionaire and the other struggles to pay rent and buy food. You are given 100,000 dollars to share between them, who would you give it to? Equality would have us split the amount evenly, but could we perhaps recognise that that amount of money means far more to the poor person? It means more in that it allows him the means to support himself to a decent standard. Food for him and his children, security of knowing his family will have somewhere to sleep or that he might put his children through college. THERE IS A DIFFERENCE BETWEEN EQUALITY AND EQUITY .
‘If everyone was a millionaire no one would be rich’. IF EVERYONE WERE A MILLIOAIRE WE WOULD HAVE ABOLISHED POVERTY! It’s appalling to me that someone could be comfortable spending millions on arbitrary material goods while there are people struggling to stay alive, and further for you to defend that right
You make it sound like if you just work more you will suddenly get wealthy. I have news for you it isn’t true. I was working three jobs, leaving the house at 7 a.m and not coming home until 11 p.m and was still only earning 24,000 per year. Granted some of that time was “wasted” on travel time between jobs, but I worked my tail off and got no where. While I watched the CEO’s of the company waltz in and work 40 hour work weeks and get millions of dollars, doing far less actual work than I was. I decided to go to grad school, which is where I am currently but it isn’t as simple as you make it sound.
I believe Sam is unmarried and do not have kids, so working 60+ hours a week doesn’t seem like much. I know people who have families who work that hard, but that really strains the relationships.
When my son was born, my work ethic changed. I spent less time at work, but tried to be more efficient. I also worked from home more frequently to offset the time I miss due to child rearing duties (my wife also works FT).
The bottom line is that you should work enough to enjoy the things you value.
P.S. I disagree that CEOs work 40 hrs/wk. Most of them work 10-12 hrs/day, and they are “on-call” 24 hours/day, 365 days/yr. However, even the worst ones will get a nice severance package/golden parachute when they screw up and get fired by the board. A CEO is the only job where gross incompetence can be rewarded.
This article is disingenuous. “Average” per capita income is an unreliable measure because it can be strongly skewed to the upside by people earning phenomenal incomes — which is exactly what happens in the case of the US. Median income is a much better indication of how people are faring. By the article’s own Income Tax figures, the median adjusted gross income was about $33K, a far cry from the $48K “average” income reported in the article.
The article also conveniently forgets that there’s a FICA tax as well that falls squarely on the shoulders of the bottom 80%. Adding in the 15% Social Security and Medicare taxes, or even just the portion of it paid by employers, makes a complete sham of the “Average Effective Tax Rate” column in Individual Income Tax Table presented above.
This article is misleading to the point of being dishonest.
I agree that everyone can earn the sum of money he needs or wants. But after reading a great book “The 80/20 Principle” I made sure that one shouldn’t work harder to earn more. Even more than 40 hours … as noted. The main question is “how productive and efficient is your work?”. So we must try to answer that question and improve our daily life in all areas, including finance by following the Pareto Principle. Because I always prefer simplicity and productivity.
Legally, i don’t pay tax too and my earnings qualify me as the top 1% according to the article above. How Is that possible?
Step one – give up your American citizenship and take up citizenship in countries where there is no capital gain tax. There are really nice places to live where capital gain tax is zero. Google and you’ll find.
Then set up a limited liability company to expense away all your taxable income. Engage in as many businesses or professions that generate wealth thru capital gain as you can. There are many different options to suit a wide variety of interests. You just need to do some homework
That’s it. You can be top 1% earner and legally not pay a single cent of income tax.
It’s interesting how your perspective begins to change once you realize how much opportunity is out there. When I was getting through college I always considered a six figure salary as true wealth. The pinnacle of success. Once you start to grind through your career you begin to realize how many income opportunities there are. It just takes determination and diligence to realize your earning potential.
OHHH, just “$43 dollars a month”…???!!! I’d be homeless if I had to spend that much more on taxes! I’ve worked my ass off all my life and I am struggling to survive living in San Francisco. Actually, I only WORK in SF. In reality I have to live in Oakland because you assholes have made it IMPOSSIBLE for me to live within an hour of my place of work. Assuming that I can afford anything more than my already month-to-month livelihood is moronic! This is coming from a graduate of a masters program at one of your private institutions you speak of. Sorry my daddy didn’t know any of you techies for me to earn a living wage out here….
Wait, so I’m an asshole because you can’t live in San Francisco? How does that work? I’ve paid over $100,000 in income taxes a YEAR that gets redistributed by the government to help society. I donate to my local SF library and volunteer for local community events. How much do you pay in taxes and what do you do?
I just spent 6 months putting together The Best of Financial Samurai eBook to help empower people to lead better financial lives. If you buy it, all proceeds after expenses gets donated to a charity that help keep Oakland youths off the streets and in the classroom. It’s called Alive & Free. As an Oakland resident, maybe you’d like to pitch in instead of blame others for your problems?
Here are some other posts you’ll like:
A Massive Generational Wealth Transfer Is Why Everybody Will Be OK – But, I’m thinking maybe not you?
Stocks or Real Estate: It Depends On How LUCKY You Are – Are you someone who attributes other people’s success to luck and your success to hard work? If so, you’ll love this post!
