Financial Guillotine hanging over most of America...

  • Wanna Join? New users you can now register lightning fast using your Facebook or Twitter accounts.
W

WHITE DEVIL

Sicc OG
#1
Dec 25, 2003
12,356
218
0
69
#1
Earn under $57,343? Watch out.
By Scott Burns

A visit to the glitzy section of any city in America will give you the idea that we don't know what to do with all the money we have. You get the same impression at any high-end mall in suburbia.

In fact, income thins out pretty quickly. According to the most recent (2003) IRS statistics on tax returns, households needed at least $295,495 to be in the top 1%, $130,080 to be in the top 5%, $94,891 to be in the top 10% and $57,343 to enter the top 25%.

Yes, you read that right. If your household income is over $57,343, you're well toward the front of the line when the checks are handed out. If your income is below $29,019, you sink into the bottom 50%. Don't let retirement
sneak up on you.
Create a perfect plan.


Train wreck
Increasingly, those in the bottom 75% -- households with incomes below $57,343 -- are starting to look like a long, slow train wreck. Without recognition of the problem, the entire country could find itself in dire straits pretty quickly.

Let me show you why.

In the 10 years from 1993 to 2003, income has continued to concentrate. While the bottom 50% of earners had 14.92% of income in '93, they had 13.99% in '03. Similarly, the top 25% have enjoyed an increased share of total income, rising from 62.45% in '93 to 64.86% in '03. This is pretty much what you'd expect over a period of rapid change. Those with leverage increase their incomes. Those without leverage don't.

Over this period the dividing line income for the bottom 50% has risen from $21,179 to $29,019, rising 4.3% a year. Had the income line risen only with inflation it would have risen to $26,504. And that's an important fact: Even the bottom of the income scale has gained some purchasing power over the period -- about $2,515 (see table below).

Combine that additional income with recent low interest rates on home mortgages, a period of weak-to-declining rents for apartments, a multitude of low-interest and no-interest offers from stores and car manufacturers, and the people who do a lot of the heavy lifting in our society have been getting along.

Better to be on top
Those with earning power have done a lot better than just get along. Earners at the top 1% line have gained $63,040 in purchasing power. Earners at the top 10% line have gained $12,198 in purchasing power, while seeing the portion of income they spend on income taxes decline from 20.2% to 18.5%. Earners at the top 25% line have gained $5,570 in purchasing power.

The vulnerable bottom of the income pyramid
Top 1 % Top 10 % Top 25 % Bottom 50 %

1993 Income

(1)$185,715 $66,077 $41,210 $21,179

2003 Income

(2)$295,495 $94,891 $57,343 $29,019

1993 Income Adjusted for Inflation

(3)$232,415 $82,693 $51,573 $26,504

Gain
(1)-(3)
$63,040 $12,198 $5,570 $2,515

% of Income Taxes Paid
34.27% 65.84% 83.88% 3.46%

Average Tax Rate as % of Income
24.31% 18.49% 15.38% 2.95% Source: The Tax Foundation

That isn't the case for those in the bottom 50%. Their entire $2,515 purchasing power gain since 1993 may already be history. Skeptics should consider this brief list:
  • With the typical household consuming about 1,000 gallons of gas a year, an increase from $1.50 a gallon to $3 a gallon means a purchasing power loss of $1,500.
  • Rate increases for electricity and natural gas.
  • Rising medical co-pays and other out-of-pocket expenses for health care, plus rising employee health-care insurance premium costs. Premium costs were up 10% in 2004 alone.
Another way to see the same thing is to examine wage gains. In 2004 the average weekly earnings of private, nonagricultural workers rose by only 2.2%. The Consumer Price Index rose by 3.3% over the same period. This year has been a replay -- year-over-year wage gains are running less than 3% while inflation has ramped up toward 4%. And all this assumes we believe the CPI is an accurate reflection of the inflation we experience.

Can the politicians work magic with tax reform?

No way. If the federal income tax was simply eliminated for every household in the bottom half, it would only liberate about 3.46% of their income -- less than inflation for one year.

Bottom line: Unless there are some real wage gains for working stiffs -- soon -- we're heading for a recession.
 
L

L Mac-a-docious

Sicc OG
#6
Jun 18, 2004
2,190
0
0
#6
Good post, a little jargonized, but very informative...funny how every number for the top 1% is much larger than the rest, except of course when it comes to "% of taxes paid," but that is nothing new.
 
