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What income qualifies one as wealthy? (1 Viewer)

MarkHastings

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I see how you guys are comparing wealth amongst other people. In that respect, it really is all relative and what may be considered wealthy to you, may not be considered wealthy overall.

But I think wealth can be (somewhat) determined on a larger scale. I think it's fair to say that no matter how simple your lifestyle may be, if you don't make more than a few hundred thousand/year in the US, you are not (by a long shot) considered wealthy.

In fact, I would say anything under $500k is only considered "rich". You'd have to make more than that and own some sort of 'riches' in order to start to be considered wealthy.

Like they've said, in recent years, becoming a millionaire these days is not what it used to be like. A million dollars is nothing when you consider what the real definition of wealth is today.
 

Cees Alons

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A concept in somewhat older books and novels that always struck me was "a gentleman of independent means".

This may still be closest to "wealthy" without having to go to all the way to "stinking rich".


Cees
 

Eric_L

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I'm afraid that we've drifted off my intended topic and it is my fault for not posting earlier.

I was specific to income on purpose. I mentioned tax and politics in the first post as a framework for why I am asking the question.

I readily accept that assets are a considerable component of net worth - which can define wealth. However the federal government does not tax assets for the most part (excluding estate tax). Property taxes imposed by local governments are the closest we have to an asset tax - but they are not 100% inclusive of all assets. Most significant assets either do qualify as taxable real estate or they qualify as an income producing asset (like fixed income or equity portfolios). Indirectly then these are taxed - but not as assets so much as by the income or growth they produce.

So, within that context - what is the income definition of wealthy? When the IRS and politicians set tax code - when they say they want to raise taxes on the wealthiest Americans - eliminate tax cuts on the wealthiest Americans - who are they talking about? Does earning $100,000 put me in the same tax league as Bill Gates and Warren Buffet? $200,000? $500,000? $1,000,000. $100,000,000?

As an aside to the question in that context - what is your definition of wealthy? Is it the same as what you consider to be the standard politicians use? More? Less? Defined by net assets? How much? How many people in the US would you really consider wealthy? 1,000,000? 100,000? 1000?
 

Brian Perry

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I think wealth refers not to income but to overall net worth. They usually go hand in hand, but I would not equate the actual term wealth with salary. Wealth -- whether it's money, knowledge, etc. -- is accumulated over time.

Politicians will use whatever term suits their purpose. When they are trying to engage in class warfare, they will reflexively use terms such as "rich, wealthy, lucky, fortunate." They won't use "hardest-working, smartest, etc." (And before anyone makes the accusation, I'm not trying to imply that the poor are dumb or don't work hard, or that all wealthy people deserve their riches.)

I think any discussion on tax policy with respect to earnings needs to also include tax burden. For example, the top 5% of wage earners earn about 35% of all income but pay over 50% of all taxes.
 

Joe S.

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Oh, well that's easy Eric. Last I checked the start of the top tax bracket was around $250,000 and up. So if you make $250,001 you have entered Bill Gates' tax bracket. ;)
 

Eric_L

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But -- phaseouts begin at much lower levels. For example - IRA deductibility phases out if an individual makes over $50,000 and have a 401k. An individual cannot contribure to a Roth IRA if you make oer $99,000. If a couple earns over $110,000 the child tax credit will phase out. Over $145,000 and your income tax DEDUCTIONS start getting phased out... Were these part of the "tax cuts for the rich"?
 

Dennis Nicholls

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Eric,
Part of the problem responding to your original question is that it is a "dumb question".

Are you only counting income from wages, salaries, and tips?
Are you including capital gains income?
Are you prepared to include the effects of income averaging - which the IRS discarded decades ago (thanks a lot Congress)?

Most of my life I averaged an income of around $60K. For only a few brief years I made $100K+. As I retired as a single man (thanks for the punishment for being lonely, Congress!), I had a taxable capital gains on the sale of my house of over $200K, even though I had almost no other income that year. Nowadays I'm making around $40K+ on return on my savings, with a paid off house and very low cost of living.

Am I "wealthy"? After all, for one year in my life I reported income over $225K.

What about all those sports idiots who make $1Million+ for a few years, commit crimes, snort cocaine, and end up destitute dying penniless in the gutter drinking cheap rotgut out of a paper bag? Are they "wealthy"?

I posit that the "snapshot" of one's single-year income is ABSOLUTELY IRRELEVANT to answering the question whether or not someone is wealthy.
 

Eric_L

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I suppose that it would be recurring income. If you regularly have gains each year then they would count. I suppose a once in a lifetime windfall would not count so much unless it created enough capital to raise your recurring income over the imaginary threshold - whatever that is.

I'm curious what folks would consider that threshold. I don't believe a recurring income of $40,000/year would qualify as wealthy - even if your living expenses are dramatically low.