I am not sure that he is meaning strictly you but more aimed at the people who make comments similar to yours about how people just need to work more and move to higher income areas without taking into account that it isn’t that simple. You may or may not have thought about the difficulty in doing such a thing even though it is good advice if someone can afford it. A large majority of jobs in places that don’t have unions do not allow overtime forcing you to come in late or take long lunches to prevent you from getting it and even writing you up should you accrue more than an hour of it. This limits peoples possibilities to getting a second job which since most companies prevent you from working a second job in the same field can make things difficult. Combine that with the fact that most of these types of people are living paycheck to paycheck and unable to save up the money necessary for a move to a higher income area and working those area may actually cost them more in transportation expenses then what they are earning extra. This is part of the backlash that so many people with money receive because of comments that would be sound advice for someone not struggling just to get by. You hear it time and time again, work harder, work more, move to a better place, I did it why can’t you, just go to college. The worst part is that if you compare payment between jobs a couple decades ago to jobs now the low income jobs, adjusted for inflation, pay roughly the same to within a dime or two while as you advance up the pay increases between the times steadily increase.
I hear you. There is no easy solution, and everybody has a different set of circumstances to deal with.
The one thing we can control is our effort. Never fail due to a lack of effort. Fail due to bad luck or circumstance, but go down fighting until the very end. Work on a side hustle, an X Factor from 4am-7am before work, and then from 8pm – midnight after work. Don’t stop trying.
Life is reasonably comfortable in America (I’m in Cambodia now where I just witnessed 4 year old kids walk miles to school in 98 degree heat after I asked the driver where they were going). The worst is REGRET for having never tried, and having never tried hard enough.
FS,
I could not agree with you more. If you want it bad enough make a plan. Read more, find a mentor, work harder, side gig, find something that is scalable and GO FOR IT!!!
The only limitations we have is in our mind.
“The only limitations we have is in our mind.”
If you lived in a fishbowl maybe
https://www.forbes.com/sites/janetnovack/2011/04/08/how-to-take-a-tax-write-off-for-a-new-porsche-bmw-or-cadillac/
Write off your new porsche or other luxury car as a business expense ;)
Or, your Range Rover or any luxury SUV!
Ppl on here are so crazy frustrating it’s insane. How can people be so blind. 84% of taxes are paid by the top 20%, which starts around 70,000$ a year. Someone making 389,000/yr should not be taxed at same rate of someone making 20 mill/yr no matter how the income is made. Corporate tax is a joke, not one investor on earth in anything says “let me pay my fair share.” I just don’t understand what people can do with the second billion that they couldn’t do with the first. If everyone is trying to pay as little as possible, and one group of people have unlimited resources to help them, who’s really paying the greatest portion? The richest of the rich are getting richer and richer and are so out of touch due to greed and power that someday our kid’s kids will experience their own ‘French Revolution’ if taxes aren’t reformed.
Amen.
US consists of 2 category of retirees. Ones protected by pension, and ones who are not. The web is full of articles on how 401K is same as pension, when it is NOT. It is high time individuals are given more choices to save, with no pension to rely on, in most of corporate world.
– A request from hard working middle income group, who can never be on Govt subsidies.
This article is somehow misleading. The important point of misunderstanding is that “Income Split Point” is the dividing line of each income layers, and it does not mean average income of the layers. This article does not show the definition of this terminology and relates it to the average income of each layer. My understanding is that it is the bottom line of each layer, from which the next layer begins.
The average compensation for top 1% in 2011 was $10.5 million, a lot bigger than the split point of $380 thousand something. They are compensated with stock options and other bonuses as well.
Check this article in Forbes.
https://www.forbes.com/sites/scottdecarlo/2012/04/04/americas-highest-paid-ceos/
Tax burden share can have implications, but it is also misleading. Some 15% in America is now living under the poverty line. By the very definition of poverty line, it means the subsistence income that enables poor people merely keep their subsistence.
Should such people pay income tax as well? They may not pay income tax, but they pay the same indirect tax when they buy a Big Mac.
Regards!
I correct the mistake in my previous comment. The compensation of $10.5 million in 2011 in Forbes article was for the chief executives of top 500 companies, and so it does not mean the compensation for top 1%. I don’t know why I was confused at the time. I intended to indicate the misleading concept of the “Income Split Point”, which does not mean the average but the border line of each income layer. Thanks.
According to that chart the average AGI of the 1% after taxes is $924,000. It is $14,956 for the bottom 50%. That is AGI. The wealthy have many tools to work the A part so the I part looks lower than it is. Setting that aside, compare $924,000 per year to $15,000 per year. Who can afford to pay more in taxes from this calculation? Can the poor folks struggling to get by on 924k a year, get by on say 800k a year? Ask the $15k/year folks.
Another perspective, it will take the 15k folks over 61 years to make the amount the 924k folks make in one year. A long lifetime of working to make what the 1% make in one year. Do the 924K folks compress the equivalent of a long lifetime of work of the 15k folks into their work year. can they flip 61 times more burgers in a year than the guy that’s been stuck doing that for 20 years? I know many white collar professionals work very hard. They also surround themselves in luxury while they do it. The the doctor entrepreneur do his 80 hours a week as a construction site laborer with a side of fast food slinging and another of pick up yard work, for a bottom 50% income. See which he finds harder to do.
The fact is, our system REQUIRES a large % of poor people; it generates them. Wealth is made from actual work. But in our system, being wealthy means you get income and more wealth simply by having enough wealth to “invest”. You don’t earn that. That wealth is created by the lower income workers who do actual work. But it goes to those wealthy enough to “invest”. It is utterly absurd to suggest, in our system, the way work is currently valued, that everyone CAN get ahead. Everyone can’t. Only a few can. If everyone in the US had a high IQ and a PhD, there would still have to be hotel maids, burger flippers, slaughterhouse workers, farm workers, factory workers, baristas and on and on. They CAN’T be well off in our system. Stop pretending that they can if they just work harder or smarter.
What needs to happen, more than tax reform is a radical reform in understanding and appreciating the value of work. Menial labor is required for our society to function. It is required for the wealthy to be wealthy. What would be “FAIR” is the recognition of the true value of all types of work that make our society function, and the rewards of that work be more fairly distributed. When that happens, sure, let’s talk universal flat tax. Until then, you are a horses ass to suggest it.
