For the economics guys

[tristan22]

I have read that the middle class is slowly disappearing and that more people are becoming millionaires under the current administration. Considering the endless cycle of money, the middle class pumps back into the economy(frivolous spending and high taxes), i don't see the reasoning behind this economic move.

Can someone fill me in?

 

[Zonder]

Well, there are several reasons. First of all, we need to get the definitions straight. Middle class are the "white collar workers" and small entrepreneurs. They work hard and make a good 30-80K a year. The ones with the highest salary, such as doctors and lawyers, are upper middle class. They could make over 100K. Small businessmen work really hard and are effectively self-employed. If they are successful, they could become millionaires, but many of them work like mules sometimes over 80 hrs a week for around a minimum wage.

On the other hand, businessmen are having it easier and easier.

1) Tax shelters. They get a number of tax shelters that help them not pay taxes over their winnings. For example, one could buy computers, cars, even buildings, and make it a "business expense" and make it tax deductible. Salary workers don't have such shelters and pay all the taxes over their salaries. This is how businessmen grow richer and middle class get taxed.

2) Tax cuts. Business taxes are growing lower and lower. This makes the already rich ones pay less and less to the government. Middle class don't care if their tax is 4% or 5%. Their overall wealth won't change much. For a businessman, this is 20% less taxes. This has a huge impact on multi-million dollar corporations. Overall, businessmen pay much less taxes than salary workers in spite of the fact that corporations generate much higher income. This is how businessmen get richer and richer and middle class don't profit from the tax decreases.

3) Paycheck. Businessmen's profit grows with the tax cuts and with the development of their business. In their lifetime, their paychecks increase exponentially. Middle class are on a relatively stable paycheck. It could sometimes even double within a person's lifetime, but nothing compared to the kind of increase a businessman can have. This is how businessmen grow richer and richer and middle class don't.

4) Inflation. Business people's profits are usually interest-insured. Even if the number of goods sold remains the same, the actual income will be greater due to inflation. The middle class have stable paychecks, which barely get an edge over the inflation rate. This is how businessmen grow richer and richer, and middle class suffer inflation.

5) Business people's ratio of assets/liabilities is much greater than that of the salary workers. For most of the middle class, almost everything is a liability. It's the opposite for businessmen, for whom almost everything generates income. For example, if you're paying mortgages, car loans, child care, etc. it could waste a good 80% of your net income. Like you said, middle class pumps a great deal of money into the economy, but this is consumer spending, which makes them poorer. For a businessman, 80% of the expenditures generate income and eventually make them richer, while middle class carry the burden of consumerism.

These seemingly changes take years to be noticed, but the trend is clearly in favor of the richest few percent of the population.

My suggestion in that case, for all DJ's, is to become part of the richest 5, maximum 10% of the population. It's gonna help with the chicks too

 

[S-lemond]

ok i dont know were you heard that?...but i do wish that it was true

 

[undesputable]

that was a pretty good explanation zonder

 

[A-Unit]

Re:

Somethings to note...

A million dollars is NOT what it used to be. Granted it isn't something to shake a stick at either, but with more people than ever in history retiring, a million dollars is the MINIMUM people need to wade through the 15+ years of unemployment they will experience.


Additionally, housing prices are often ADDED to that sum, which over-inflates the net worth of people. It's like "magically" they're worth $1,000,000, and $500,000 or more of that is the home, and another $200,000+ is their 401k.


Don't get me wrong, people are in possession of MORE money, MORE assets, and MORE opportunities than ever before, but it's all relative, and it's nowhere near where it could be given the modest income available in the US for even positions in relative demand.


-------------------------------


The entrepreneur, businessmen, investors, REI gurus, sales people, all experience dramatic upticks in income and wealth. However, the middle class, when factoring in extra working hours has NOT kept up with inflation. The median income in the US hovers just under $50k, and while that seems like a lot, it isn't, when you factor WHAT INFLATION ADJUSTED income would look like.


I would also admit this...college-educated graduates and workers do not get the return on their degree they USED to. College was so lauded to our parents because, their grandparents used to get a 10x return on their invested money.


For instance, college would cost $300, and a starting accountant would get $3000. The multiple increase available made college the attractive option, and with the funding of colleges by grants, fin. aid, and private banks, a dramatic surge hit colleges, calling for a growth in education, leveling the playing field. Now you see people going on to higher degrees if affordable or splitting off and becoming a salesperson or entrepreneur.


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It's also called PHANTOM millionaires, because many that APPEAR to be, are only borrowing their net worth, i.e. home equity or taking loans against 401k's, cashing in company stock options, etc. Those wealth-minded people don't need doo-dads, or new toys. They don't upgrade a TV when it goes from HD to DLP. They don't care about the latest greatest gas-guzzling SUV coming out, that offers only a modest improvement in the way of Stereo in their cars and Sirius satellite on the radio.


A true millionaire has ASSETS. Liquid. They are BALANCE sheet millionaires. And for them, it isn't getting to 1mill, it's a state of mind. Many of the people I know retiring early, i.e. 50's or early 60's with those kinds of bucks, lived that way since their parents were depression-era babies, and they always planned for the worst.


Our generation has grown up in a time of unprecedented wealth, growth, and opportunities, and as such our frame of reference is of abundance, of borrowing, and of spending. It's as if the mentality is "there's always more tomorrow!" Very much the 'grasshopper' mentality, as opposed to the 'ant'.


------------------------------------


Going forward the population will remain as it always has. There won't be swings one way or the other, only perceptions of the swings. What we perceive to be progress, will merely be changes. What USED to be rich will now progress to what seems like MEGA rich. Looking back, Henry Ford, Andrew Carnegie, Rockefellar, had in the 100's of millions in assets. Yet today, hollywood is dotted with people claiming those types of bank accounts. However, all things consider, that's over 100 years ago, and what's changed is the value of a BUCK.



A-Unit

 

[Giovanni Casanova]

Originally posted by tristan22
more people are becoming millionaires under the current administration.

More people are also slipping into poverty under the current administration.

1.1 million more Americans slipped into poverty in 2004, while household incomes stagnated and earnings fell, the Census Bureau reported yesterday. The number of Americans without health insurance rose by 800,000, to 45.8 million.

The poverty rate climbed in 2004 to 12.7 percent, from 12.5 percent in 2003 -- the fourth year in a row that poverty has risen.

Washington Post - August 30, 2005

 

[RaWBLooD]

Originally posted by tristan22
I have read that the middle class is slowly disappearing and that more people are becoming millionaires under the current administration. Considering the endless cycle of money, the middle class pumps back into the economy(frivolous spending and high taxes), i don't see the reasoning behind this economic move.

Can someone fill me in?

when the depression sets in, theres the rich and the poor distinctively, those who can still spend like they did, and those who must be scrupulous. If the depression continues, the rich are still rich, and the poor start starving. After the depression, the rich become richer.

 

[S-lemond]

i still wanna be shown this theroy