8 ms·

Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at s

Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at some point during their working lives. That puts them, if sometimes temporarily, in the top 2 percent of earners. Even outside periods of unusual wealth, members of this group generally hover in the $100,000-plus income range, keeping them in the top 20 percent of earners. This range gets hit the hardest by personal income taxes, so sibling commenter's observation of income, not wealth, is astute. 20% of the population may be in the top 2% of earners in income for one or more years, but they'll be hard pressed to sustain it AND overcome taxes. Also, I noticed that those interviewed in the article have inherently volatile earning profiles. Stock brokers, day traders, art gallery owners... And early startup employees are a part of the cohort too, with spikes one time payouts.

nostromo 13y ago
Right. Calling someone that makes 250k a single year of their life rich (likely from selling a house, a small business, or some stock options) is as silly as calling someone who was unemployed for one year of their life poor. The same article could be written in reverse: "Rise of the 'new poor': 5 in 5 Americans earn $0 at some point in life"
- patmcguire 13y ago
  You can generally exempt $250,000 of profit from a house, $500,000 if you're married
  - malandrew 13y ago
    That strikes me as blatant financial discrimination against single people.
    - patmcguire 13y ago
      Well, I assume the rule is if you file jointly, or if the deed is in both names. So it's $250,000 a person up to a limit of 2.
- midas007 13y ago
  Yup. There's balance sheet affluence and then there's income sheet affluence... two often orthogonal properties in most cases. On one extreme, is the cliché stock broker: always broke despite high income... high marginal propensity to consume (MPC) combined with income sheet affluence, which does not necessarily lead to balance sheet affluence. The other extreme is that are some folks lead thrifty lives and aren't income sheet affluent by any measure, but because of prudent investing, are easily characterized as balance sheet affluent. (Example: I know a guy that has investments exceeding 7 digits that makes 40k USD/year and spends no more on average than 2 USD/day.)
- midas007 13y ago
  There are many, many levels of "rich." In essence, a small amount of wealth reveals how poor someone was and how poor they still are by comparison. Note: comparisons lead to insecurity and unhappiness, by definition. It's as stupid as the rich lists, because the definition of rich is an inability to count one's net worth (due to illiquid valuation of investments and assets).
minikites 13y ago
They actually get hit less hard because we don't have enough tax brackets and the tax rate at the upper brackets is way too low: http://i.imgur.com/gogxtbv.jpg http://i.imgur.com/gogxtbv.jpg
- jlarocco 13y ago
  The article isn't talking about the ultra-rich making millions a year - it's talking about people making >$100k. I'd guess that most people making >$100k per year are making less than $353k, where the taxes start decreasing. So they would, in fact be getting hit hardest by taxes, according to your graph.
- encoderer 13y ago
  For people earning over $350k yes you're right. But no sir, even by the link you posted, those in the $100-350k range are certainly hit the hardest. First, based just on the data, you see that at these income levels, many many credits and deductions are fully phased-out. AMT becomes a real issue. Etc. But in an anecdotal sense, my experience of people (like myself and my wife, 2 professionals living in a high CoL area) earning in this $100-350k range, this is often the product of 2 people with "normal" jobs. So most of my income is earned income. But those out in the stratosphere above $350k earn more and more of their income from capital gains and receive favorable tax treatments.
- hkmurakami 13y ago
  I think you're conflating ordinary income tax rates with long term capital gains tax rate, dividend tax rate, tax free muni bond yields, etc that the 7 figure wealthy and above use.
walshemj 13y ago
This is a obviously a study that has been designed to influence politicians on tax.
deleted 13y ago
[deleted]
AsymetricCom 13y ago
Volatile, high-profit incomes more closely matches a market based on nature or real progress. It makes sense that high-earners who do real work are doing work that is risky. What is concerning is the 'old rich' who've managed to make obscene profits by market manipulation such as regulatory capture, or removing risk from their operations and moving it to the employees. The irony is that the 'old rich' are required to create the more real-market-representative positions artificially, and as a result a large percentage of the new rich's work goes to keep the old rich in their current positions. i.e. the old rich (who were once the new rich) are keeping the new rich from being the new old rich. Often this is done by keeping the new rich from using strategies and tools outside the power of the old rich, thus impeding real progress. Real progress would be outside of the control of the old rich, who, let's face it, are just too old and stupid to make good returns on new things. The general populous does this best, and if the general populous is out-innovating the oligarch, then that would be socialism and socialism is scary because informed markets don't buy sugar water and red labels.
clarkm 13y ago
This is why basing tax brackets on yearly income has always struck me as flawed. Imagine you're an author that spends a couple years writing a book. For the first three years you make no money, but the forth you make a million. You'll be taxed at a much higher rate than if you had made a consistent 250k a year. This might be a simplistic model, and the outcome may be avoidable by sufficient tax planning, but I'm sure some entrepreneurs have lost money this way.
- textminer 13y ago
  Employ rolling averages above historical inflation?
- jpmattia 13y ago
  > For the first three years you make no money, but the forth you make a million. You'll be taxed at a much higher rate than if you had made a consistent 250k a year. Ancient History Item: Before the tax reform act in 1987, you had the ability to do income averaging across tax years to address this situation. It was reformed away.
  - fragsworth 13y ago
    You can still average your taxes across the years if you're a contractor, by paying taxes in advance - with a simple accounting trick that nobody seems to be aware of: 1. In the first year, suppose you and a corporation (you own this corporation outright) makes no income. 2. In the first year, you make a loan to your corporation ($50k for instance) 3. In the first year, you also pay yourself a salary of $50k. You pay taxes on this "income". Yes, you're paying taxes on money you didn't really truly actually earn yet. 4. In the second year, suppose your corporation makes $100k of income. Your corporation repays your $50k loan. The loan repayment is tax-free, and the remaining $50k then becomes your salary for the year. If you do not actually have $50k to perform steps 1-2, you do it repeatedly with small bank transfers until you've accumulated enough "loan" and enough "salary". You then effectively pay two years of $50k income, instead of one year of $0 income and one year of $100k income.
- icambron 13y ago
mjn 13y ago
> sibling commenter's observation of income, not wealth, is astute In the U.S., at least, income and wealth are highly correlated, so there isn't a huge distinction to be made. There are indeed some wealthy people with low income, and high-income people with low wealth, but it isn't the norm. See table 5 (pg. 36) in this whitepaper, which shows both net worth by income percentile, and income by net worth percentile: http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf http://www.federalreserve.gov/pubs/feds/2009/200913/200913pa... Example numbers: the top 1% of 2007 income-earners held 26% of U.S. wealth, and the top 1% of households by net worth in 2006 earned 16% of the year's income. Meanwhile, the bottom 50% of income-earners held only 14% of U.S. wealth, and the bottom 50% by net worth earned only 22% of U.S. income. The general trend holds in the in-between categories as well: the 95-99th percentile of incomes hold about twice as much wealth as the 90-95th percentile, etc. So the relationship is not perfect, but taking the groups in aggregate, higher-income-earners control considerably more wealth than lower-income-earners. Some of the later figures in the document explicitly plot some ratios. Progressive taxation also has relatively little impact here. If you converted the income tax to an implied wealth tax (i.e. take tax paid in a year divided by wealth held at that time), U.S. income taxes are in aggregate roughly equivalent to a flat tax on wealth.
- hkmurakami 13y ago
  I hear you, but you have to discount that for income derived from investments and the wealth and count only wages earned.

