Will Trump be Re-elected?

[Ad Orientem]

In the United States an annual income of $18k is on the low end of working class. That doesn't mean you can't make do on that. A lot depends on where your priorities in life are. My time in the Navy taught me how little I really needed and still remained fairly happy. There is definitely more to life than material things. But I don't know anyone who would call that a middle class income in a developed country.

[Kriegsspiel]

In the United States an annual income of $18k is on the low end of working class.

The argument I was trying to make was that you can blur the lines between poor and middle class by how you deploy your money. What I had in mind was something more like an aesthetic issue, not a pure dollars issue, in sense of the 3 Ladders class definitions, as opposed to Pew Research's "middle class income is between 1/3 and double the median."

There is definitely more to life than material things. But I don't know anyone who would call that a middle class income in a developed country.

If they didn't know that the person worked at McDonalds.. If they only knew that our hero had a car and an apartment (maybe he had them over for dinner or game night or something), and he organized a golf outing with the group the second Thursday of the month, went out for beers with the gang every once in a while, was clean and well groomed (being presentable is low cost/high value), was well read (library, baby!), and generally not stressed out about money, why wouldn't they think he was middle class?

[dualstow]

In the United States an annual income of $18k is on the low end of working class.

The argument I was trying to make was that you can blur the lines between poor and middle class by how you deploy your money. What I had in mind was something more like an aesthetic issue, not a pure dollars issue, in sense of the 3 Ladders class definitions, as opposed to Pew Research's "middle class income is between 1/3 and double the median."

Is this a good time for me to plug earn dot org? I’m still checking it out, but..four stars in charity navigator.

[Kriegsspiel]

Well, they chose to locate their office in San Fransisco, so it doesn't seem like they're concerned with being good stewards of the donations they get as a charity. And they use the word "intersection." They also advocate for some stupid student loan policies too. So I'm voting no. Just link people to ERE or MMM or any of the tons of free content out there.

[dualstow]

Hmm, I’m definitely not a fan of “intersectional.” Need more research. Thank you.

[boglerdude]

> Something that gets me is how many people refuse to leave high COL locations when they aren't earning the high incomes that would justify it.

People dont like change. Gov should do more on this, some say UBI would help with mobility. I think high speed rail would be a better start. If the CA rail gets built, living inland would be more palatable.

[WiseOne]

Some personal observations from living in a city that's as HCOL as it gets (NY):

- if you're earning minimum wage and working full time, you're most likely a recent immigrant and you don't speak English. You live in a neighborhood where the residents and retail businesses all speak your language (e.g.. Spanish), and you have a tight network of family & friends that are a critical support structure. In that situation, moving away is unfathomable.

- The HCOL city in question provides many services & benefits that augment that minimum wage income, e.g. food stamps and Medicaid, plus free transit if you're low income. Also, no need for a car.

- Most likely you actually work that minimum wage job part time. The rest of the time, you do something else and get paid a lot more under the table. Handyman or mover jobs, housecleaning, dog-walking/cat sitting etc, earns you a LOT more than minimum wage post-tax, probably $20/hour in cash on the low end. There's also the chance of landing a cushy, well paid unionized city job with generous benefits including a pension that you can start drawing on in your mid 40s.

[jhogue]

US military pensions for those who entered before 1981 allowed service members to retire at half pay after 20 years active service. Retirement pay is protected against inflation by federal law. Retirees also received free health care and GI Bill benefits, access to the post exchange and commissary, and access to the global network of free space-available travel aboard US Air Force transports and charters.

At one time, the US Postal Service and many police and fire departments across the country had similar retirement plans, if not all of the fringe benefits of the military. Obviously, all those retirement plans (for new members) have been phased out and shifted from defined benefit to defined contribution schemes over the last 30-40 years.

[Kbg]

I think there is so much dishonesty when it comes to pensions. I’ll mention a couple thoughts for my area of work.

