Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
If you are middle class in America and you depend on W2 income for a living, the chips are stacked against you.
1. Why are Americans who work for a living taxed more than investors who live off of their investments?
2. Why is the average return that you're able to generate in public mutual funds less than 5% annually (arguably less, much less) with high fees and how can you generate real wealth by investing in these funds?
3. Why do SEC regulations that "protect" the middle class also prevent them and allow only "accredited investors" (aka rich people) the ability to invest in private investment opportunities?
Full disclosure: through these opportunities, you may lose money, but you also may generate significant above market returns. There are also opportunities that are able to generate above market returns, but manage risks/downside effectively. The reality is, investing in private investment opportunities is how a large percentage of the rich get rich and stay rich. I know wealthy investors who are able to generate 20-30% returns annually. The SEC has effectively taken your investment rights away in the guise of "protecting you".
U. S. tax policy and securities regulation make it very difficult for the middle class to save and grow wealth. These policies help the rich get richer and the poor stay poor.
Though difficult, wealth development is not impossible. By understanding the policies and regulation, starting where you are now, you can develop wealth.
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
10y
I don't truly believe the chips are stacked against you if you are a middle class W2 wage earner. Actually that describes me, and a lot of the other people on this website.
1. Why are Americans who work for a living taxed more than investors who live off of their investments?
Actually this is one of those arguments that I often have with my family. There is nothing to say that a middle class person can not take advantage of these exact same tax breaks. That is why I invest in real estate and why I invest long term in the stock market. Capital gains is way less than income tax. By taking away these tax breaks, you actually would be hurting millions of middle class investors far more than you would be hurting the rich.
2. Why is the average return that you're able to generate in public mutual funds less than 5% annually (arguably less, much less) with high fees and how can you generate real wealth by investing in these funds?
I can't say that I understand this question. The rate of return on mutual funds is highly dependent on which funds you are investing. I invest in passive index based mutual funds. They are very low fee and readily available to even the smallest of investors. The annual rate of return of is much higher than 5% if you look at the long term (10+ year). The only way to generate real wealth is over the long term. There is no quick and easy money.
3. Why do SEC regulations that "protect" the middle class also prevent them and allow only "accredited investors" (aka rich people) the ability to invest in private investment opportunities?
The regulations are what they are, and we must work within the constraints of the law. It really isn't a big deal. A huge number of investment opportunities are still available to even the smallest of investors. Especially with some of the new crowdfunding opportunities.
U. S. tax policy and securities regulation make it very difficult for the middle class to save and grow wealth. These policies help the rich get richer and the poor stay poor.
All I hear are excuses. No one ever said that it was going to be "easy" to save and grow wealth. If it was easy, everyone would be wealthy.
Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
10y
I don't truly believe the chips are stacked against you if you are a middle class W2 wage earner. Actually that describes me, and a lot of the other people on this website.
1. Why are Americans who work for a living taxed more than investors who live off of their investments?
Actually this is one of those arguments that I often have with my family. There is nothing to say that a middle class person can not take advantage of these exact same tax breaks. That is why I invest in real estate and why I invest long term in the stock market. Capital gains is way less than income tax. By taking away these tax breaks, you actually would be hurting millions of middle class investors far more than you would be hurting the rich.
2. Why is the average return that you're able to generate in public mutual funds less than 5% annually (arguably less, much less) with high fees and how can you generate real wealth by investing in these funds?
I can't say that I understand this question. The rate of return on mutual funds is highly dependent on which funds you are investing. I invest in passive index based mutual funds. They are very low fee and readily available to even the smallest of investors. The annual rate of return of is much higher than 5% if you look at the long term (10+ year). The only way to generate real wealth is over the long term. There is no quick and easy money.
3. Why do SEC regulations that "protect" the middle class also prevent them and allow only "accredited investors" (aka rich people) the ability to invest in private investment opportunities?
The regulations are what they are, and we must work within the constraints of the law. It really isn't a big deal. A huge number of investment opportunities are still available to even the smallest of investors. Especially with some of the new crowdfunding opportunities.
