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> In your view, being “rich” means having an income in the ... > Don’t know/none of these Wealth. Or unearned income. Which approximately no-one actually thin

> In your view, being “rich” means having an income in the ... > Don’t know/none of these Wealth. Or unearned income. Which approximately no-one actually thinks about when they say "income". Basically the whole thing is pointless due to that.

harryh 7y ago
Wealth and income are very highly correlated especially when you also take into account age.
- zeroonetwothree 7y ago
  I would even argue consumption is the best measure to use.
  - nraynaud 7y ago
    even that have been gamed, when CEOs make their company pay for a lot of their stuff, or people have a non-profit owning their mention.
    - asark 7y ago
      I see that sort of thing come up a lot, but is there, like, a blow-by-blow guide out there for how they get to that position without running afoul of the law? Is it something you can only do with expensive tax lawyers and money to throw around for a bunch of temporary maneuvers, or is it something your average freelancer/consultant with an LLC can pull off?
      - nraynaud 7y ago
        the fix cost is too high for non wealthy people to do it, you need a few thousands of dollars in layers, accounting, various registrations, etc.
    - harryh 7y ago
      The IRS has very strict rules on what counts as compensation. The idea that CEOs are significantly circumventing them is mostly wrong.
- esotericn 7y ago
  Bollocks. Half of the families in London sitting on hundreds of thousands in net worth earned around median in their primes. The same is likely true in SF and elsewhere.
  - human20190310 7y ago
    London and San Francisco are not typical cases though. Most people earning median income, but living elsewhere, did not participate in a housing market with such dramatic price increases. (As a side note, it's now impossible for people earning median income to participate in those markets, due to the expense). EDIT: That said, I do think that income is over-emphasized in categorizing people as rich or not. A person who lucked into a house that went up in value might not feel rich, but they definitely are richer than the person that has to borrow a million more dollars to live in the house next door.
    - harryh 7y ago
      And even for people who have most of their net worth tied up in appreciated housing have high incomes when you count imputed rent. Which, if you are not counting, you are just being silly.
  - harryh 7y ago
    And those people now have high incomes due to the return on capital they can get from their net worth.
    - esotericn 7y ago
      Addressed in my OP. The man on the clapham omnibus will not tell you that a person who owns a house and works in the supermarket has a high income. They might say that they're rich though. Because wealth is the thing that makes you rich.
- deleted 7y ago
  [deleted]
zeveb 7y ago
Yup, exactly. To me, 'rich' means having the wealth to live off of the interest (where 'wealth' is defined rather expansively to include things like disability, Social Security & pension benefits as well as simple capital).
romaaeterna 7y ago
Very true. If a person has $1M wealth, it's $40K interest in his pocket forever, assuming he invests wisely and follows the 4% drawdown rule. If you have a job that makes $100K over 10 years, it would be about $20K in taxes, $40K in expenses, and (max) $40K in savings. At the end of 10 years, you'll have half a million, and the person with wealth will still have his million. He'll also possibly have spent the last 10 years starting a business, improving his education, or earning a salary on top of his wealth. You will both be 10 years older and closer to the end of prime earning years. Of the two of you, you will still need your earning years, because interest on your $500K is only $20K/yr, but he will not. Wealth is far different from income.
- Super_Jambo 7y ago
  And yet all these newspapers owned by hugely wealthy individuals keep conflating the two! Weird isn't it? It's almost like there's an incentive for the media landscape to muddy the waters between well paid execs and the person who owns the company.
  - thatfrenchguy 7y ago
    Their journalists are clearly not rich though ?
  - lonelappde 7y ago
    It's just that most people aren't very smart, including most journalists. It's a not a grand conspiracy to protect billionaires. They pick on Jeff Bezos plenty.
- opo 7y ago
  >...If a person has $1M wealth, it's $40K interest in his pocket forever, assuming he invests wisely and follows the 4% drawdown rule. You are overstating the results of the Trinity Study: >...The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index (CPI) to keep pace with the cost of living. The withdrawals may exceed the income earned by the portfolio, and the total value of the portfolio may well shrink during periods when the stock market performs poorly. It is assumed that the portfolio needs to last thirty years. The withdrawal regime is deemed to have failed if the portfolio is exhausted in less than thirty years and to have succeeded if there are unspent assets at the end of the period. https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study Nothing in the study indicated that its "in his pocket forever" - just that historically, withdrawal rates of 4% were able to last 30 years before the assets were totally depleted. (Also the wikipedia article has a number of criticisms of the study.)
opportune 7y ago
Completely agree. Sure a young person making $200k+ in the Bay Area is “rich” but it’s not even comparable to people who have inherited massive amounts of wealth or have become rich through ownership in a rapidly growing company (which also isn’t income, but capital gains). You can’t even afford a 2k sqft home in a nice (accessible, safe, decent schools) area on that income - doesn’t feel rich to me. This kind of logic is what keeps the upper-middle class of the US paying high taxes but shields the truly rich, I mean filthy stinking ungodly rich, from paying their fair share. Because they don’t acquire their massive wealth via income, but through inheritance and capital gains
- chrisco255 7y ago
  Which is why, in my opinion, a federal sales tax would be far better at capturing value from the wealthy (than an income tax) without penalizing people trying to earn and reinvest their earnings.
  - lonelappde 7y ago
    Sales tax is non-progressive.
    - bradstewart 7y ago
      It's progressive in the sense that rich people generally buy more (and more expensive) things.
- thatfrenchguy 7y ago
  > You can’t even afford a 2k sqft home in a nice (accessible, safe, decent schools) area I think a lot of people conflate "nice" with "one of the richest/best" in the Bay Area, conflating middle class with upper class. With 200k, you can afford around a million dollar home. There is a lot of places in the bay area where you can afford a house in that range.
  - lonelappde 7y ago
mbesto 7y ago
This is by far my biggest pet peeve with media and finance... Income != Wealth/Assets And the two are used interchangeably all of the time, which gets misused. And it happens right here on HN "omg Uber is worth $160B, how can they not pay developers more?!"...