Oh - and tax code does not punish you for being lonely so much as being free! ;)

Sports nuts and other people who lose their wealth foolishly are simply wealthy people who foolishly lost their wealth. I don't consider wealthy to be a permanent condition - though others may disagree. There is an old saying;

WHo doesn't want to be a millionaire? - A Billionaire."
 

Joe S.

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No, the 15% cap on captial gains tax was the part for the super-rich. I had the ability to sell some long term investments and stocks over the last few years. Let's just say I should be sending Bush fruit baskets every year for life in thanks (in reality I'd rather impeach his ass, but not for the tax changes :))

The thing is Eric, and this I was trying to explain earlier, is that "wealth" is so complicated that income just is not a good estimate of who is wealhy and who is not. Some of the wealthiest people on the planet pay $0 in income taxes every year, so does that make them poor? Obviously not. And some people I know with huge $150,000+ incomes spend money like water and have massive debts. Are they wealthy? Again, no.

You have to look at someone's assets and their debt load to figure out their total financial health. Income is for the most part not relevant. The only connection there is that most often people with high incomes have better chances of also being "high wealth" individuals.

Here's an example of wealth vs. income: Let's say three people have a million dollars to invest:

Guy A invests in stocks and CDs to get a 7% annual return that he uses as income (so his income is $70k/year.) His million dollars sits pat, doesn't increase or decrease. At the end of 5 years, he has a million dollars + $70k a year income (net worth = $1,070,000.)

Guy B invests his entire million in gold coins and puts them in a vault. He doesn't sell them but due to inflation over five years the value of gold rises 50%. So $0 income, but his initial million is now worth $1.5 mil.

Guy C invests a million in real estate and is able to leverage $5 million worth of property for that investment. But the market turns in the 5 years and his property is now worth only 2.5 million but he pays the loans for $5 million. So his net worth is $2.5 million + 1 million - 5 million = -$1.5 million dollars.

Which one is wealthiest?

Income relates mostly to commerce, wealth is much closer related to assets and debt.
 

Chris Lockwood

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> No, the 15% cap on captial gains tax was the part for the super-rich.

Super rich? Anyone who sells stock or the like is super rich? There shouldn't be any tax on capital gains.

You are way over the "no political discussion" line with your Bush comment.
 

Dennis Nicholls

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My point. I owned my house for 25 years. Why should I pay cap. gains as if I had only owned an asset for one year and one day?
 

Michael Reuben

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A number of comments in this thread have crossed the line. If the thread is to remain open, all participants would be well-advised to omit any further reference to politics or politicians, both specific and general.

M.
 

Eric_L

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Thanks Michael.

I'm still looking for opinions related to wealth as used in my examples of IRS and politicians. I'm not looking for a general definition of wealth. I'm looking at it from the POV of tax policy and such. I certainly don't want a conversation about the heritage disputes of various politicians.

For example - if you believe capital gains tax cuts are for the super-wealthy I would like to know why? There is breakpoint for capital gains is about $32,000 - does that mean $32,000 is super-rich? If not then please explain why and what is.

or - I've seen people discuss taxing the 'richest' 1% of Americans for all sorts of various reasons. That is - raising tax on about 3 million people who earn about $250,000 or more. Is $250,000 the wealthy? Is it higher? Lower? Why?

Again - I am specific to income and as it is percieved by people such as IRS, politicians and people in their discussions of income tax policy.

Corporate tax could be a consideration since the US has among the highest corporate tax rates in the world. Many individuals (self employed) operate through C or S corporations even though they have few - if any - employees. Income flows through depending on several factors so corporate tax rates play as much in their household budget as income taxes do for wage-earners. Were they included in the tax cuts for the rich and/or present conversations about raising taxes on the wealthy?
 

Michael Reuben

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You're welcome, Eric. But for the record, I consider the following to be examples of "general" references to "politicians" that should be avoided from here on in the interest of not starting down a slippery slope:

While such statements may not be objectionable per se, they do tend to open the door to something further.

M.
 

Brian W. Ralston

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It would also be hard to come up with even a general definition of "wealthy" in the U.S. just due to the fact that the cost of living varies so greatly around the U.S.

A lot of people could afford buying a house in....let's say Omaha, Nebraska or Tucson, AZ...but buying a house in Los Angeles, CA or San Francisco, CA would be 10 times as much and would prohibit some individuals from buying.

It is a huge reason why defining "wealthy" for tax purposes is hard to do. The cost of living in the various areas around the country affect the "value" of ones income. You just can not look at one's income (which the tax rate chart does) and call someone wealthy. Some individuals would look at someone making over $100,000.00 a say "hey, they are rich...they can afford it. They should pay more taxes." Etc.. Yeah, you make $100,000.00 a year in Kansas and you are living the high life and probably have some extra capital sitting around...but you make $100,000.00 in Los Angeles and you are just scraping by. Seriously.
 

Eric_L

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Regionally you are correct. I would also point out that regions with higher costs of living also seem to have higher tax rates when state and local taxes are considered. I'm not certain I can understand the logic of that.
 

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