What a great post. If everyone worked harder and get more skills, then by definition, they cannot enter the 10% or 1%, but still be at the 50% level or below.
Every agrees that the top earners pay more (in absolute and relative terms) than those who are poor. But flat taxes don’t make sense in a logarithmic world. If I made $100k, and $15k goes to my flat tax, the remaining $75k is enough to have a good middle-class lifestyle. If I made $25k, then about $3800 goes to taxes. Since I’m much closer to the margin, this $3800 means much more to me than the $15k to the $100k earner, and especially to the $1million earner who pays $150k.
A progressive tax system is a fair tax system. We must strive to continually improve and simplify it. But as a tax philosophy, it is much more fair than a flat tax.
On the spending side, all the rage is on small items like scientific research, government salaries, arts funding, etc. If you’re serious about balancing budget and reducing spending, you only need to look at Social Security, Medicaid/Medicare, and Defense. These items make up about 75% of our budget. Serious cuts or reforms in these items will need to be made, but in our political climate, would be impossible.
I’d like your opinion and others input on this question:
I need to park $400k for approx 1-2 years. At which time I would then use it to purchase a house.. however for that 1-2 years, i’d like it to be working for me, but don’t want to lose it either.. I was considering putting it into PPF and/or PGF.. looking at the history of those ETF, they both seem relatively stable when the market fluctuates and they pay a nice dividend.. so it “appears” to me they are somewhat stable and safe investment.
I’m close to retirement and have other funds invested already, and I just sold my property and will rent until i figure out where I want to live and retire..
Thoughts and Opinions?
Appreciate any feedback you and your readers may have.
1-2 years is an insufficient time horizon for any equity investment to guarantee you a return. Buy a t-bill or park it in a high yield savings account. The return sucks but if you can’t afford to have under 400k in 1-2 years when you need that money than you can’t afford to take the volatility risk.
YES, Work harder at your minimum wage job, better yet work two minimum wage jobs, 80 hours a week, $7.25 * 80*52, and you, slacker that you are, still will top out at 30k. Don’t tell me that the big wage earners have opportunities that you don’t have, and you know how they slave away at those ego-suffocating jobs. You low wage earners just need to uproot your family and move to a city with high tech jobs…not that you have the skills or education to get any of those jobs….then there’s that spendthrift government, providing benefits to veterans and healthcare to all Americans, monitoring our security, food, water, and air..
A condescending article that ignores the realities of life for many in the US ….
At 389K a year, you still expect sympathy?
Nobody expect sympathy for those making $389,000+. But people making $389,000 certainly don’t deserve to get attacked and vilified. I’d rather say thank you for paying so much in taxes that gets redistributed to others who have less.
It’s OK to try and raise taxes on others if you don’t have to pay more yourselves. But as someone who has experienced racial discrimination before growing up in the south as a minority, I can unequivocally tell you that discrimination is NOT OK just because you aren’t being discriminated against.
How about getting the skills and education to get those jobs? The internet and knowledge is essentially free now.
Nobody needs to thank anyone for paying taxes: we all know the rules going in (or can look them up), and none us set our own salaries or our own tax rates (unless you’re a politician). It’s the nature of the beast, it’s the law, and it’s part of being a citizen in our great country.
To feel entitled to a ‘thank you’ when you willingly work here, knowing full well what you’ll be taxed, is pretty obnoxious. That’s like people taking out 100+K for an out-of-state B.A., then complaining and wanting the debt forgiven. It might be even more obnoxious, since (if you’re making 400K) your life is probably much better than the ignorant indebted student’s. I’m sure that student would gladly take your job and salary off your hands and pay your taxes for you.
I think saying “thank you” is a cheap and easy way to show appreciation. So, I say “thank you” to as many people as possible.
A little acknowledgement goes a long way, and I’m supremely appreciative of those who support those who have less.
The income is important but not the most important. The purchasing power shows the real thing.
Someone can make $380,000/year and can still be poor. If fundamental needs like food, housing, school, transportation, costs are hundred of thousands/year, no matter how much you make, $3-400,000/year.
There are out there people in other countries that they make only under $10,000/year and still have a better life than many of us here in US.
So I would say that a system is fair, if everyone who works at least 40hours/week, gets a pay check enough to pay for good food, housing expenses(mortgage,rent, utilities), school,entertainment,transportation,hygiene,etc and have a little left for saving.
I do not believe that a union electrician makes $150,000/year. Maybe in a speculative industry.
Most of the engineers in US with a BS or MS degrees do not make that money.
I agree with young focusing on net worth over income.
Have a read of my latest post: https://www.financialsamurai.com/focus-on-building-net-worth-more-than-growing-income/
That is just crazy speak Johnny! Those are extraneous examples. You’re asking us to believe that someone making close to $400K a year is poor? And your definition of “fair” is essentially saying the government should somehow ensure (through law or handouts) that virtually every need and then some is met, regardless of what occupation is chosen.
There is one other group that pays no federal income tax: people who live off investment income, independent of age
In addition to the standard deduction and personal exemption that allows low-income families to pay no tax (about $20k tax free for married filing jointly), if income comes from dividends and long term capital gains a family can earn another ~$70k a year tax free ($90k+ total)
This post explains it fairly well:
It seems Uncle Sam really wants people to retire early and live off investments
We also shared our actual 2013 tax return, which can make it easier to see how the theory is applied in practice ($91,752 in AGI, $0 tax)
If Congress is interested, I have a long list of recommendations to improve the tax system
You really should read the article carefully for one, it contradicts itself. And capital gains once realized are taxed, plain and simple (yes, at a lower rate “generally” than your marginal income tax rate, but not always). And if you think you’re going to NOT pay taxes by some maneuvering of investments into qualified dividends, etc., you need to look more closely. And moreover, the “tax free” investments generally have lower returns than taxed investments for the obvious reasons. What maters is your free cash return. There is no free lunch, or should I say it’s pretty difficult to find.