nostromo 13y ago

Right. Calling someone that makes 250k a single year of their life rich (likely from selling a house, a small business, or some stock options) is as silly as calling someone who was unemployed for one year of their life poor. The same article could be written in reverse: "Rise of the 'new poor': 5 in 5 Americans earn $0 at some point in life"

patmcguire 13y ago
You can generally exempt $250,000 of profit from a house, $500,000 if you're married
- malandrew 13y ago
  That strikes me as blatant financial discrimination against single people.
  - patmcguire 13y ago
    Well, I assume the rule is if you file jointly, or if the deed is in both names. So it's $250,000 a person up to a limit of 2.
midas007 13y ago
Yup. There's balance sheet affluence and then there's income sheet affluence... two often orthogonal properties in most cases. On one extreme, is the cliché stock broker: always broke despite high income... high marginal propensity to consume (MPC) combined with income sheet affluence, which does not necessarily lead to balance sheet affluence. The other extreme is that are some folks lead thrifty lives and aren't income sheet affluent by any measure, but because of prudent investing, are easily characterized as balance sheet affluent. (Example: I know a guy that has investments exceeding 7 digits that makes 40k USD/year and spends no more on average than 2 USD/day.)
midas007 13y ago
There are many, many levels of "rich." In essence, a small amount of wealth reveals how poor someone was and how poor they still are by comparison. Note: comparisons lead to insecurity and unhappiness, by definition. It's as stupid as the rich lists, because the definition of rich is an inability to count one's net worth (due to illiquid valuation of investments and assets).