U. S. tax policy and securities regulation make it very difficult for the middle class to save and grow wealth. These policies help the rich get richer and the poor stay poor.
All I hear are excuses. No one ever said that it was going to be "easy" to save and grow wealth. If it was easy, everyone would be wealthy.
Taxes and death, both inevitable, no point in wasting time thinking about them beyond doing what you can to defer both as long as possible.
Having come from the middle class, and in all honesty still part of it, I believe every individual has the same opportunities to rise above it or drop below it. If you choose to work for someone else you generally stay where you are.
No one is forced to live off of a W2 income it is their safe choice. Safety come with a price the same as taking financial risks or being on welfare.
Yes, but this tax structure makes it very difficult for the middle class to save, the foundation for most wealth development, including mine.
Please tell me what index fund has generated a consistent year over year 10% return for you. That is extremely rare. I retired at 32, after working in investment management (mutual funds) for 14 years.
FYI: I gained financial independence by investing in real estate.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
@Thomas S. I agree with you, but that's not my point. My point is that the tax system and SEC regulations make it more difficult for the middle class to develop wealth. And I don't think that's a good thing.
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
10y
Real estate investments are a lot more complicated than investing in a mutual fund. (With sources like MorningStar, you can figure out in a few minutes whether a mutual fund fits your portfolio or not. But with real estate investments it takes hours, days or weeks to verify that investment is a good one… and that's only if you know what you're doing. If not, you may have little or no idea of the quality of what you're investing in).
And while you can make a lot of money, you can also lose a lot of money very quickly as well. Also, since they are much more loosely regulated, it is easier for a real estate developer to commit fraud and not be detected.
So it makes sense to me that there are rules in place to prevent "the average Joe", who probably isn't very sophisticated, from being ripped off. Maybe the current rules aren't the best (they assume that people with more money are more sophisticated, which may or may not be true).
But I think it would be foolish to go back to the old days when real estate developers were able to sell swampland in Florida to as many eager, unsophisticated, naïve investors in the general public as they can get a hold of.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
Jon S. I disagree with your underlying assumptions. First of all, investing in real estate is work. It is also much more risky than punching a clock for your living. Most members of the middle class are unwilling to take risk.
Secondly, I pay taxes on my W2 income, then I invest in real estate and I pay property taxes (non owner occupied is higher in my state). Then I pay taxes on rental income. Then I pay taxes when I sell the property. Your theses that I pay less taxes is incorrect. My income is actually taxed several times.
Third thing to consider is that raising taxes on rental income will raise housing costs for the poor. Do you think landlords will just absorb the tax? It will be passed on to renters, hurting the exact people you are claiming need help.
As far as mutual funds, they are a horrible investment. They are designed to gain wealth only for the fund companies and brokers (sales guys). They are fee heavy and sold on broken promises. That being said, they are easy to invest in. People take the easy route and in exchange get crappy returns. Nothing stops the middle class from making better investments beyond their decision making skills and their fear of risk.
One final point is that passive income is taxed at W2 rate for the wealthy. This was changed in tax code by congress to fund the affordable care act. It only affects the highest tax bracket.
A second final point is that all W2 wage earners are employed by a business. Taxing the business to help the W2 earner is an oxymoron.
Investor · Evans, GA · Member since 2015 · 190 posts · 103 votes
10y
Preach it, @Joe Splitrock...it seems that politicians who frequently tout legislation to confiscate more wealth from businesses have had little to no practical experience running businesses, and don't always appreciate the impact on the free market. No doubt as real estate investors we get taxes coming from multiple angles...thank goodness for the mitigating deductions.
Yes, but this tax structure makes it very difficult for the middle class to save, the foundation for most wealth development, including mine.
Please tell me what index fund has generated a consistent year over year 10% return for you. That is extremely rare. I retired at 32, after working in investment management (mutual funds) for 14 years.
FYI: I gained financial independence by investing in real estate.
There are countless examples of middle class people who have gone on to become very wealthy. It is difficult, I never said it wasn't. Is it impossible? No. Is it so hard that I have to pay a "financial advisor" to help me? No.