Yeah? What is the contradiction?
I’ve followed the recommendations in that post for the last 2 years and paid $0 in tax on AGI over $90k, while invested in the US stock market and matching returns of the S&P500.
It seems like the lunch is free (and tax free too.) Turbo Tax agrees
Realize the gains as cash, you will pay tax, it’s pretty simple. As long as you do what most people do, even those who don’t read the article, and postpone the gain, you’re fine.
Capital gains are taxable events, true. Yet when total income is such that the marginal rate is less than 25%, then the rate applied to long term capital gains is 0%.
Certainly, following the path that most people do would result in no taxes today, but eventually those gains will be taxed. Postponed as you say. By harvesting the gains along the way, the net tax is zero, both today and in the future
This is the result of the so-called Bush Tax Cuts and their addition to the permanent tax code as part of the American Tax Payer Relief Act of 2012
The lunch is definitely free. Here is a concrete example:
$44k in capital gain. $28k in dividends. $91k total AGI. $0 tax
In my opinion, the only “Fair” tax system is one that is based on consumption, as opposed to income. This would eliminate the need for self reporting, and the majority of the IRS, as we already have a sales tax system established within every state. Therefore, the implementation of a “Federal Sales Tax” would be very simply integrated within the existing systems that are already in place today. This would allow for revenue to be generated from all who consume products within our county. Visitor, criminals, illegal aliens, businesses, individuals, you name it, they are all included as they all consume goods when within the United States. This would stop punishing income earners for earning and saving, while requiring everyone to participate in the tax program.
Some may comment that we will then be punishing the poorest of the country because everyone must eat and it would be “unfair” to tax someone for buying food. In response to this I would suggest that we eliminate food staples from the “taxable” consumables, although in many states we are taxing food today. Sales Tax Free products would include necessary “staples” such as meat, eggs, milk, cereals, water, etc. but not unnecessary consumables or simply desired treats, such as soft drinks, coffees, candies, etc.
Additionally, a higher rate could be charged for luxury items or so called “sin” products such as luxury automobiles and boats, or alcohol and tobacco…
I would be interested in hearing others thought from this perspective.
First and foremost, before we even think about fixing the tax system, we need to fix the SPENDING system. It we stop wasting money on STUPID thing, there would be plenty. Then, it’s a lot easier to fix the tax system when you get to let EVERYONE keep more of what they earn.
It’s time to REQUIRE a real balanced budget. You enforce it by not allowing ANY government hiring, ANY pay increases for government employees (including step and seniority increases), NO new government programs or renewal of expiring ones, and Congress and the President (and their staffs) get a pay CUT of the same percentage that spending exceeds revenue.
Exactly Jon Gif, it’s simple common sense! And is an ethical methodology as apposed to the system of appealing to special interest groups we have today.
It’s an interesting concept, but increasing prices and not taxing income has the potential to incentivize an economic stall. A system rewarding you for NOT spending is probably not the best way to foster our economy!
It also hinders governments ability to coerce industries to invest in new technology (granted the free market should solve this on its own, but its governments job to act as the voice of the people and reward champions of issues like green energy and healthy/sanitary food technologies). Your concept might actually create the ‘cheaper is better’ mindset where price becomes the dictating factor in consumer purchasing–which is debilitating to otherwise healthy competition.
Just my initial reaction to the concept.
Wow, that’s scary Rob. Perhaps learn a little more about how a market works. And by the way, if “green energy” were such a great thing it would (or will) stand on it’s own. And if it takes interest in it to create demand, go out and create that interest. Stop asking government to execute the will of a small minority (who think they know best when it comes to energy) over the desires of the majority. If you like green, fine, go buy it.
That the market will proactively solve our problems via supply and demand is a fantasy. There is a huge demand for the cure of cancer. Why doesnt the cure just get up and stand on it’s own two feet? Certainly there is a demand, no?
Your example of cancer confuses me. Has the billions of dollars funneled into cancer research by the US government turned up a cure? Can I use that fact to say that the government solving problems is a myth?
The free market wanted a better way to transport goods from China to the US. It created super freighters. The free market wanted a better way to use American cotton and the cotton gin came about. It wanted a cheaper way (compared to kerosene) to light up our homes and the electric light bulb was funded.
Time and again a demand for something has created funding for it. Both public and private. With enough funding and time, humanity has again and again solved it’s problems.
Here’s a question. Can you find me an example of something having a huge demand and getting no private sector funding?
Once upon a time, there was market that could product agricultural goods at a very efficient and profitable rate, created wealth for many, and established a robust international trade network. It was called slavery!
A tired point is that somehow the “market” has the solution to solve every problems, and the government is the killjoy that restricts “freedom.”
I’ll thank the government for mandating car companies to put in seatbelts, food and drug testing, pollution laws that keep my rivers and air clean. Do they always maintain a fair balance, off course not, but neither does the market.
You only need to look at China to see what a largely unregulated market looks like. You get your 10% annual growth, but you also don’t see the sky in cities like Shanghai and Beijing. Me, I’d rather see the sky.
You are an idiot. Use tax has been proven time and time again to be regressive. The poor spend most of their income on food, shelter, clothing, necessities. There is little savings, less home ownership.
