Comment by akomtu | Hacker News Reader

Comment by akomtu | Hacker News Reader

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In its currently proposed form, a 40% tax on gains at the moment of sale, is effectively a tax on middle class. Those with a million in a brokerage account, i.e. the solid middle class, usually have to sell most of that when buying a house, and so they'll have to pay 40% on their entire gains. In practice, this tax will take back the gains from the last year's bull run of the stock market. If the new tax stays for long time, it'll effectively reduce the sp500 gains from 10% minus inflation to 10% minus 4% minus inflation, so about 3% per year at most. The rich, on the other hand, have 100M in stocks, but they need to sell only 250K per year or 0.25% of their assets and pay 40% only on that miniscule amount, while the 20M gains from the last year will keep sitting tax free. If the WH created an annual capital gains tax regardless of whether assets have been sold, that would tax the rich to the full extent and those rich would be furious and would do anything to change the US administration at the next elections.

I think you need to adjust your internal model as to what constitutes solidly middle class. To quote some more realistic numbers:

>> Here, we define the middle class as the middle 60 percent of the income distribution in terms of what a family usually makes in a given year—ranging from $25,300 to $111,400 in 2016 (the latest year for which data is available). The median middle-class family has total liquid assets, defined as checking accounts, savings accounts, money market accounts, call accounts, and prepaid cards, of just $4,000. Unsurprisingly, the top quintile is more secure with a median of $31,300 and the bottom quintile is even less secure, with just $600.[1]

[1] https://www.brookings.edu/blog/up-front/2020/03/26/the-middl...

$4K in "assets" is poverty, it's the underclass or the bottom 50%. A one basic car worth of assets is nowhere near middle class either. The truth is that the middle class is rapidly shrinking.

We are talking about liquid assets though, not net worth. As other commenters have pointed out, the middle class has most of their net worth tied up in non-liquid assets such as cars, houses, or retirement funds.

Those with a million in a brokerage account, i.e. the solid middle class

Found the SV bubble resident. :-) One can do a quick search and select from any number of sources that basically say, "a million bucks in a brokerage account means you're not middle-class anymore". Tone I read most often is that not only is the middle-class shrinking, it is burdened by debt, not capital gains taxes.

So what do you call it? A million bucks in a brokerage account no doubt means you probably lead a far more comfortable life in the US than most, but it is still very far from 'rich' in the private jet to St Moritz and your kids never having to worry about money sense.

I'd call that "rich", a category that spans a lot. There's private jet rich, and then there's "don't worry about money much, if it all" rich. This, with the caveat that I assume there's a job backing that accumulation of $1MM, which pays better than most. Another way to put it is that 7% of U. S. households hold millionaire status (meaning $1MM in investable assets, excluding house and retirement plans)[0]. If that ain't rich, then I don't know what qualifies as such.

One could call it "upper middle-class", and I'd accept that. But "solid middle-class" it ain't by any stretch of the imagination.

[0] https://finance.yahoo.com/news/millionaires-america-2020-50-...

Those 7% are likely retired old people who have enough money to not work as a greeter at a Walmart. 1M when you're 65 means you probably (subject to healthcare costs) won't end up on the streets during your remaining lifetime.

The fact that a million dollars isn't attainable to 75% of the nation doesn't make that million an enormous amount of money one can live off the rest of his life. This fact only says that 75% will never become that middle class. And the SV bubble is one of few last places where one can climb to the middle class level. I prefer to call things the way they are: Americans have been sliding into poverty. Doing clever stats and percentiles doesn't work around this fact.

If 75% of people aren't there now, and never will be, it isn't "middle class". "Middle class" does not mean "the top 25%".

So if in 50 years the top 1% owns 99% of the economy, will we call folks with zero debt and zero assets the middle class or will it be more fair to say that the middle class is gone? My definition of middle class is it "those who have to work, but are financially secure and can afford their own place, cars, kids and some vacation", while the rich are those who live off capital gains and don't need to work at all, and underclass are the paycheck to paycheck crowd (half the nation).

So anyone who has a million dollars, but still has to work because a million isn't enough to retire on, is middle class by your definition. Let's just call that a minority view of the definition of middle class...

(I can accept the definition of "rich" as "able to live off of capital, and therefore not needing to work". But there might be another layer between that and "middle class". You might call it "wealthy rather than rich" or something. Having a million in capital puts you a long way past "able to take a vacation".)

If you're smart enough to amass $1,000,000 in a brokerage account, you should be smart enough to know that it would be stupid to liquidate the whole account to pay cash for a house, better to get a mortgage now that interest rates are around 3%. In that case you only need to come up with the down payment, and then enjoy that sweet mortgage interest deduction.

You should also be smart enough to have a fair amount in a 401(k), in which case you can loan yourself the down payment up to $100,000 and pay no capital gains tax at all.

>they'll have to pay 40% on their entire gains

Wrong, unless your income is over $1,000,000. Otherwise your capital gains tax will be considerably less, even if you are stupid enough to liquidate your brokerage account to pay cash for your house.

Most of the American middle class does not own stocks separately from a 401k or other retirement savings vehicle.

Also, the 40% rate wouldn't kick in for incomes below $1 million. Someone making a $1 million a year is not middle class and indeed would be in the top 0.01% of all earners, worldwide.

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