W

WHITE DEVIL

Sicc OG
#10
Dec 25, 2003
12,356
218
0
69
#10
I'd say it's more like the 90/10 theory. 10 percent of the population own 90% of the stocks, power, and money.

EDJ, it depends. There is alot I would like to invest in.

I'll reframe the question:

1. How much would I personally invest in, or what would I recommend to people?

2. How much are we talking about? 100 dollars? 500? 2000? 10000? 20 a month? 50 a month? 200 a month? 1000 a month?

3. What is your investment goal? Money - soon, Money in the future? Money that can build up safely over time?

4. How quick would I need to be able to pull out if I needed the money? Would I be willing to take a cut (5%, 10%) to pull out?

I'll go from that.

Personally, I like international blend (leaning towards value) funds (Mutual or ETF) or stock combinations for a somewhat safe bet and guarantee of investment return. Gold and TIPS or TIPB are attractive at this point, simply because if the bull market we have been seeing continues, these will lower in value, and when the next real recession hits (Think 2007-2010) these will be a great hedge against a slumping US economy. In combination with international value and some growth stocks, you have a great 1-2 punch for whenever our country takes a shit financially.

But thats a bit verbose.

I recommend ETFs. They're a great way to get into investing easily and allow a somewhat wider range.

You can set up an account with Scottrade.com and buy stocks or ETFs for 7 dollars a trade. This is the lowest commission you will ever get without having a major brokerage contract or 50,000 dollars.

There are a few main simple considerations in investing:
How long? (Before you will cash out and take the money)
How much?
How fast do you need the money?
How much risk are you willing to take? (The longer time you invest, the more chance u have to be risky; risk decreases over time)
How much tax do you pay? (You ain't gotta answer this, just for purposes of education)
Are you investing for retirement or just a growth of your money?
Are you willing to lose it all for the chance to win big? Do you want half-risk, half-security? Or maybe a conservative "anti-lose" approach? (Which eventually loses out, in my opinion. Only good for old people)

For example, an investment of 200 dollars a month (48,000 invested) for 20 years can turn into anything from 80,000 dollars to 150, 200 thousand depending on how you're invested (also inflation, taxes, etc). At 10 years that 24000 from 30 to 56. It could turn into anything. It could also turn to nothing. But real, serious risk is not a problem for anyone who either 1. Knows investing VERY well or 2. Pays someone who does.
 
JoMoDo

JoMoDo

Sicc OG
#11
Jul 10, 2002
2,180
18
0
45
#11
WHITE DEVIL said:
I'd say it's more like the 90/10 theory. 10 percent of the population own 90% of the stocks, power, and money.
.
Click to expand...
I agree the wealth distribution is much greater, prolly even less than 10% owns prolly more than 90%, the gap keeps widening (to quote E-40, the poor get poorer, and the rich keep gettin' richer, these whores keep whorin', and us pimps keep gettin' slicker)
Anyway,
The 80/20 Theory is a Book based on Paretto's law. It basically states that a small amount of inputs dictates the majority of out puts.... i.e. 20% of you customers account for 80% of your business, 20% of the people control 80% of the wealth, 20% of your car problems account for 80% of your auto expenses... It also gets into how to use this system to your advantage in a business sense, or analyze other social (both public and private trends) for a greater understanding...

It's worth checking out...

80/20 Theory by Richard Koch
 
EDJ

EDJ

Sicc OG
#12
May 3, 2002
11,608
234
63
www.myspace.com
#12
WHITE DEVIL,

1.) BOTH

X.) LET'S SAY $1,000 AND $2,000. AND THEN $100 AND $500.

3.) LET'S TAKE ALL 3 IN 3 DIFFERENT INVESTMENTS.

F.)I WANNA PULL OUT WHENEVA I WANTED TO WITH THE LEAST AMOUNT OF COMPLICATIONS.
 
W

WHITE DEVIL

Sicc OG
#13
Dec 25, 2003
12,356
218
0
69
#13
I wrote a long ass post. Fuck that shit.

Superconservative (no chance at all of money being lost) This is like a savings account:
1000 over one year makes 56 bucks.
2000 makes 124, etc.
100 bucks a month adds 4 dollars per year to the total. 200 bucks - 8.