The article starts off by talking about Averages which is very deceptive. It should be using the Median. The average income of 9 people who make a dollar and 1 person making a million is $100,000. The median income of those 10 people is 1.
Richard Saunders: The article looks at average rates by many income brackets, so the implications are much more telling than a simple median. It’s a very sound article and well founded. I’ve read quite a bit on the subject.
Do you mind if I quote a couple of your articles as long as I provide credit
and sources back to your website? My blog site is in the exact same area of interest as yours and my users would
definitely benefit from some of the information you present here.
Please let me know if this alright with you. Many thanks!
Tom: the tired talk show theme is exactly what you are trying to get people to believe.
The fact that it is a meme, continually broadcasted by so many doesn’t make it true. Go check the CBO website for what you are looking for (combined taxes), it’s out there. All Fed, State and local incomes taxes are progressive or at a minimum flat. Sales and transactional taxes are what they are, those with greater income spend more or have assets that are taxed more. So even at an “equivalent rate” they are higher (and of course, in absolute dollars, higher income earners pay much, much, more). Moreover, the lower income brackets not only pay fewer taxes (if at all on a net basis) but often receive direct dollar benefits (e.g., earned income tax credits) and a whole host of non-cash benefits those paying substantial taxes are not “entitled” to.
Yours is a very old and unjustified argument.
This is a tired talk show theme. Take a look at effective tax rates for all taxes combined, including state, local, sales etc. And you will find that most poor and middle class are paying a higher rate than the wealthy.
Also note that this country has some of the highest measures of income and capital inequality of any wealthy country in the world and you’ll realize the poor aren’t doing so well and the rich are getting by just fine. I don’t think we need to increase taxes on the poor at this point.
Tom: the tired talk show theme is exactly what you are trying to get people to believe.
The fact that it is a meme, continually broadcasted by so many doesn’t make it true. Go check the CBO website for what you are looking for (combined taxes), it’s out there. All Fed, State and local incomes taxes are progressive or at a minimum flat. Sales and transactional taxes are what they are, those with greater income spend more or have assets that are taxed more. So even at an “equivalent rate” they are higher (and of course, in absolute dollars, higher income earners pay much, much, more). Moreover, the lower income brackets not only pay fewer taxes (if at all on a net basis) but often receive direct dollar benefits (e.g., earned income tax credits) and a whole host of non-cash benefits those paying substantial taxes are not “entitled” to.
Yours is a very old and unjustified argument.
Sow me where in the tax code the tax rate goes down.
Not a fact in your post.
I worked for the IRS in data entry for awhile and I can personally attest that the wealthy are often paying less taxes. I hand entered and coded paper tax returns and was shocked how a family of 4 making 20-30k would frequently be paying less than someone making well over 100k. I can’t say how it happened because I was younger and didn’t really understand tax codes, but I was the one typing in the numbers and the “amount paid” by many, many wealthy taxpayers was frequently less than the poorer families. I remember distinctly my shock and outrage after I saw the pattern emerge.
“I hand entered and coded paper tax returns and was shocked how a family of 4 making 20-30k would frequently be paying less than someone making well over 100k.”
This is right, unless you think someone making over 100k should pay less? Why are you shocked?
When you said rich paying less, I would assume you are saying in terms of effective tax rate, not the whole amount. The fact is the top 5% earners are contribution over 80% of tax revenue for the govt.
In reading her post, Deniece mentions she entered the “amount paid”, presumably accompanying the return she hand-entered. So it is not surprising that in some cases an earner with less AGI paid more than a higher earner simply because they did not withhold appropriately. The higher earner may have a tax consultant so they can maintain proper withholding, especially considering the higher dollar penalties they may pay vis-à-vis the lower income earner. After all, we are debating with a data entry clerk at the IRS.
Deniece: all you have to do is go to the IRS website, there you can see the “effective” or average tax rate and amounts (actual dollars) filers pay for various income brackets. BOTH the effective rates and dollars paid GO UP with increasing income bracket. Of course, there are unique cases where you can compare individual filers and this is will not hold true, partly because our tax system is so complex. But on average (which is what we are talking about) higher income equals a higher bracket AND greater tax paid.
I’m tired of hearing the ways to produce more revenue for the government when there’s so much waste reported and inappropriate funding in the 100s of billions along with IRS workers who owe billions in back taxes. It’s preposterous the effort in trying to raise any taxes before the waste is handled through a combination of law changes, policy, sending civil servants and bankers to prison for crimes that undermine our economy.
All that money would probably add up to 500 billion at least, start there!
Again Tom, I have my suspicion that Eric’s post is not entirely accurate.
Aside from that, the data FS provides is the data, from the IRS, it’s elsewhere in many places and easy to validate if readers care too. E.g. the top 1% paid on average $280,000 in Federal income taxes while the bottom 50% paid about 400 bucks. It’s all there.
So if Eric is somehow suggesting that there is some kind of grand conspiracy out there wherein the wealthiest in our society are somehow escaping taxes (in significant numbers) and as such do not show up in the data… well, I wish someone would provide a little more proof (as apposed to some anecdotal example). I guess that’s the case with conspiracies, there’s little or no proof.
A good exercise for everyone is to hang-out somewhere that successful people gather, say some bar in a very nice restaurant in a wealthy neighborhood. Then just politely ask people about themselves and how they became successful, they will be flattered. Then find a watering hole where you know people are not very “economically well off” (be careful of course). Ask the same questions, but do it ever so subtly as to not offend. Then just compare the answers.
All of this is no mystery.
Good tip. If more folks can be willing to open up their minds and look to see how wealthier people got to where they are, instead of just shoot them down for being lucky or whatever, I think more people will get wealthier!
Get a mentor, listen, ask people who’ve been there, done that.