The military is a young persons profession by and large. After WW2 the system was revamped to force people out at younger ages based on rank. Heart attacks and strokes were a very common occurrence amongst the professionals during the first year of the war. It should stay that way. Recently the system was changed to be more like the normal world. This was also tried in the early 90s with disastrous retention results.

Locally, do we really want 60 year old line police officers or firefighters?

I don’t profess to know where the exact line is but a system needs to recognize these aren’t lifetime professions in the traditional sense.

[jhogue]

My point was simply that many military and first responders retire in their 40s—and most of them probably should. I would also point out that most of this population of retirees go on to develop second careers and really can’t be tagged as hangers-on with “outsized pensions.”

Other professions do not have the same physical demands and those in good health may continue working into their 70s and 80s. Warren Buffett (now age 88) does not draw a pension or Social Security (as far as I can tell) and nobody at the recent Berkshire Hathaway annual meeting called for his resignation or retirement.

[WiseOne]

Military, police, and firefighters absolutely deserve their early pensions. I'm talking about MTA workers (e.g. train drivers/conductors/the guy who sits in the subway elevator and pushes buttons) or equivalent. They get to draw pensions early at a discounted rate once they've done their 20 years of service, but they can pump up their final pension basis by doing a lot of overtime in their last year. Many end up retiring on close to the same salary they earned working full time.

https://nypost.com/2019/04/24/lirr-reti ... s-pension/

However, the poor slob working full time at McDonald's for minimum wage is the one we're discussing here...just saying that I don't think such a person exists in this city, at least not for long. There are too many easier or more lucrative routes to self-sufficiency, including things like qualifying for SSI. That's the thing about a complex system, it's too easy to game it.

[jhogue]

WiseOne, your MTA pension freeloader is clearly an outlier who has spent the last 30 years studying up on how to game the pension rules in the one city in the country where monopolistic unions continue to prop up a bizarre system for the benefit of fewer and fewer workers. I suppose this sort of pension scheme will disappear in our lifetimes.

Defined benefit pensions used to be altogether common in the USA. Since then, there has unquestionably been a nation-wide shift toward defined contribution pension schemes. It seems to have worked quite well for Wall Street types looking forward to stashing away their next bonus, but not necessarily so well for the middle and working classes.

[moda0306]

WiseOne, your MTA pension freeloader is clearly an outlier who has spent the last 30 years studying up on how to game the pension rules in the one city in the country where monopolistic unions continue to prop up a bizarre system for the benefit of fewer and fewer workers. I suppose this sort of pension scheme will disappear in our lifetimes.

Defined benefit pensions used to be altogether common in the USA. Since then, there has unquestionably been a nation-wide shift toward defined contribution pension schemes. It seems to have worked quite well for Wall Street types looking forward to stashing away their next bonus, but not necessarily so well for the middle and working classes.

This brings me to something I've realized since working in business tax... and that's that Employer-based contributions are woefully under-used, but mostly because I don't think workers value them that much. The maximum for a SEP or 401k Profit Sharing is 25% of an employee's wage income. That means 20% of an employees compensation can be not only free from their income taxable income, but also free from BOTH sides of FICA/Medicare, which amounts to 7.65% for each party (employer/employee), or 15.3% total.

The former can be accomplished through employee contributions (lowered income tax), but not the latter. That means that the "penalty" between employer and employee for employees not valuing (and/or employers not providing) an employer contribution to retirement, is resulting in at least 15.3% of missed opportunity to help both parties save tax money.

Further, if you go with a 401k option, but very richly fund the Profit-Sharing portion, you can accomplish all that, but also have a vesting schedule too, which helps "vest" the employee with the future of the company to a certain degree that's not very possible in other ways.

I think these are drastically underused tools. It's a shame we live in a society where both employers and employees are too short-sighted to use/value these things. Even if we're seeing stagnant real wages, and if we have to accept that as a part of reality, it still makes sense to shift contributions from employee to employer.