harryh 7y ago

Wealth and income are very highly correlated especially when you also take into account age.

zeroonetwothree 7y ago
I would even argue consumption is the best measure to use.
- nraynaud 7y ago
  even that have been gamed, when CEOs make their company pay for a lot of their stuff, or people have a non-profit owning their mention.
  - asark 7y ago
    I see that sort of thing come up a lot, but is there, like, a blow-by-blow guide out there for how they get to that position without running afoul of the law? Is it something you can only do with expensive tax lawyers and money to throw around for a bunch of temporary maneuvers, or is it something your average freelancer/consultant with an LLC can pull off?
    - nraynaud 7y ago
      the fix cost is too high for non wealthy people to do it, you need a few thousands of dollars in layers, accounting, various registrations, etc.
  - harryh 7y ago
    The IRS has very strict rules on what counts as compensation. The idea that CEOs are significantly circumventing them is mostly wrong.
esotericn 7y ago
Bollocks. Half of the families in London sitting on hundreds of thousands in net worth earned around median in their primes. The same is likely true in SF and elsewhere.
- human20190310 7y ago
  London and San Francisco are not typical cases though. Most people earning median income, but living elsewhere, did not participate in a housing market with such dramatic price increases. (As a side note, it's now impossible for people earning median income to participate in those markets, due to the expense). EDIT: That said, I do think that income is over-emphasized in categorizing people as rich or not. A person who lucked into a house that went up in value might not feel rich, but they definitely are richer than the person that has to borrow a million more dollars to live in the house next door.
  - harryh 7y ago
    And even for people who have most of their net worth tied up in appreciated housing have high incomes when you count imputed rent. Which, if you are not counting, you are just being silly.
- harryh 7y ago
  And those people now have high incomes due to the return on capital they can get from their net worth.
  - esotericn 7y ago
    Addressed in my OP. The man on the clapham omnibus will not tell you that a person who owns a house and works in the supermarket has a high income. They might say that they're rich though. Because wealth is the thing that makes you rich.
deleted 7y ago
[deleted]

zeveb 7y ago

Yup, exactly. To me, 'rich' means having the wealth to live off of the interest (where 'wealth' is defined rather expansively to include things like disability, Social Security & pension benefits as well as simple capital).