FS, thanks again for a well balanced and objective website on a subject (money and wealth) that can be so contentious.
And much of the mystery, hysteria and misinformation about wealth creation is due to this false egalitarian ethic that permeates every aspect of our society today. Yes, everyone is entitled to equal opportunity, but that NEVER produces equal results and never will – simply because individual people are in fact different from one another and that leads to different outcomes (e.g., beliefs, ambition, willingness to take risk, preferences for certain life endeavors, culture, cognitive ability and so on).
All too often people make certain life decisions, take certain paths in life, engage in certain behavior, don’t recognize they lack requisite traits, abilities, etc. all which ends up hindering their “success” or at least as they perceive it. They then blame “the system” or the successful or any number of externalities other than themselves. The reasoning goes: “if everybody is equal then anyone who has more must have obtained it at the expense of someone else or it is otherwise ill-gotten.”
I agree, I here hear people say all the time the rich pay less in taxes, they use Warren Buffet as their example.
I ask them to point me to the location in the tax code that the rate decreases. It does not. It never decreases. Then they state well he makes all his money on investment, and capital gains is lower, well yes, but its even with capital gains the rich pay more on capital gains.
The fact is the press has done a great job of saying the rich are bad, corporations are bad. Maybe people should be upset with how the government spends the money they takes from people.
Specifically, people who have a lot of investment income, long-term, reap huge benefits by only having to pay 28% Capital Gain Tax Rate, rather than the normal 35%+ rate.
Also huge corporations can move to Ireland or other off-shore locations to enjoy tax benefits while still operating mostly in the US.
Jacob, simply check the IRS data, it belies what you say. In terms of income groups, each successive group tax payers with greater income pays a greater % of their income (regardless of source) in taxes (Top 1% > Top 5% > Top 10%, etc. in terms of income earning groups).
And you are confusing marginal rates with average rates, you are comparing the top marginal income tax rate with a capital gains rate. It is more than likely for most their average tax rate is lower than the 28% you specify, that’s all that matters, really. That’s in the IRS data too.
Moreover, stockholders own and are responsible for the company in all regards; the income, the cost, the profit AND for the taxes. The corporation also pays taxes on the stockholders behalf, so the combined tax on corporate “profit” or “returns to capital” is very large in this country.
And as much as you would like to believe companies run from America to incorporate, the number is quite small by comparison.
Lastly, even if your argument were true, common sense suggests that even the % difference you sight is so small that it in no way explains the differences in after-tax income.
The top capital gain rate is around 23 percent. The capital gain rate for people in the 15 percent bracket is zero. A married couple who is living off investments can therefore take home around $75k and pay no taxes. A non married couple with head of household closer to 90 k if both have their own portfolios. If the married couple have itemized deductions and exemptions they could potentially take home close to 90k to 100k before paying any taxes. If this couple were running a business they could deduct their BMW lease payments, health care costs, and other benefits to help this couple have a break even business. Furthermore this small business can offer a 401k plan and Hsa plan to put away another 22k away tax free. This couple would be in the top 8 percent and pay no income tax. Super wealthy people won’t pay zero income tax, but those who rely on the capital gains rate will pay a lower effective tax than many middle class families. Furthermore wealthy investors pay zero dollars on the appreciation of their assets which is arguably income in a real sense. I hope this helps with the zero tax part…
Exactly!
After working our tails off for 20+ years my wife and I entered the top 1% in our early 40’s and recently at age 49 entered the the top 0.1%. You would never know by looking at us that we have an eight figure net worth. We have no boats, motorcycles, or fancy cars. My car doesn’t even have power seats. We know many other 1%er’s and I can attest that they all pay big taxes. We pay about 43% of our gross income every year in state and federal taxes. Add sales tax, FICA, medicare, and property taxes on top of that and about 50% of our income goes towards taxes. The real problem will be when wealthy couples like us step out of the work force a decade or more before normal retirement age because we are tired of working for the government 5-6 months out of the year. Serious tax reform is needed if this country is to survive another 200 years. I don’t mind paying my “fair share” but the top marginal of 51.4% that we currently pay on much of our income is too high. It is one of the major reasons for our decision to retire in the next couple years.
I retired early partly due to high taxes as well.
I’ve found that making $200,000-$250,000 a year is the ideal income for maximum happiness. Income is enough to do whatever you want, and you aren’t taxed to the point where you feel taken advantage of.
Please excuse me if I don’t feel a bit sorry for you or your 8 figure income. How much money does one actually NEED?
There is a HUGE difference between an 8 figure NET WORTH (which is what was stated) and an 8 figure INCOME to which you alluded.
The answer to that question is unique to each person. In a free market system how can anyone define the “NEED” for someone else regarding finances / income. The tone of your comments has the odor of socialism, and that, my friend, is not a good path to financial freedom.
What do you do with your money? Your take home is over 500k a year and you have no big material items. You either make lousy investments or like to sit on money and whine about paying taxes. I am in the same situation and don’t spend like crazy yet enjoy life. Paying taxes over 50% is fine and def prefer to keep working and paying vs no longer bringing in 500k a year.
We are retired now. We have 3 beautiful homes that we enjoy and we travel extensively. I splurged on a couple boats in the last year and we spend much of our time on the water when we are not traveling.
Unless your business lost a boatload of money earlier and you have tons of deferred tax credits that are somehow still operational I can’t see you being taxed 0 all the time.
However, with “loopholes” and clever tricks to transfer wealth like real estate appreciation, life insurance, or maybe out right entering a legal grey/black area that got banks like CS in trouble you can definitely minimize your tax bill to far below the maximum 40% bracket for top earners. Its a bit harder to get below the 15% capital gains but I’ve read you can do stuff like wait till you die to pass appreciated stock to your heirs so its gets a markup without being taxed. Since I’m not in any way a financial advisor or estate planner I’m sure there’s plenty of other small things you can do that add up.
