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Updated over 13 years ago on . Most recent reply

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Bryan Hancock#4 Off Topic Contributor
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At What Point Does Someone Become Rich?

Bryan Hancock#4 Off Topic Contributor
  • Investor
  • Round Rock, TX
Posted

We have a progressive tax system in this country that supposedly taxes the "rich" more than common folks. I was wondering at what point someone magically becomes rich and should shoulder the burden of carrying others via this tax system.

Let's try to keep politics and ranting and raving out of the discussion as much as possible and simply focus on when this threshold is crossed. What is the new litmus test for "richness"?

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Jon Holdman
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  • Mercer Island, WA
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Jon Holdman
  • Rental Property Investor
  • Mercer Island, WA
ModeratorReplied

My personal definition has been along the lines of Kevin's quote. Or, at least how I interpret that quote. To me, truly being "rich" would mean that I never had to do anything I didn't want to do. If I could always afford to pay someone to do anything I needed done, that would be rich.

I think Josh, Charles, and Rich's definitions are the more practical ones. That is having enough passive money coming in to pay for my lifestyle without working. That's STRONGLY dependent on lifestyle and expenses, though, and that's the part I wrestle with. As much fun as it would be to spend my time jet-setting around the globe and hang out at super luxiorous restorts and bet black chips ($100) in casinos, the amount of assets required to support that lifestyle is staggering. OTOH, I'm pretty sure the RV thing doesn't really work for me, either, even though the assets required is much less.

I think there's another half to Bryan's question, though. And that deals with progressive taxes. There's not a line, IMHO, that you cross and suddenly become "rich" under the tax code. The US tax code, at least, isn't structured that way. Their are brackets, and your tax RATE jumps when you cross a bracket. Ancedotal stories to the contrary, I don't se how the current tax code ever produces the "I got a raise but my taxes went up even more, so I get less money" situation.

On that topic, I think there is an argument that people who make more income must bear a larger portion of the costs of "running things". Whether you agree with what they're doing or not, most of the government is just "running things" we take for granted. I've spent a lot of time in India. Not being a tourist, just working. Much of what we take for granted - clean water, clean streets, traffic law enforcement, having a place to do a number 2 - just does not exist. I'm 100% sure that no matter how much it galls us to pay taxes, we don't really want the alternative.

While a flat tax where everyone pays the same seems fairer, it essentially reverses the progressive system. Since people with low incomes would pay a much larger share of their income, they're much worse off than if they pay little or none of their income toward the common good.

There's an old joke I'm sure you've seen before that explains this.

While the joke deals with tax reductions, it holds true for tax increases, too. Those are going to hit the high earners more than the low earners.

Now, I actually think the "bracket" system is overdue for revision. When many people did their taxes with pencil and paper, or at most an adding machine, it made sense. With software for tax prep, why not eliminate the bracket and have a curve?

Further, why not simplify the system and eliminate some of the social engineering benefits built into it. Including our personal sacred cow - mortgage interest deductions.

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