Small risk (Bonds, stocks, equities mix)-
1000 - 80 dollars a year.
2000 - 160.00
100 - 6.00 200 - 14.00

Moderate risk (Stocks, Bonds, Intl stocks)- 1000 - 100 dollars a year
2000 - 200, etc. 100 dollars adds 10 dollars, 200 adds 20, etc.

High risk (Domestic and International Growth stocks mostly)- 1000 dollars can make 150 dollars a year 2000 - 300 dollars a year, etc.
Of course higher risk means theres a chance of your money being lost, HOWEVER, if you have three, five, seven years to invest the risk decreases and the chance of you making money increases.

Very high risk (futures, commodities, emerging markets) - This is the shit I do not fuck with. Futures, commodities, high-risk growth stocks, IPOs, etc. 1000 dollars can make you ten, or you could lose everything you invested.

Of course this is one way to look at investing. Many do not agree with my logic and say you can make more in shorter period of time.



This is a holding I have of a mutual fund, the Fidelity Canada fund. That graph shows where ten thousand dollars could go if invested from the start. I initially invested 2,500 in late 02 and to this day its worth almost 5,000 dollars. But this is an aggressive and non-diversified investment, meaning it is not protected against rapid losses.

And this is a good example.



I bought Northeast at around 24 in 01, and the stock todays sits at 17. I've been in the red on this for 3 years. And the issue of liquidity comes into play. Even if you want to sell a stock at market price, sometimes people won't buy it because they don't want it, so you may end up selling it lower than market if you want to get rid of it quickly.

And here is what happens when you make stupid ass moves



I bought JDSU at about 38 dollars a share, and today it sits at 2 dollars. This is the kind of shit you can expect from growth (risky) stocks and emerging market stocks.

My best advice if you wanna start trading would be:
1. Read, read, read.
2. Get an account with scottrade or etrade for cheaper commissions.
3. Find someone who works in the industry who could advice you on what or when to buy and sell.
4. If you want to get started quickly, and want to fuck with some people who will manage your shit for a decent rate hit me up.
 
Dirty Shoez

Dirty Shoez

Sicc OG
#14
Oct 28, 2005
2,980
25
0
40
www.myspace.com
#14
WHITE DEVIL said:
That isn't the case for those in the bottom 50%. Their entire $2,515 purchasing power gain since 1993 may already be history. Skeptics should consider this brief list:
  • With the typical household consuming about 1,000 gallons of gas a year, an increase from $1.50 a gallon to $3 a gallon means a purchasing power loss of $1,500.
  • Rate increases for electricity and natural gas.
  • Rising medical co-pays and other out-of-pocket expenses for health care, plus rising employee health-care insurance premium costs. Premium costs were up 10% in 2004 alone.
Click to expand...
I was with him up to this point.

No mention whatsoever that Fast Food, Bread, Milk, Pasta, Cereal, Clothes, Cleaning Solutions, etc. prices have remained almost the same, easily putting that $1,500+ right back into your pocket.
 
W

WHITE DEVIL

Sicc OG
#15
Dec 25, 2003
12,356
218
0
69
#15
Faulty ass logic tadou.

In fact, horribly flawed logic.

Horribly horrible flawed logic this is.

If the price of Fast Food, Clothing, and "Cleaning Solutions" remaining the same puts 1500 back into your pocket, then you must be assuming that price increases in consumer durables rise a remarkable 500 percent yearly! Or, the prices increase by 1500 dollars a year. That's an amazingly high price index assumption. God damn, better go buy my 78 dollar McValue meal! If they still remain the same next year, will I have saved 3 thousand dollars?

Good god man! I'm becoming rich, rich, simply because McDonald's, Mr.Clean, and Rigattone
have remained the same in price. Thank you. You have exposed me to a new financial reality.



Wage gains haven't kept pace with energy prices or the rising costs of medical insurance and co-pays. You're saying that while the cost of living has largely increased, static prices in consumer durables more than offset or at least balance the difference in fixed costs. Your "1500 back in the pocket theory" assumes a whopping inflation rate of 30 percent.
 
W

WHITE DEVIL

Sicc OG
#17
Dec 25, 2003
12,356
218
0
69
#17
As a matter of fact DS, the CPI rose about 8% since 2002. So in fact, the price of everday items has in no way whatsoever remained the same.

In San Francisco, for example the CPI was at 178.9 in the first half of 02. The first half of 05 saw the CPI hit 190.2. That's an on average price hike of 12.3%.
 
You must log in or register to reply here.
Top Bottom