The whole doom and gloom and hopelessness thing just does not work for me.
I invest for the long term. The day to day, or even yearly fluctuations of the market are irrelevant to me. The power of compounding interest over a 20+ year investment cycle means that I will be just fine. Throw in a large amount of investment into real estate as well, and I will be more than fine. I will get to benefit from all of the tax breaks and benefits of being an "accredited investor" if I want 20 years from now.
If you are middle class in America and you depend on W2 income for a living, the chips are stacked against you.
1. Why are Americans who work for a living taxed more than investors who live off of their investments?
2. Why is the average return that you're able to generate in public mutual funds less than 5% annually (arguably less, much less) with high fees and how can you generate real wealth by investing in these funds?
3. Why do SEC regulations that "protect" the middle class also prevent them and allow only "accredited investors" (aka rich people) the ability to invest in private investment opportunities?
Full disclosure: through these opportunities, you may lose money, but you also may generate significant above market returns. There are also opportunities that are able to generate above market returns, but manage risks/downside effectively. The reality is, investing in private investment opportunities is how a large percentage of the rich get rich and stay rich. I know wealthy investors who are able to generate 20-30% returns annually. The SEC has effectively taken your investment rights away in the guise of "protecting you".
U. S. tax policy and securities regulation make it very difficult for the middle class to save and grow wealth. These policies help the rich get richer and the poor stay poor.
Though difficult, wealth development is not impossible. By understanding the policies and regulation, starting where you are now, you can develop wealth.
1. Capital gains are taxed at less than W2 income because there is more risk involved. Generally speaking, there is a Risk vs Reward system in investing, where the more volatile an investment, the larger the rewards can be. The worst thing that can happen in a W2 job is that you get fired, and your income for the immediate future drops to zero. The worst thing that can happen with an investment is it goes bankrupt and you lose your entire life's savings. Just look at Enron, or banks a few years back, oil a year ago ect ect. You can't 'lose' your existing money in a W2 job, you just lose future income. Additionally there are government programs to at least mitigate the effect of temporarily being unemployed, however there are no government programs to help you recoup a failed investment.
2. If you're paying high fees, or getting only 5% return then you should probably move on to a different investment. There are more than enough funds to pick from that have expense ratios of less than one tenth of one percent. The first one that I googled was VTI at 0.05% expense ratio, while returning 228% since the crash in 08, or if you include the crash it's 75% over a 10 year period, not counting it's ~2% per year dividends.
3. Private investment opportunities were limited to the richer, (this is slowly changing) because those opportunities were much more risky. A wealthy person can realistically take on a few investments that are more risky than your average person. Public companies are required to report their annual financial status, where as private companies are not required to disclose any financial information. You could very easily invest in a failing company simply because their pitch man made it sound like it was a great deal. Further, while some startups take off and make their investors millions, many startups go bankrupt within the first year. If a rich person looses some money it's generally not a big deal, but when the middle class loses money it can be a real burden.
The US tax code has nothing to do with keeping the middle class down. Long term capital gains for income up to 75,300 for married filing jointly is completely tax free. Which isn't bad at all considering the median household income is roughly 54k. And if you make a little over that amount, then it's time to start throwing money towards your 401k to bring down your tax rate, or find any of the other ways to reduce your tax bracket. The resources are there for everyone to take advantage of. The reason the middle class stays middle class is because money simply isn't important to them. Sure everyone says they 'want' more money, but the wealthy actively find ways to make or save more money, while the middle class is perfectly content going to work 9-5 so long as they have enough cash left over to have a little fun on the weekend. The middle class ponders endlessly on how to squeak out a few extra points from their fantasy football team, while the rich try to get a few extra points from their investments. The middle class feels like talking to their peers about money is taboo, and something that should be avoided lest they sound boastful (if they are succeeding), or sound like they are a failure if they are struggling. They don't read tax code to save additional money, they don't actively pursue more and more education to make them more marketable after HS or college, they don't have an investment strategy. They simply exist for the weekend. There's nothing wrong with that lifestyle, but if money isn't a priority for you then you shouldn't be surprised when you don't have much of it. Similarly I want to have a body like Arnold Schartzenegger, but instead of going to the gym I'm sitting here reading a forum about investing, so I shouldn't be surprised when I don't have bulging biceps. That's ok though because for me personally I'd rather have a bulging wallet.
