Author Topic: Big Income, Big Consequences  (Read 29045 times)

Spiffy

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Re: Big Income, Big Consequences
« Reply #100 on: February 11, 2021, 01:02:02 PM »
my wife had that in-floor heating growing up in Colorado in the 1990s. said she's never been happy and warm in another building.

This is how I feel about the heated toilet seats.  Had them in our rental in Japan and by butt misses them something fierce every winter.  Our main floor bath is off of our not-insulated sun porch, with a door joining them, so it's often cold enough in there that I can see my breath.  I brace myself every time I'm about to sit on that toilet.
Many years ago we lived in upstate New York and our favorite place to eat was a fish place in a tiny town not far from the small town we lived in. The bathrooms were in a sort of shed and, at least during the winter, they had the toilets hooked up to hot water. You could see the steam rising from the bowl and sitting on it was equal parts wonderful and strange.

TheGrimSqueaker

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Re: Big Income, Big Consequences
« Reply #101 on: February 11, 2021, 03:12:09 PM »
my wife had that in-floor heating growing up in Colorado in the 1990s. said she's never been happy and warm in another building.

This is how I feel about the heated toilet seats.  Had them in our rental in Japan and by butt misses them something fierce every winter.  Our main floor bath is off of our not-insulated sun porch, with a door joining them, so it's often cold enough in there that I can see my breath.  I brace myself every time I'm about to sit on that toilet.
Many years ago we lived in upstate New York and our favorite place to eat was a fish place in a tiny town not far from the small town we lived in. The bathrooms were in a sort of shed and, at least during the winter, they had the toilets hooked up to hot water. You could see the steam rising from the bowl and sitting on it was equal parts wonderful and strange.
The toilet would have to be flushed a couple times in the morning to provide this benefit, yet it's brilliant.

Just Joe

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Re: Big Income, Big Consequences
« Reply #102 on: February 13, 2021, 01:09:52 PM »
Hey $800K is starting to seem reasonable for a house like that. The funny thing is our furniture would look pretty sorry in a house like that. Like first apartment sorry compared to the fancy floors and trimwork.
It truly boggles my mind how much RE differs in price across different geographic areas. $800k seems cheap to me.

We went to a dinner party (years ago now) at a $1.2M house which is spectacularly expensive for this area. Owners moved here from the west coast where they sold what they described as a pretty ordinary home there to retire here. No idea what we would do with all that space.

RE is going through what I can only believe is a bubble right now. We're in the middle of the continent, not anywhere famous. Not an expensive place but RE prices have spiked over the past few years. We moved into a larger house/large piece of land and were shocked to see our old house (1700 sq ft, very ordinary, solid house and neighborhood) nearly double in value compared to win we bought it a decade before. We put minor money into it as necessary for maintenance and so forth but definitely not HGTV levels of work.

Just last month a house near us and a few acres went on the market for nearly $600K. Sold within a couple of weeks. I told DW that the house we are living in would probably retail for substantially more than we paid for it now b/c we have similar sq footage and three times the acreage if we DIY update some details like we did at the previous house I mentioned above. Not expensive things - flooring, faucets, kitchen details, etc.

We actually want to live here but its nice to consider if we ever want to downsize. I have to believe we are seeing some prosperity bleeding over from regional metro areas 1+ hrs away.

zolotiyeruki

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Re: Big Income, Big Consequences
« Reply #103 on: February 13, 2021, 03:42:57 PM »
Yeah, the RE market is insane right now.  Supply is down 40-50% YoY in most places. 

In our neighborhood, sales prices have spiked by 20-25% in the last year.  Our next door neighbors had two showings the first day in October, got offers from both, and closed a month later.  The neighbor on the other side of them priced themselves a bit high, and listed just before Thanksgiving, but still only took two months before they went under contract, for close to list price.  Several other friends had contracts within a week, within a couple days, and in eight hours, respectively.  A local realtor posted a video this morning, saying that they had 61 requests for showings within minutes of listing a house, and had an offer for $40k over list price before the house even opened.  And our area isn't, IMO, all that amazing.  It's nice, but it's 25 minutes from the nearest freeway and 90 minutes from DowntownBigCity, and the school district, while above average, also has about the highest taxes in the state and is still making cuts in order to balance the budget.

DW would love to take advantage and sell our house and move closer to her family, but home prices there were 50% higher than here to begin with, and the current shortage means that they're now about twice the price!

Travis

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Re: Big Income, Big Consequences
« Reply #104 on: February 14, 2021, 03:57:21 AM »
Yeah, the RE market is insane right now.  Supply is down 40-50% YoY in most places. 