For most Americans, these things are just not worth it as you’d have to actually hire a good financial advisor/ estate planner (most of whom charge sizable fees and make 6 figures + anually). But if I ever get rich enough and haven’t succeeded in lobbying the UN to impose a 75%+ wealth tax on the world and rigorously prosecute capital flight for tax avoidance purposes, I’m definitely taking advantage of as many of these loopholes as I can.
It’s interesting you say that Tom, because I’m currently consulting with Personal Capital, a digital wealth manager who employee Registered Investment Advisors to help with estate planning, investing, and so forth. Their highest fee is 0.95% on assets over $100,000 a year, and goes down from there.
If someone holds stock till death and extremely wealthy the fair market value of the stock is included in the estate of the deceased. Yes the family will get a step-up in the value of the stock, but could be taxed in the estate if over the gift/estate tax exemption amount. Estate tax is 40% currently, so yeah there’s that…
Good estate planning will contribute that to a family partnership or another entity and gift the partnership interest at a discounted rate prior to estate issues arising.
stock for someone “extremely wealthy” would likely be moved into an irrevocable trust along with any other assets subject to estate tax (i.e. real estate/personal property, etc.) during their estate planning.
You BETCHA! And kudos to YOU, Sir, for being honest. I can NEVER get angry at someone who USES the system the WAY it was intended. But, until the electorate is given HONEST numbers, we can NEVER realize just how much (or how LITTLE) money is actually being paid by the top 1….or even 2%. I want to see HOUSEHOLD INCOME become the measuring stick. How much did you TAKE IN this year? From ALL sources. And how much did you receive in refunds? The remainder is how much you actually paid. That, my friend, is the only honest picture, from which we can judge, whether people are paying their fair share of TAXES. In the END, the ONLY fair tax system is one where the household income is computed with the SAME percentage for everyone. No deductions. What a DREAM (one that will never become reality).
That kind of thinking is what is saving the rich! We have GOT to stop thinking they need to pay such ridiculous rates. Many pay very little actual cash. The thing that has to happen is the rate structure has got to change. That is the only way to insure everyone pays SOMETHING. If every taxable entity paid, say, 7-8%, with NO deductions, the government would have more money than they could spend! Flat tax rate, no deductions. If you WANT to spend your money, because you have more of it, it will help the overall economy. But no more, where people with billions, get to keep all of it because they spend it correctly. That’s bullshit.
And your 7-8% would on average be a tax break to the 1% and would be a tax increase to over 50% of people who file tax returns. Just check the IRS website before making unfounded remarks about how much people actually pay in taxes. And it is all based income, not sure what the remark above is about “household income” is. That is effectively what the tax is based on (e.g., married filing jointly).
Hi Sam,
My thoughts is that if a person who is 80 years old and has $1 million dollars compared to someone who is 30 years old and has $1 million dollars has different worth. Someone who is 30 and has that much money has the most important asset in the world, TIME, to build on that wealth.
An old wisdom insight is that most 80 year old people would trade their $1 million to be 30 years old again.
Blair
Professorsavings.com
Beware, beware jumping to political conclusions about the relative tax contributions of money classes in the US to the society at large. First off, I offer me as an example of just how misleading things can be:
I am probably in the peak years of my income generation, but I funnel it through a business. Between work and investment appreciation my net worth increases about $30k/month. My total federal+state+local income taxes are zero. They have been for years, and will continue to be zero for years. Moreover, inheritance tax planning will likely hide my assets for two more generations. In 70 years my grandchildren will pay a hefty income tax that will buff the charts like the one in this article, but the years of untaxed compounding will be hidden. Shall we use 10x appreciation ?
Don’t kid yourselves, folks. Well off people hide massive amounts of money from the AGI.
Care to share how you pay zero taxes?
It’s because of his ‘business expense’ when he file for tax return. It’s a loophole that all the rich exploited because the tax regulations are create by the rich. :)
Bull.
Show me how your business makes money and does not pay taxes. What type of legal entity is it?
How do you calculate your net worth?
Why the feigned surprise? Companies like General Electric often pay little or no taxes.
That’s an idiotic statement Jay, have you bothered to ever check one of their Annual Reports? Or are you going to say the report is a lie? You would also know that lying in them is a Federal crime. Of course, there is no punishment when the Huffington Post does it though.
Fermi, whoever THAT is, is obviously aghast at the idea he has been TAKEN by what he THOUGHT was a fair system. I always figured the system was NOT what it’s presented to be, but when I was informed that this guy was gonna pay way less than I was paying (his income HAD to be enough to pay a mortgage on a home worth 7 figures, and a car that cost him 6 figures, new), because his TAXABLE INCOME was way less than mine, I realized I was right all these years.
LOL! If you own a business, there are a myriad of ways to “hide” income, legally. Can you explain how a man, a podiatrist, with three offices in California, could POSSIBLY make enough money to afford a home in a gated community and a 4 year old Mercedes, when his “taxable income” was less than myself, who worked for an auto company and was an hourly employee? America (those who are in the middle 20%) needs to wake up. Things are NOT FAIR. We need to abandon our idea of a “progressive” tax system, and adopt a FLAT TAX, with NO deductions and tax everyone on their HOUSEHOLD INCOME!
FS above asked how someone doesn’t pay any taxes (presumably without breaking the law, after all, if you are willing to break the law anything is possible, including bank robbery).