1. Why are Americans who work for a living taxed more than investors who live off of their investments?
The tax code is like a guidebook that tells you where the government thinks the money needs to go in order to produce a healthy economy. Clearly the government thinks that property ownership and public stock ownership are cornerstones of a healthy economy, therefore they encourage those activities by offering lower tax rates on those activities. It's not about holding back the middle class, or favoring the rich, its about where the flow of money is needed for the economy to flourish and benefit everyone. It's just economics.
2. Why is the average return that you're able to generate in public mutual funds less than 5% annually (arguably less, much less) with high fees and how can you generate real wealth by investing in these funds?
I have never heard of someone who GOT rich investing in mutual funds. Please let me know if you have. To me, investing in mutual funds is something you do with your money that you earned in other ways. I don't look at mutual funds as a vehicle to create wealth, but more of a place to KEEP existing wealth where you can get a modest return so your wealth doesn't get eroded by inflation over time.
3. Why do SEC regulations that "protect" the middle class also prevent them and allow only "accredited investors" (aka rich people) the ability to invest in private investment opportunities?
I do think the current regulation standards are based on complete nonsense. The assumption that just because someone has a high income and high net worth makes them a smart and sophisticated investor is just nonsense. Think lottery winners, pro athletes, rock stars. Are these people "sophisticated investors" just because they have a high net worth? Again, nonsense. I don't know what a better solution would be though.
I agree with you that it is difficult for most Americans to save, but I don't think taxes or the SEC are the reasons why. Financial illiteracy and life choices seem the more likely causes. People spend their money on crap they don't need and then wonder why they don't have any savings.
I agree with you that it is difficult for most Americans to save, but I don't think taxes or the SEC are the reasons why. Financial illiteracy and life choices seem the more likely causes. People spend their money on crap they don't need and then wonder why they don't have any savings.
100% agree.
People p**s away money like no bodies business on every tech toy imaginable and replace them every time a new one comes out. They spend hundreds a month on phones they use primarily as toys, new vehicles when used would be fine, homes far larger and more expensive that any one needs etc, etc,
There is no end to the amount of money the middle class spends and then cries that they can not save. It simply is not true that the middle class can not save, what is true is that many do not save.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
This is not just a middle class problem, it is our problem as a country. The strength and stability of a country is by and large determined by the strength and stability of its middle class.
Consider, the new FINRA survey that identifies Americans ability to manage their finances...
1.Making Ends Meet.
Nearly half of survey respondents reported facing difficulties in covering monthly expenses and paying bills.
2. Planning Ahead.
The majority of Americans do not have “rainy day” funds set aside for unanticipated financial emergencies and similarly do not plan for predictable life events, such as their children’s college education or their own retirement.
3. Managing Financial Products.
More than one in five Americans reported engaging in non-bank, alternative borrowing methods (such as payday loans, advances on tax refunds or pawn shops). And few appear to be knowledgeable about the financial products they own.
4. Financial Knowledge and Decision-Making.
While many American adults believed they were adept at dealing with day-to-day financial matters, they nevertheless engaged in financial behaviors that generated expenses and fees and exhibited a marked inability to do basic interest calculations and other math-oriented tasks.
In addition, few compared the terms of financial products or shopped around before making financial decisions.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
10y
Some good discussion going on even if we disagree on a lot of it.
I agree with the original poster that MUCH of our systems are stacked - although I would say it is more in FAVOR of the wealthy than AGAINST the middle class.
Just getting down to the basic argument of 'employment taxes' vs capital gains tax rates show that clearly. When you look at W2 wages you have Fed, State, UI, SSI, etc... easily pushing 40-50% for many. Compared to maybe 20% for CG.
As for the argument that the middle class ALSO benefits from the CG and in some cases has a 0% rate that is true - BUT over 75% of the savings that come from the difference between wage taxes and CG goes to the top 5% of earners. I call that mostly a smoke screen.