minikites 13y ago

They actually get hit less hard because we don't have enough tax brackets and the tax rate at the upper brackets is way too low: http://i.imgur.com/gogxtbv.jpg http://i.imgur.com/gogxtbv.jpg

jlarocco 13y ago
The article isn't talking about the ultra-rich making millions a year - it's talking about people making >$100k. I'd guess that most people making >$100k per year are making less than $353k, where the taxes start decreasing. So they would, in fact be getting hit hardest by taxes, according to your graph.
encoderer 13y ago
For people earning over $350k yes you're right. But no sir, even by the link you posted, those in the $100-350k range are certainly hit the hardest. First, based just on the data, you see that at these income levels, many many credits and deductions are fully phased-out. AMT becomes a real issue. Etc. But in an anecdotal sense, my experience of people (like myself and my wife, 2 professionals living in a high CoL area) earning in this $100-350k range, this is often the product of 2 people with "normal" jobs. So most of my income is earned income. But those out in the stratosphere above $350k earn more and more of their income from capital gains and receive favorable tax treatments.
hkmurakami 13y ago
I think you're conflating ordinary income tax rates with long term capital gains tax rate, dividend tax rate, tax free muni bond yields, etc that the 7 figure wealthy and above use.

walshemj 13y ago

This is a obviously a study that has been designed to influence politicians on tax.

deleted 13y ago

[deleted]

AsymetricCom 13y ago

Volatile, high-profit incomes more closely matches a market based on nature or real progress. It makes sense that high-earners who do real work are doing work that is risky. What is concerning is the 'old rich' who've managed to make obscene profits by market manipulation such as regulatory capture, or removing risk from their operations and moving it to the employees. The irony is that the 'old rich' are required to create the more real-market-representative positions artificially, and as a result a large percentage of the new rich's work goes to keep the old rich in their current positions. i.e. the old rich (who were once the new rich) are keeping the new rich from being the new old rich. Often this is done by keeping the new rich from using strategies and tools outside the power of the old rich, thus impeding real progress. Real progress would be outside of the control of the old rich, who, let's face it, are just too old and stupid to make good returns on new things. The general populous does this best, and if the general populous is out-innovating the oligarch, then that would be socialism and socialism is scary because informed markets don't buy sugar water and red labels.

clarkm 13y ago

This is why basing tax brackets on yearly income has always struck me as flawed. Imagine you're an author that spends a couple years writing a book. For the first three years you make no money, but the forth you make a million. You'll be taxed at a much higher rate than if you had made a consistent 250k a year. This might be a simplistic model, and the outcome may be avoidable by sufficient tax planning, but I'm sure some entrepreneurs have lost money this way.

textminer 13y ago
Employ rolling averages above historical inflation?
jpmattia 13y ago
> For the first three years you make no money, but the forth you make a million. You'll be taxed at a much higher rate than if you had made a consistent 250k a year. Ancient History Item: Before the tax reform act in 1987, you had the ability to do income averaging across tax years to address this situation. It was reformed away.
- fragsworth 13y ago
  You can still average your taxes across the years if you're a contractor, by paying taxes in advance - with a simple accounting trick that nobody seems to be aware of: 1. In the first year, suppose you and a corporation (you own this corporation outright) makes no income. 2. In the first year, you make a loan to your corporation ($50k for instance) 3. In the first year, you also pay yourself a salary of $50k. You pay taxes on this "income". Yes, you're paying taxes on money you didn't really truly actually earn yet. 4. In the second year, suppose your corporation makes $100k of income. Your corporation repays your $50k loan. The loan repayment is tax-free, and the remaining $50k then becomes your salary for the year. If you do not actually have $50k to perform steps 1-2, you do it repeatedly with small bank transfers until you've accumulated enough "loan" and enough "salary". You then effectively pay two years of $50k income, instead of one year of $0 income and one year of $100k income.
icambron 13y ago

mjn 13y ago

> sibling commenter's observation of income, not wealth, is astute In the U.S., at least, income and wealth are highly correlated, so there isn't a huge distinction to be made. There are indeed some wealthy people with low income, and high-income people with low wealth, but it isn't the norm. See table 5 (pg. 36) in this whitepaper, which shows both net worth by income percentile, and income by net worth percentile: http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf http://www.federalreserve.gov/pubs/feds/2009/200913/200913pa... Example numbers: the top 1% of 2007 income-earners held 26% of U.S. wealth, and the top 1% of households by net worth in 2006 earned 16% of the year's income. Meanwhile, the bottom 50% of income-earners held only 14% of U.S. wealth, and the bottom 50% by net worth earned only 22% of U.S. income. The general trend holds in the in-between categories as well: the 95-99th percentile of incomes hold about twice as much wealth as the 90-95th percentile, etc. So the relationship is not perfect, but taking the groups in aggregate, higher-income-earners control considerably more wealth than lower-income-earners. Some of the later figures in the document explicitly plot some ratios. Progressive taxation also has relatively little impact here. If you converted the income tax to an implied wealth tax (i.e. take tax paid in a year divided by wealth held at that time), U.S. income taxes are in aggregate roughly equivalent to a flat tax on wealth.

hkmurakami 13y ago
I hear you, but you have to discount that for income derived from investments and the wealth and count only wages earned.