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Comment by imgabe | Hacker News Reader

Lower-class / Middle-class / Upper-class defined as brackets of income seems to be the wrong way to divide things.

There is an ownership class that receives preferential tax treatment and a labor class that doesn't.

A small business owner might only net $80k/year, but their incentives in regards to policy are more aligned with a billionaire startup founder than with an $80k/year middle manager, because their income doesn't come in the form of a W-2 job.

It doesn't really matter the amount of income you're getting, it matters a lot more in what form it comes. People who work for others and have a boss who determines their livelihood have more in common with each other regardless of how much they make than people who own businesses. Even movie stars have a union.

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I think there is one line that matters in term of income though, and it is the threshold of "I no longer worry about most things". On one side you have the folks where a bad health emergency, a boiler that breaks, a forgotten debt or an issue with their car could be the end of the world. Then there's people who are sitting on the couch, notice the floor is dusty, cringe and call their maid service to come back to clean the spot they missed.

there's some overlap, but generally speaking the two groups see the world VERY differently. Your priorities change a lot when your day to day is about survival vs when it's about making sure you don't lose what you have.

True, but the nature of the emergency is also linked to the country.

I am writing this from an ER room where they keep me a few hours to make sure everything is fine after a very minor electrical shock. This is in France and I will not see the bill (though this is a private hospital).

If I lose my job I will have social security protection. The job is protected as well (no at-will here).

Generally speaking the most important health and survival elements are covered by the state. The boiler, though...

>> Even movie stars have a union.

There are limits. Most all celebs and sports stars are not really employees. They setup personal services companies that contract with the "boss" and then pay themselves a salary from the services company. Even thought they have a clear "job" and theoretically are paid a wage, such persons care more about taxation of dividends and the costs of offshoring money. If they choose to pay taxes, they determine for themselves where and when that money is paid. So while a working union actor may have much in common with the factory worker, the celebrity stars who earn millions do not.

The breaking point between the two groups, imho, is the personal services contract. Those who work for the agreed standard or union wage are workers and arguably lower/middle class. Those who negotiate their own pay structures are not.

Fair enough I was being somewhat tongue-in-cheek. I think we are long past the days where actors would be under contract to only work with one studio.

Capital gains accruing to people who live primarily off capital gains accounts for too little of total income to be a sensible dividing line.

Total realized capital gains in 2017 was about $650 billion, about 30% of which accrued to people who realized an average of less than $50,000 in capital gains per year: https://www.taxpolicycenter.org/model-estimates/distribution.... So you're talking about $460 billion in "ownership class" income annually, or 3.5% of all U.S. income. That's actually a very high estimate--because even within the top 1%, realized capital gains doesn't account for even half of total income.

So under your theory, 96.5% of all personal income in the U.S. is earned by the "lower class" or "middle class." It's a very weird definition.

I think that makes sense since most wealth is increasingly concentrated among a smaller and smaller proportion of people.

Yes, if you only look at realized capital gains it is a small percentage. Because even if you have $50 billion in stock, you really don't need to be spending $1 billion / year or anything ludicrous. There is a limit to what one person or one family can consume, and the levels of wealth people can achieve are so incredibly far beyond that, that of course they don't need to realize a lot of gains to get the lifestyle they want.

Several years ago my job took me to do some work at the home of someone in the top 10 of the Forbes 400. I was chatting with one of his staff and this person had homes all over the world, one of the largest yachts ever made, private plane, etc. The annual cost for running everything was on the order of $50 million / year. Astronomical, yes, but as a percentage of their net worth practically nothing.

Paper net worth that isn't spent is fairly meaningless, though. We care about defining upper class versus lower class because money dictates access to scarce resources. For the most part, you can't buy access to scarce resources (in your example, labor, yachts, private planes), without realizing capital gains.

The point is that wealth is distributed along a power law and people making $200k/year from a W-2 job are not in the meaty part of the curve. You seem really invested in shaming them and demanding they pay more in taxes when if you're making that as a wage you're probably already paying close to 50% of your income in Federal and State taxes. At the same time they don't qualify for many of the deductions and subsidies that lower income people would so they're already paying more for the same things. How much more do we need to take from them?

Yes, if they are in any way reasonably responsible they can live comfortably and have all their needs met. That's great. We should work on extending that possibility to more people instead of taking it away from one group of wage slaves and handing it to another. Meanwhile people making orders of magnitude more money are paying 15%, 10% or 0% in taxes. That's the "upper class" for all practical purposes.

First, your premise is false: https://en.wikipedia.org/wiki/Distribution_of_wealth#In_the_.... As of 2007, the top 1% owned 35% of wealth, while the next 19% owned 50%. The top 20% is a net worth of about $500,000 including home equity, which pretty much any household making $200,000 will as they get older. Moreover, the wealth of the top 20% is going to comprise to a much greater extent ownership of scarce resources (housing in desirable areas, etc.) than the paper wealth of the top 1%.

Second, what we care about at the end of the day is the distribution of access to consumption. Income models that better than wealth. Mark Zuckerberg might have an unrealized gain of $1 billion, but he can't out-compete someone else for access to scarce resources unless he realizes that gain. Indeed, Zuckerberg's wealth in particular is just a proxy for the right to receive a portion of Facebook's profits in the future based on the future labor of Facebook's employees. It doesn't represent anything tangible that exists right now. It's realized capital gains, not unrealized paper wealth, that is the proxy for goods and services that could be used to meet peoples' needs in the present.