For investing being more risky I would say only if you want it to be. The more risk the higher the potential reward. Just like work - you want to go work on a fishing boat and make big bucks? High risk of being injured - maybe permanently. MUCH work carries a risk of injury which makes one's lifetime earning potential go down to the point it drastically affects them.
The tax breaks that the ultra rich get are obscene. How about they let the common man worker hide his income so he can invest it in real estate? Why do only they get to do that? The whole donor/politician system play a HUGE roll here.
Study after study PROVES that the best place to add a dollar to our economy is UNDOUBTEDLY in the middle to lower class households if the desired affect is to bolster our overall national fiscal health. There is not even question on that any more.
There need to be a shift away from the 'for the rich' attitude of taxation to the 'for the good of our country' taxation.
This is not just a middle class problem, it is our problem as a country. The strength and stability of a country is by and large determined by the strength and stability of its middle class.
Consider, the new FINRA survey that identifies Americans ability to manage their finances...
1.Making Ends Meet.
Nearly half of survey respondents reported facing difficulties in covering monthly expenses and paying bills.
2. Planning Ahead.
The majority of Americans do not have “rainy day” funds set aside for unanticipated financial emergencies and similarly do not plan for predictable life events, such as their children’s college education or their own retirement.
3. Managing Financial Products.
More than one in five Americans reported engaging in non-bank, alternative borrowing methods (such as payday loans, advances on tax refunds or pawn shops). And few appear to be knowledgeable about the financial products they own.
4. Financial Knowledge and Decision-Making.
While many American adults believed they were adept at dealing with day-to-day financial matters, they nevertheless engaged in financial behaviors that generated expenses and fees and exhibited a marked inability to do basic interest calculations and other math-oriented tasks.
In addition, few compared the terms of financial products or shopped around before making financial decisions.
@Jon S...I think that point number 4 you made above is *key*. Competent financial literacy is sorely lacking with many in the lower and middle classes. As a result, they are quite honestly unaware of the costs of not saving for emergencies or investing for the future. They depend on a single source of income...W-2 income. I also see lifestyle inflation and a massive consumption mentality that further compromises any ability to save or invest adequately. None of us are born with the innate desire to build wealth, but financial education is the key to opening up many of those doors.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
10y
Well, the only good news I can bring to this thread is that real estate probably has the lowest barrier to entry of any form of investing that'll get you "1%er" like tax breaks.
1031 exchanges.
Capital gains exclusion on selling a primary residence that has appreciated in value.
Mortgage credit certificates. <-- income capped, meaning middle class and modest income only, but HUGE for those below the threshold.
Mortgage interest deduction.
Property tax deduction.
Being able to write-off maintenance/repairs on your rental properties.
For Californians, Prop 13 is a huge boon to buy-and-hold REI.
There's a reason that entire books, intended for the middle class and others that aren't paying $10k/yr for CPA services, have literally been written about how to maximize tax goodies associated with owning real estate.
Careful what you ask for, many if not most on here either came from the middle class or are striving to rise above middle class through our real estate investments.
I have paid my dues so lets leave the wealthy alone and continue to have the rest pay the freight. If the middle class wants to get ahead they can work hard and save just like the rest of us.
The true problem is not who is being taxed but rather what your taxes are being spent on. That is the overall problem, one that will never be addressed and one we need to steer far clear of on this forum..
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
10y
I gotta agree with @Jon Q. especially on #1. Our tax code definitely favors the rich (including me to some extent). Just ask Warren Buffet.
The very wealthy make most of their money from investments, not from work. Long term capital gains can be as low as 15%. While the top tax rate for ordinary income is 39.6%.
There is no true, evidence based reason to disincentivize actual work. The encouraging investment mantra is just spin.
If you value the old Protestant work ethic you should favor taxing it fairly. We wouldn't have to tax work so high if we didn't tax not-working so low.
Let us not forget that the wealthy provide the vast majority of the jobs the middle class earn their income from. Industry, real estate, restaurant, hotel, media, communication, tech, entertainment the list goes on.