romaaeterna 7y ago

Very true. If a person has $1M wealth, it's $40K interest in his pocket forever, assuming he invests wisely and follows the 4% drawdown rule. If you have a job that makes $100K over 10 years, it would be about $20K in taxes, $40K in expenses, and (max) $40K in savings. At the end of 10 years, you'll have half a million, and the person with wealth will still have his million. He'll also possibly have spent the last 10 years starting a business, improving his education, or earning a salary on top of his wealth. You will both be 10 years older and closer to the end of prime earning years. Of the two of you, you will still need your earning years, because interest on your $500K is only $20K/yr, but he will not. Wealth is far different from income.

Super_Jambo 7y ago
And yet all these newspapers owned by hugely wealthy individuals keep conflating the two! Weird isn't it? It's almost like there's an incentive for the media landscape to muddy the waters between well paid execs and the person who owns the company.
- thatfrenchguy 7y ago
  Their journalists are clearly not rich though ?
- lonelappde 7y ago
  It's just that most people aren't very smart, including most journalists. It's a not a grand conspiracy to protect billionaires. They pick on Jeff Bezos plenty.
opo 7y ago
>...If a person has $1M wealth, it's $40K interest in his pocket forever, assuming he invests wisely and follows the 4% drawdown rule. You are overstating the results of the Trinity Study: >...The 4% refers to the portion of the portfolio withdrawn during the first year; it is assumed that the portion withdrawn in subsequent years will increase with the consumer price index (CPI) to keep pace with the cost of living. The withdrawals may exceed the income earned by the portfolio, and the total value of the portfolio may well shrink during periods when the stock market performs poorly. It is assumed that the portfolio needs to last thirty years. The withdrawal regime is deemed to have failed if the portfolio is exhausted in less than thirty years and to have succeeded if there are unspent assets at the end of the period. https://en.wikipedia.org/wiki/Trinity_study https://en.wikipedia.org/wiki/Trinity_study Nothing in the study indicated that its "in his pocket forever" - just that historically, withdrawal rates of 4% were able to last 30 years before the assets were totally depleted. (Also the wikipedia article has a number of criticisms of the study.)

opportune 7y ago

Completely agree. Sure a young person making $200k+ in the Bay Area is “rich” but it’s not even comparable to people who have inherited massive amounts of wealth or have become rich through ownership in a rapidly growing company (which also isn’t income, but capital gains). You can’t even afford a 2k sqft home in a nice (accessible, safe, decent schools) area on that income - doesn’t feel rich to me. This kind of logic is what keeps the upper-middle class of the US paying high taxes but shields the truly rich, I mean filthy stinking ungodly rich, from paying their fair share. Because they don’t acquire their massive wealth via income, but through inheritance and capital gains

chrisco255 7y ago
Which is why, in my opinion, a federal sales tax would be far better at capturing value from the wealthy (than an income tax) without penalizing people trying to earn and reinvest their earnings.
- lonelappde 7y ago
  Sales tax is non-progressive.
  - bradstewart 7y ago
    It's progressive in the sense that rich people generally buy more (and more expensive) things.
thatfrenchguy 7y ago
> You can’t even afford a 2k sqft home in a nice (accessible, safe, decent schools) area I think a lot of people conflate "nice" with "one of the richest/best" in the Bay Area, conflating middle class with upper class. With 200k, you can afford around a million dollar home. There is a lot of places in the bay area where you can afford a house in that range.
- lonelappde 7y ago

mbesto 7y ago

This is by far my biggest pet peeve with media and finance... Income != Wealth/Assets And the two are used interchangeably all of the time, which gets misused. And it happens right here on HN "omg Uber is worth $160B, how can they not pay developers more?!"...