Of course, municipalities should structure their damn pension so somebody can't game it in the final years. Hard to blame anyone for gaming a Pension like that. Don't even give them the option.

[Kriegsspiel]

This brings me to something I've realized since working in business tax... and that's that Employer-based contributions are woefully under-used, but mostly because I don't think workers value them that much. The maximum for a SEP or 401k Profit Sharing is 25% of an employee's wage income. That means 20% of an employees compensation can be not only free from their income taxable income, but also free from BOTH sides of FICA/Medicare, which amounts to 7.65% for each party (employer/employee), or 15.3% total.

The former can be accomplished through employee contributions (lowered income tax), but not the latter. That means that the "penalty" between employer and employee for employees not valuing (and/or employers not providing) an employer contribution to retirement, is resulting in at least 15.3% of missed opportunity to help both parties save tax money.

YUP. When I was operating as an LLC, I contributed the maximum legal amount to my individual 401k. It was awesome.

Further, if you go with a 401k option, but very richly fund the Profit-Sharing portion, you can accomplish all that, but also have a vesting schedule too, which helps "vest" the employee with the future of the company to a certain degree that's not very possible in other ways.

I think these are drastically underused tools. It's a shame we live in a society where both employers and employees are too short-sighted to use/value these things. Even if we're seeing stagnant real wages, and if we have to accept that as a part of reality, it still makes sense to shift contributions from employee to employer.

What do you mean by the bolded.

[moda0306]

This brings me to something I've realized since working in business tax... and that's that Employer-based contributions are woefully under-used, but mostly because I don't think workers value them that much. The maximum for a SEP or 401k Profit Sharing is 25% of an employee's wage income. That means 20% of an employees compensation can be not only free from their income taxable income, but also free from BOTH sides of FICA/Medicare, which amounts to 7.65% for each party (employer/employee), or 15.3% total.

The former can be accomplished through employee contributions (lowered income tax), but not the latter. That means that the "penalty" between employer and employee for employees not valuing (and/or employers not providing) an employer contribution to retirement, is resulting in at least 15.3% of missed opportunity to help both parties save tax money.

YUP. When I was operating as an LLC, I contributed the maximum legal amount to my individual 401k. It was awesome.

Further, if you go with a 401k option, but very richly fund the Profit-Sharing portion, you can accomplish all that, but also have a vesting schedule too, which helps "vest" the employee with the future of the company to a certain degree that's not very possible in other ways.

I think these are drastically underused tools. It's a shame we live in a society where both employers and employees are too short-sighted to use/value these things. Even if we're seeing stagnant real wages, and if we have to accept that as a part of reality, it still makes sense to shift contributions from employee to employer.

What do you mean by the bolded.

My bad for the lack of clarity on the bolded.

I tend to assume that the general consensus around the abandonment of Employer-based retirement contributions has been the stagnation of real wages income, and that being an easier place for employers to abandon expense without actually lowering an employee's paycheck. My point was that even IF we have to suffer that stagnation, it'd still be better to do more employer contributions if the employee was going to save the money anyway.

Obviously eventually this will drag against their budget, and even more obviously, as pug mentions, people just don't value dollars they don't see, even if taxed higher. Especially depending on the type of employee you're hiring.

That said, I see it even on middle-high incomes where one would think there's more appreciation for savings, tax strategy, long-term employment, etc. However the other thing I see is a complete lack of motivation by many (not all) employers to understand much less communicate the benefits to their employees. I'm sure this is a bit of a chicken/egg thing, and I'll even grant that more of the problem probably lies in the employees than the employers.

So yeah pug I totally understand what you're saying. You can only try so much. It's more of me wanting to shake some wisdom/foresight into employees (and some employers) to appreciate the more nuanced elements of how a compensation package can be structured.