Personally I am a major supporter of the value injected into our economy by the 1%. They contribute far more to our economy than the taxes collected from the middle class.
I agree with you that it is difficult for most Americans to save, but I don't think taxes or the SEC are the reasons why. Financial illiteracy and life choices seem the more likely causes. People spend their money on crap they don't need and then wonder why they don't have any savings.
100% agree.
People p**s away money like no bodies business on every tech toy imaginable and replace them every time a new one comes out. They spend hundreds a month on phones they use primarily as toys, new vehicles when used would be fine, homes far larger and more expensive that any one needs etc, etc,
There is no end to the amount of money the middle class spends and then cries that they can not save. It simply is not true that the middle class can not save, what is true is that many do not save.
You hit the nail on the head right there. Discussions like this one usually come from politicians on two different sides arguing over which is better, more or less government regulation. Rarely does anyone even mention that personal responsibility plays a much larger role than any political factors.
I gotta agree with @Jon Q. especially on #1. Our tax code definitely favors the rich (including me to some extent). Just ask Warren Buffet.
The very wealthy make most of their money from investments, not from work. Long term capital gains can be as low as 15%. While the top tax rate for ordinary income is 39.6%.
There is no true, evidence based reason to disincentivize actual work. The encouraging investment mantra is just spin.
If you value the old Protestant work ethic you should favor taxing it fairly. We wouldn't have to tax work so high if we didn't tax not-working so low.
I'm going to have to politely disagree with "investments, not from work" and the implication that the two are mutually exclusive.
Good investing that yields above average returns for the given marketplace, be it real estate or picking good stocks, requires a crap ton of research, hustle, and due diligence. Be it Warren Buffet vetting a firm's IPO or one of our BPers finding a great property, either way I'm going to suggest that everything leading up to pulling the trigger qualifies as "work." And then after pulling the trigger, again be it Buffet monitoring the firm to see if he wants to pull out, or one of our BPers taking care of their property, this is also "work."
I'm going to stay out of the political stuff, but just wanted to point that out.
Investor · Austin, TX · Member since 2015 · 58 posts · 16 votes
10y
It's the middle class who work and contribute to a country, in most all countries. The rich get more than their fair share of tax breaks and the poor get the government concessions. The middle class pay the most tax percentage of their income. These middle class, law abiding and hard working people get the least rewards. They don't qualify for much of any government assistance because they are just above most limits where these benefits are cut off. They don't have as much money to benefit from some of the loop holes that wealthy individuals take advantage of.
The rich fight taxes with money. The poor usually have very little to lose to begin with. The middle class has everything to lose and very little to keep it together for their families. So they work! And then, they work harder. They work more hours and more jobs. That results in actually them getting paid less per hour overall. Everyone who is not middle class should be thanking the middle class.
I agree "If you are middle class in America and you depend on W2 income for a living, the chips are stacked against you". So given that, can we do anything about it?
Some break out of it. They key is education and that is not necessarily a college degree. A number of families are not aware of the possibilities out there. Real Estate is for example one of them. Some of my renters should be home owners, but they rent! They lose money every month. It does not help with folks in this very thread stating real estate is such a complex investment. Really? You want to keep it that way don't you? Don't invest in any average mutual fund which will give you a 5% return. Do a lot of research and find that one that will work. To some investing in stock market is new and scary and part of the struggle is to educate yourself to be able to invest in those opportunities. There are a number opportunities to take advantage of. No one is going to help the middle class. No one cares. Not the government, the poor, the rich, you or me! The system is very well rigged against you. Did you know that in 2008, folks with great credit get a less than premium mortgage interest rate, because they did not know any better? To you and me, it is obvious you should get a great rate with great credit. But these hardworking honest people got robbed of their money in broad daylight and legally! It will be up to them to educate themselves out of this situation into something better. And everyone who tried came out better and that is success.
I gotta agree with @Jon Q. especially on #1. Our tax code definitely favors the rich (including me to some extent). Just ask Warren Buffet.