In our neighborhood, sales prices have spiked by 20-25% in the last year.  Our next door neighbors had two showings the first day in October, got offers from both, and closed a month later.  The neighbor on the other side of them priced themselves a bit high, and listed just before Thanksgiving, but still only took two months before they went under contract, for close to list price.  Several other friends had contracts within a week, within a couple days, and in eight hours, respectively.  A local realtor posted a video this morning, saying that they had 61 requests for showings within minutes of listing a house, and had an offer for $40k over list price before the house even opened.  And our area isn't, IMO, all that amazing.  It's nice, but it's 25 minutes from the nearest freeway and 90 minutes from DowntownBigCity, and the school district, while above average, also has about the highest taxes in the state and is still making cuts in order to balance the budget.

DW would love to take advantage and sell our house and move closer to her family, but home prices there were 50% higher than here to begin with, and the current shortage means that they're now about twice the price!

This describes DW's hometown exactly. One of our friends is a realtor the next town over and prices have doubled in five years. It appears to be people commuting an hour away to the city who are buying, and supply is not keeping up with the demand. Her company put a house up last Thursday, had 15 showings Friday afternoon, 7 offers, and had it under contract that evening.

Villanelle

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Re: Big Income, Big Consequences
« Reply #105 on: February 14, 2021, 05:10:24 PM »
The military FB group I'm part of for DC is insane with people moving here and wanting to buy.  Houses with 20+ offers, offer 60k over asking still not being accepted, people having put in offers on a dozen places with nothing accepted, places getting multiple offers on the first day of listing--or before for all-cash, no inspections or contingencies, and huge non-refundable cash deposits.  People are desperate to buy homes.  Some have posted screen shots of real estate software showing huge zip codes with only a couple dozen places on the market.  It's a frenzy!

And the same conversations are happening with rent, which means this isn't primarily people deciding it is time to buy (due to interest rates).  That suggests this must be new, additional people coming to the area.  Amazon coming might explain some of that for our specific area, but surely not all of it.

It seems no one can find places to rent or to buy.  Somewhat odd. 

Just Joe

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Re: Big Income, Big Consequences
« Reply #106 on: February 14, 2021, 09:37:28 PM »
Is this a national churning we are witnessing or are there regions or big cities emptying out?

maizefolk

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Re: Big Income, Big Consequences
« Reply #107 on: February 14, 2021, 10:18:03 PM »
Is this a national churning we are witnessing or are there regions or big cities emptying out?

Potentially a lot of the most expensive cities people used to have to live in for super high paying jobs (places like San Francisco and Manhattan).

https://www.sfchronicle.com/bayarea/article/S-F-renters-gain-rare-leverage-in-pandemic-with-15754770.php

talltexan

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Re: Big Income, Big Consequences
« Reply #108 on: February 15, 2021, 07:50:04 AM »
I think many people are realizing the value of allowing remote work, and this should apply downward pressure to the sorts of real estate premia associated with urban centers. Hopefully parking prices will also decrease.

Villanelle

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Re: Big Income, Big Consequences
« Reply #109 on: February 15, 2021, 08:54:34 AM »
Is this a national churning we are witnessing or are there regions or big cities emptying out?

Potentially a lot of the most expensive cities people used to have to live in for super high paying jobs (places like San Francisco and Manhattan).

https://www.sfchronicle.com/bayarea/article/S-F-renters-gain-rare-leverage-in-pandemic-with-15754770.php
  Except I live in what is genvery considered to be a very high cost of living city, and the housing prices and availability are an issue here.  We certainly aren't emptying based on what's happening in the housing market, though I recognize that at least part of the job market here is unique so maybe that's why we are seeing the housing boom with no emptying?

maizefolk

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Re: Big Income, Big Consequences
« Reply #110 on: February 15, 2021, 10:22:55 AM »
Villanelle, do I remember correctly that you live in the DC metro?

If so, yes I agree DC is a very high cost of living area yet seems to have very different dynamics from the other ones (Seattle, San Francisco, Boston, NYC) in part because the types of jobs/types of employers are so different and even though a lot of people are working from home in both cases, big gov seems much less interested in giving people medium/long term certainty that they can continue to work from home than big tech/big finance.

ysette9

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Re: Big Income, Big Consequences
« Reply #111 on: February 15, 2021, 01:00:34 PM »
Is this a national churning we are witnessing or are there regions or big cities emptying out?

Potentially a lot of the most expensive cities people used to have to live in for super high paying jobs (places like San Francisco and Manhattan).

https://www.sfchronicle.com/bayarea/article/S-F-renters-gain-rare-leverage-in-pandemic-with-15754770.php
Our house is in the Bay Area near Facebook, Google, Tesla, etc. and the market is really hot as well. We thought it might cool as so many of those workers switched to WFH, but it isn’t happening.