[jhogue]

I think moda and MangoMan are both right. In some cases employers either don’t set up pension plans for their employees or perhaps don’t explain their advantages very clearly. On the other hand, many employees don’t seem to rationally value each component. It is easy enough to see on paper that:

Net Compensation = Salary + Benefits + Profit Sharing - Taxes

Nevertheless, I have seen multiple instances where workers underutilized or just plain refused to sign up for tax deferred compensation. They preferred cash now to more money and less taxes later. It is even true among college professors-- who one would think are well-educated as a group and capable of calculating their net worth and the net present value of future benefits.

Somewhere in there I think there is a self-selected dividing line between future haves and have nots. Also an explanation for general dissatisfaction with how 401k etc. plans have worked out in actual practice. Many-- particularly those on this forum-- have figured it out. I’ll bet that virtually all of us know people who abjectly insist on leaving money on the table.

[moda0306]

I tried to tell a client (employer) to look at it this way with her profit sharing...

She can either spend $110 to get her employee about $60 of cash (even if the did a pre-tax 401k they'd still only get $92.35). Or she can spend $100, and put $100 into an account that the employee will SEE, but it only be hers to take with her at a slow-ish vesting rate, the remainder of which she knows she'd be leaving behind if she left the company.

Even $3k-$5k could be really tough to kiss goodbye to because you wanted to take another job.

Even if the employee THINKS they want the $60 more, which I think if properly explained many would take the retirement, I think one could make the argument that it's the profit sharing they'll truly regret losing and will motivate them to be more "invested" in the future of the company, even if it's only a subconscious realization. Of course I bring this up as completely debatable as behavioral economics never ceases to prove me wrong.

If you have people you want to retain, Profit Sharing plans can be a great way to save on taxes, help them save on taxes, and give them a "poor-man's" version of golden handcuffs.

[jhogue]

moda,
When an employee leaves before the end of the vesting period, what happens to the funds that they forfeit? Does it go to the other employees?

[Kriegsspiel]

Man, I still don't get what you guys are saying. Is it basically to allocate your employees dividends, like shareholders?

I do know that you can shield a lot of income from taxes with the currently available programs: HSAs, IRAs, and 401ks. $28,000 between them, even more if you run your own LLC.

[Kriegsspiel]

Ok I have it now. It then leads to a couple questions...

You're saying it's a better program than 401ks because it avoids payroll taxes. Basically throwing out SS and Medicaid? What about for people who were in the workforce paying payroll taxes and don't have a profit sharing account; without a new bottom on the pyramid the SS fund is going to dry up. You don't think the federal government would throw a wrench in the works?

Second, why would it be easier to get an employee to participate in profit sharing vs. the current practice (AFAIK) of opting out, as opposed to opting in, to a 401k? It seems like it would be the same self-selectors, as jhogue put it, who would do either one after they figured out the advantages and disadvantages of profit sharing and/or 401ks.

EDIT: or maybe so few people will participate in payroll tax-free profit sharing that the effect on SS is negligible, and the people smart enough to take advantage of the tax shield just win really hard.

[Kriegsspiel]

Something (somewhat related) that gets me is how many people refuse to leave high COL locations when they aren't earning the high incomes that would justify it. Like, if you are working in one of those bad jobs, especially because you've reached your Peter Principle ceiling, you will vastly improve your life by going and doing it in a low COL location. I'm thinking people like warehouse workers, retail workers, fast food, those kinds of things. You could live a fairly middle class lifestyle working at a fast food joint for 30 hours a week in a large portion of the country.

$1,200 for 1 of 4 bunk beds in a room in order to live near an internship, via Granola Shotgun.

[moda0306]

Something (somewhat related) that gets me is how many people refuse to leave high COL locations when they aren't earning the high incomes that would justify it. Like, if you are working in one of those bad jobs, especially because you've reached your Peter Principle ceiling, you will vastly improve your life by going and doing it in a low COL location. I'm thinking people like warehouse workers, retail workers, fast food, those kinds of things. You could live a fairly middle class lifestyle working at a fast food joint for 30 hours a week in a large portion of the country.