Third, the folks paying "15%, 10%, or 0% in taxes" represent an extremely small portion of total income. Eliminating the preference for capital gains, for example, would raise just a couple of hundred billion more in taxes (compared to the almost $7 trillion we already raise). It's something that makes a few people very rich, but they don't account for a very large portion of overall income.

Fourth, and finally, someone making $200k/year isn't paying "close to 50%" of income in taxes. In Maryland, it's just over 30%. We're one of the few developed countries that taxes the top 5% so little.

> Mark Zuckerberg might have an unrealized gain of $1 billion, but he can't out-compete someone else for access to scarce resources unless he realizes that gain.

When 99.99% of people don't even have 0.1% of Zuck's net worth he doesn't need to realize anywhere close to $1 billion of gain to out-compete them. The distribution is so lopsided that he could realize gains encompassing most other people's entire net worth and it would be a rounding error in his accounting. That's without even getting in to the fact that at that level your brokerage will happily give you a low-interest loan to do things like buy a house or whatever you want so realizing gains is not at all necessary to have access to funds for consumption. "Realized capital gains" does not even begin to tell the story of the disparity in access to consumption.

The question is whether realizes gains reflects the consumptive access of billionaires as a category than unrealized increases in paper wealth. While an individual billionaire can in fact get a low interest loan against paper wealth for purposes of consumption, that loan will have to be paid back with cash. That cash has to either come from ordinary income, or through realization of capital gains. Unless billionaires as a category as just not paying off those personal loans, the consumption associated with those loans should be reflected in their income and realized gains.

> It doesn't represent anything tangible that exists right now. It's realized capital gains, not unrealized paper wealth, that is the proxy for goods and services that could be used to meet peoples' needs in the present.

I'm not going to argue the broader point about who is really "rich" but is this really true? My understanding is that there are ways to use assets to meet your needs without realizing capital gains. An obvious one is to borrow money with the asset as collateral, but I think there are others as well.

It's kind of a sleight of hand to piggyback on the panic about income inequality but target your attack based on consumption. If consumption is what matters, we should also use it to measure the level of inequality. And when we do that, we find (as in your parent comment) that it's not nearly so dire. How much variation in outcome should we allow? Beating the median by a factor of 2 doesn't seem particularly crazy.

I know you probably picked "$50 billion in stock" at random, but for the record there are only ~10 people in the US with that kind of money. If they're the only people you are counting as "rich" you have defined the term very very narrowly.

That's a contrived late-20th century distinction meant to make high-income professionals feel better about themselves. Historically in the U.S., doctors, lawyers, bankers, etc., were considered part of the upper class. But they (even bankers) receive labor income, not capital income.

It depends, there are doctors and lawyers and bankers who run their own practice or firm and are business owners and there are ones who work for others. "Making partner" is basically moving from the labor class to the ownership class.

There's a multiplier effect, but it's still all labor income (and taxed as such), not capital income. Approached from the other side--someone who cleans houses may hire some helpers (and get a share of the output of their labor). But few would consider an independent house cleaner to be upper class.

The distinction, historically, was not about capital versus labor. It was about white collar work that allowed a lifestyle where you could have most ordinary things without worrying about money.

>That's a contrived late-20th century distinction meant to make high-income professionals feel better about themselves.

I understand your angle and I didn't downvote your other comment in this thread but your perspective emphasizes the math of income brackets and percentiles. However, people don't use that criteria when self-identifying their income class.

A lot of white-collar professionals making $200k simple don't consider themselves "upper class". It's not a matter of denial. I would bet that if you surveyed software engineers earning $200k, most would not use the label "upper class" to describe themselves because to do so would be strangely pretentious.

If a tiny 1000 sq ft Palo Alto house costs $1.5 million, a $200k salary does not feel "rich & wealthy". Therefore, reminding them they are in the top 5% of the income percentile doesn't change the self-identification of "middle class". From their perspective, it feels like middle class.

> A lot of white-collar professionals making $200k simple don't consider themselves "upper class". It's not a matter of denial. I would bet that if you surveyed software engineers earning $200k, most would not use the label "upper class" to describe themselves because to do so would be strangely pretentious.

Yes, and that's a moral failing. Worse than being "pretentious" is failing to realize that you are blessed. Because that starts you down the road of thinking "since I'm middle class, other people should shoulder the burden of providing for the country's most vulnerable people, not me." That's the self-deception that results in even Bernie Sanders' "progressive" tax policy being identical to Donald Trump's until you get over $250,000.

It's really odd that you don't factor cost of living into your calculator especially since it's used in every other determination of wealth. If I make $250K US in India for example you're generally way better off than $250k US in the Bay area. The ability to move is arbitrage which a lot of people don't have.

Don't get me wrong I actually mostly agree with your point, I say that as a guy literally dying of cancer, but lucky enough to be in the best place in the world to have a chance. It's just that cost of living should factor into any estimation of class status. If you throw that out literally every American has a moral failing, even those living below the poverty line, which isn't a sensible way to look at it. Class needs to be defined as the purchasing power relative to the area that the person is in. Taxation status/rates doesn't need to take that into account.

Best of luck with your cancer treatment. Enjoy the time you have left, and hope you get the lucky end of estimates for time left or survive completely. My father died (relatively young) from cancer recently even with the best treatment, so I’m crying as I type this but make sure you spend lots of time with family and close friends. You are likely loved more than you know.

“Class” by Paul Fussell, is a good (if arch) read on this angle.

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