The very wealthy make most of their money from investments, not from work. Long term capital gains can be as low as 15%. While the top tax rate for ordinary income is 39.6%.
There is no true, evidence based reason to disincentivize actual work. The encouraging investment mantra is just spin.
If you value the old Protestant work ethic you should favor taxing it fairly. We wouldn't have to tax work so high if we didn't tax not-working so low.
I would disagree that our tax code favors the rich. "Financial education" favors the rich, not the tax code. Rich people care about money, and are always looking for ways to take advantage of every tax break available. The middle class doens't care, and don't take advantage of what is offered to them, but this isn't a fault of the system, it's a fault of the middle class being 'financially lazy'. (Which is not at all the same as being lazy in general.) Lets break it down a little by the numbers.
Long term capital gains tax for the 0-15% tax brackets is 0%. According to 2013 IRS data, 77% of all households fell into this broad category. If 77% of America is eligible for a zero percent investment income, I would say that's fairly generous. The problem is they don't take advantage of it. Which once again is not a fault of the system, it is a fault of the individual.
People always cite the 'low' capital gains tax rate for the rich here in America. What they fail to realize is that our tax rate for gains is the 6th highest in the world so it's not exactly like the rich are getting off easy. The highest bracket clocks in at 20% tax rate for top earners. Then there is a 3.8% charge to fund Obamacare bringing the default rate to an effective 23.8%. However, some states also levy taxes on these gains, which range from 0% in states such as South Dakota, to 13.3% in California. Overall the average capital gains tax rate for high income earners turns out to be 28.6%, only Denmark (42), France (34.4), Finland (33), Ireland (33) and Sweden (30), have higher capital gains tax rates.
For reference, Bernie Sanders tax plan proposed raising capital gains tax rates to an effective 64.2%, which would be roughly 50% higher than any other country on earth and would absolutely destroy the American economy. Look at it this way, under this system you invest in a company and one of two things can happen A: The company goes bankrupt and you lose your entire investment. B: The company does well and you get the 'privilege' of earning 35.8 cents on the dollar. At that rate why would any wealthy person invest in America? Why would they not simply invest in some other country instead? You would instantly have hundreds of billions of dollars fleeing the country for investments in other countries.
Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
10y
yes, and whether you agree with giving money to charities or not, it is a fact that the middle class consistently give a greater percentage of their income to charities.
I think our country should provide greater incentives for people to work and they should not be further penalized for doing so.
These are the people who provide stability in the economic markets. They are your customers; they pay my rents and provide me and you the ability to become financially independent. The viability of the middle class in America should be something we are all concerned with.
People p**s away money like no bodies business on every tech toy imaginable and replace them every time a new one comes out. They spend hundreds a month on phones they use primarily as toys, new vehicles when used would be fine, homes far larger and more expensive that any one needs etc, etc,
There is no end to the amount of money the middle class spends and then cries that they can not save. It simply is not true that the middle class can not save, what is true is that many do not save.
"Consumerism," and a lack of financial intelligence a number of people have already mentioned is suffocating the middle. Right on, in a sad way.
Yes, but this tax structure makes it very difficult for the middle class to save, the foundation for most wealth development, including mine.
Please tell me what index fund has generated a consistent year over year 10% return for you. That is extremely rare. I retired at 32, after working in investment management (mutual funds) for 14 years.
FYI: I gained financial independence by investing in real estate.
There are countless examples of middle class people who have gone on to become very wealthy. It is difficult, I never said it wasn't. Is it impossible? No. Is it so hard that I have to pay a "financial advisor" to help me? No.
The whole doom and gloom and hopelessness thing just does not work for me.
I invest for the long term. The day to day, or even yearly fluctuations of the market are irrelevant to me. The power of compounding interest over a 20+ year investment cycle means that I will be just fine. Throw in a large amount of investment into real estate as well, and I will be more than fine. I will get to benefit from all of the tax breaks and benefits of being an "accredited investor" if I want 20 years from now.
Anthony,
What was your 10% index fund investment? I'm still waiting for that.
I have some money I'd like to park and if what you said is accurate a 10% year over year return isn't bad as compared to real estate investments.