$1,200 for 1 of 4 bunk beds in a room in order to live near an internship, via Granola Shotgun.

This type of stuff is obviously obscene compared to it's big-city counterpart in 1960 or so.

I'd be curious to know how the more small-town and rural counterpart compares to its 1960 doppleganger in-terms of cost vs median income.

Yeah, ipads & air conditioning are great and all, but the big ones that people need to afford to rise above and have a hope of financial security are their rent, food and transportation costs. If those three are over-taking real wages at the lower quintiles, then we have a problem.

Not to say that personal responsibility couldn't help get folks out of these messes, but advocating that on a macro-scale is essentially asking people to abandon their social and family networks. Folks didn't have to do this in 1960 to afford the basics. Further, one of the most effective ways to help keep living costs down is a solid family and social network. As atomized units moving into a town we don't know, we've lost a good chunk of the economic foundation that we were hoping to reclaim in the first place. Further, on less of a financial and more social/phychological basis, I tend to think beyond a certain percentage of the population who generally dislike their home town or want a different, more independent life experience, expecting mass, scattered movement to be the solution to wage stagnation seems simultaneously mostly counter-productive as well as an extremely cryptic way to solve the "stagnant real wages" problem.

[Kriegsspiel]

This type of stuff is obviously obscene compared to it's big-city counterpart in 1960 or so.

Yea that's what I think too. Seeing people talk about how CHEAP places were back then, California especially, makes me feel... not nostalgic, but something like that.

I'd be curious to know how the more small-town and rural counterpart compares to its 1960 doppleganger in-terms of cost vs median income.

It would be region-dependant. There are tons of places throughout the Midwest and South where you can buy a house on a McDonald's salary, like I was saying before. But a small town in California? No, the comparison is pure silliness.

Yeah, ipads & air conditioning are great and all, but the big ones that people need to afford to rise above and have a hope of financial security are their rent, food and transportation costs. If those three are over-taking real wages at the lower quintiles, then we have a problem.

Food seems fairly similar across the country. Transportation seems dependent on personal choices; not just whether you decide to buy a small 4 cylinder or a luxury SUV, but whether you choose to live somewhere you don't need to spend a lot on gas, tolls, or whatever.

Not to say that personal responsibility couldn't help get folks out of these messes, but advocating that on a macro-scale is essentially asking people to abandon their social and family networks. Folks didn't have to do this in 1960 to afford the basics. Further, one of the most effective ways to help keep living costs down is a solid family and social network. As atomized units moving into a town we don't know, we've lost a good chunk of the economic foundation that we were hoping to reclaim in the first place. Further, on less of a financial and more social/phychological basis, I tend to think beyond a certain percentage of the population who generally dislike their home town or want a different, more independent life experience, expecting mass, scattered movement to be the solution to wage stagnation seems simultaneously mostly counter-productive as well as an extremely cryptic way to solve the "stagnant real wages" problem.

Housing is the big one and really reflects the supply and demand law. If people insist on fighting the law of supply and demand (say, by all wanting to live on the California coast), I don't know that there's a solution to that. I know I rag on California a lot. I know people there want to live near their families who WERE fortunate enough to have been born back when it was affordable to live there. But if they're competing for housing against other people who make more money than they do, and the other people can pay more for the housing... what's there to do? I think it's the difference between living in a country that hasn't been fully settled, and a full world, as Herman Daly might say.

I did not expect moda and Tucker Carlson to have so much in common.

[jhogue]

See “The Myth of Wage Stagnation” in the op-ed page of today’s Wall Street Journal.

The authors” argument is that the Bureau of Labor Statistics does not accurately account for the massive substitution effect stemming from the near-universal adoption of innovations like cell phones.

[dualstow]

See “The Myth of Wage Stagnation” in the op-ed page of today’s Wall Street Journal.

Hello gyro forum. Your friendly link bot here
https://www.wsj.com/articles/the-myth-o ... 1558126174