No one has provided anything substantive. FS sounds like he understands the tax code very well, hence his poignant question. Those who make more not only pay more but pay at a higher rate. Yes, there are “business expenses” that are technically deductible depending on what kind of business entity you have and the nature of the expense. But there are strict rules around that, it only goes so far. I am very familiar with them.
Please get your facts straight.
Really NOT fair. 10% of 20K is 2 grand. Quite a chunk out of 2o grand.
10% of 100 grand, not such a big chunk. Flat tax is just plain unfair.
10% of $100K is $10,000 in taxes, or 5X more than $2K. What’s wrong with that?
A flat tax ABOVE a minimum income level is what’s fair. I wouldn’t expect a flat tax for someone making below poverty wages at all. Let’s called it flat tax per individual for every dollar over $25,000.
Agree 100%! Loopholes must be filled and everybody should pay their relative fair share. But that is not enough, in a wealthy country like ours the basic needs of all should be secure. The ten top earring countries mentioned give a lot more security to their citizens then we do, from end to beginning, nursing homes are heavily subsidized if not free, so is medical care, education, and infant care. In our “civilized” country these services command a hefty price unattainable to most, whereas in ALL truly civilized countries basic needs are taken for granted, and so they must be to level the playing field. One cannot thrive with a Damocles sword hanging over his head. Once the playing field is level and the sword seethed then entrepreneurship and hard work (definitely more then 40hrs a week, at least in the beginning) will have a much better chance at rewarding the applicants.
Not really a comment on your letter but I do not see how to get to write a letter without “replying” > In any case I am not interested in AGI I am interested in total income. AGI is a another tax haven If I earn $200,000 in tax free bonds and pay no taxes I still have about $4,000 a week to live on. If I have no deductions, family of 4 and earn 26,000 I also (according to this article pay no taxes..(about $400 a week) so who is better off? Duh…never use AGI in any comparison, it is a sure sign you are rich.
Partnerships are beautiful creatures my friend! Hire a tax lawyer. It’s worth it in the end.
I doubt this is a real post, particularly knowing something about the tax code and the statistics in question.
Please tell us a little how you are able shield such income, as you say it’s not illegal.
Or is it essentially real estate appreciation that is adding to your net worth (as apposed to cash income)?
What nonsense. You’re anonymous. Tell us how you do this. You are full of it.
The sad part is, people hear this kind of thing and they believe it. Guarantee he can’t tell us how he does this, because he doesn’t.
AND…dont kid yourself…NON-wealthy people hide income from their AGI, AS WELL.
That’s a very important point Bill Richards (not to keep continuing this thread but it provokes thinking). I read a study a couple years ago, I think it was done by an Administration or the CBO, but it found roughly 1/2 of money income from those under the official poverty line is NOT reported. They determined this and other findings through direct interview of a large sample, not the typical meta-data analysis of broad reported statistics. Meaning this fact will not come from IRS data for example.
And it makes perfect sense as well (in case someone wants to raise the BS flag). They not only likely have jobs where this is more frequently the case (e.g., cash work, self employed or working for an individual or small business that can more easily escape reporting requirements), BUT they are motivated NOT to report themselves. By doing so they are able to obtain or maintain greater benefits from the state. You can hardly blame them, they are acting rationally (perhaps not morally).
This is absolutely true. I’ve done bookkeeping and seen it many times. It is pretty easy to legally expense 100% of profit from a business, leaving nothing to tax. I’ve worked for three or four small businesses that do this. It’s really quite simple and easy to do.
First, register all your vehicles as company vehicles and expense the cost of those vehicles, plus all gasoline and maintenance costs; Expense all health insurance costs, co-pays, and deductibles; Expense all travel and entertaining that has anything to do with your business or is done with a client or employee; Expense all payroll and company retirement contributions (make sure to put the maximum in your own, so you can write off the entire $53,000 as a payroll expense, and make sure that your spouse and children are ’employed’ so you can contribute up to $53,000 to their plans, tax free, as well); Expense any other items that are related to your business, including newspaper subscriptions, charitable contributions or advertising, continuing education expenses, city, state or federal licenses, fees or requirements, all telephone and internet service (including personal phones and computers, if you use them to communicate with customers or vendors); Expense home office space from your mortgage; Expense any security services related to business done at home or at business location; Expense customer and employee ‘gifts’… I’m sure there are more, but those are the main ones.
In a larger business, taking no salary whatsoever (meaning no earned income to tax) and taking instead ‘deferred gains’ or stock options puts even $25,000,000 into the lowest capital gains tier of 15% (meaning the exact same percentage of tax is due for the twenty five million dollars as an earned income (W-2 or 1099) of less than $37,400 in 2015.
They would get buried in an IRS audit. The expenses must be business related. As a bookkeeper you should turn these guys into the IRS and get the 10% finders fee.
Wouldn’t be worth it. The expenses he lists are legit, but only the portion directly related to business. Which means you have to have records of what trips were for business, what were not. But, if you want to go to Hawaii for a vacation, just make sure you attend a conference there – and deduct the airfare, hotel, meals, etc. For an individual, unreimbursed business expenses aren’t deductible until you reach a certain amount – then they are only deductible after that point. If you own a business, nearly every dollar of the Hawaii trip is deductible. No minimum necessary.
But, there are tax incentives against working for yourself, as well. For example, you must pay the self-employed portion of your payroll tax – which would be covered by an employer. My daughter baby-sat last summer to earn money for college. She made less than $800, but had to file a Schedule C (self-employment) and pay the SE tax. She didn’t pay Federal or State tax, but there is no minimum on the amount you earn before you have to pay SE tax.
Check it out! https://www.financialsamurai.com/whats-the-right-ratio-between-salary-and-distribution-to-save-on-taxes-and-avoid-an-audit/