Wolfpack Mustachian

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Re: Big Income, Big Consequences
« Reply #112 on: February 15, 2021, 04:27:32 PM »
It truly boggles my mind how much RE differs in price across different geographic areas. $800k seems cheap to me.

My go-to comparison to drive home how big those differences are:

My house cost substantially less than a friend of mine (who stayed in the Bay Area) needed for her down payment. And our salaries aren't that different at all (she might make 10-20% more than me).

With ratios like these, I can't fathom why anyone would want to live in a place like the Bay Area. I get it - it's cool. I've visited and enjoyed my time there. How can you justify, though, paying that much difference for a house when you're only making $120,000 to my $100,000 or whatever the case may be. How big of a line item is housing for these people?...

Travis

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Re: Big Income, Big Consequences
« Reply #113 on: February 15, 2021, 05:38:44 PM »
It truly boggles my mind how much RE differs in price across different geographic areas. $800k seems cheap to me.

My go-to comparison to drive home how big those differences are:

My house cost substantially less than a friend of mine (who stayed in the Bay Area) needed for her down payment. And our salaries aren't that different at all (she might make 10-20% more than me).

With ratios like these, I can't fathom why anyone would want to live in a place like the Bay Area. I get it - it's cool. I've visited and enjoyed my time there. How can you justify, though, paying that much difference for a house when you're only making $120,000 to my $100,000 or whatever the case may be. How big of a line item is housing for these people?...

A lot of them are taking those SF salaries and buying houses closer to my hometown nearly two hours to the east and commuting.

talltexan

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Re: Big Income, Big Consequences
« Reply #114 on: February 16, 2021, 06:26:07 AM »
The house is more expensive, but you can add house-appreciation to that difference in salaries. At least you could while it was appreciating.

TheGrimSqueaker

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Re: Big Income, Big Consequences
« Reply #115 on: February 16, 2021, 09:05:35 AM »
I often see real estate turnover and bubbling associated with the following phenomena:

- Stock market fluctuation due to blatant manipulation
- Excess money supply in the stock market
- Artificially low interest rates
- Impending currency inflation
- High unemployment rates leading to foreclosure
- Significant migration of wealth from the have-a-littles to the have-a-lots

We have a lot of this due to the coronavirus.

zolotiyeruki

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Re: Big Income, Big Consequences
« Reply #116 on: February 16, 2021, 10:29:09 AM »
I often see real estate turnover and bubbling associated with the following phenomena:

- Stock market fluctuation due to blatant manipulation
- Excess money supply in the stock market
- Artificially low interest rates
- Impending currency inflation
- High unemployment rates leading to foreclosure
- Significant migration of wealth from the have-a-littles to the have-a-lots

We have a lot of this due to the coronavirus.
Yeah, I was discussing it this morning with someone, and the conclusion we came to is that we're either in for
A) a drop in home prices,
B) inflation due to the $trillions pumped into the economy, or
C) long-term stagnation of home prices. 
None of the three are attractive.  C is just A spread out over time.

Yesterday, I was talking to a real estate agent, and what they're hearing from their clients is that the high demand is due to:
1) low interest rates ($300k@4% is pretty close to $350k@3%) and
2) people have more cashflow available, since they're not spending it on restaurants and bars and other activities.

I'm thinking "wait, people are spending enough on eating/drinking out that it can significantly affect their mortgage payment?"  (for the record, I don't drink alcohol, and just get water when we go out to eat)

talltexan

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Re: Big Income, Big Consequences
« Reply #117 on: February 16, 2021, 10:50:43 AM »
What about super-loose monetary policy guaranteed for another two years? Where does that fall in this list?

I think you've basically got it right, except we somehow need to acknowledge that the economy that's being very kind to people with investible assets is also causing a lot of damage to households who rent and depend on service/entertainment sector for employment.

Dancin'Dog

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Re: Big Income, Big Consequences
« Reply #118 on: February 16, 2021, 03:15:26 PM »
I often see real estate turnover and bubbling associated with the following phenomena:

- Stock market fluctuation due to blatant manipulation
- Excess money supply in the stock market
- Artificially low interest rates
- Impending currency inflation
- High unemployment rates leading to foreclosure
- Significant migration of wealth from the have-a-littles to the have-a-lots

We have a lot of this due to the coronavirus.
Yeah, I was discussing it this morning with someone, and the conclusion we came to is that we're either in for
A) a drop in home prices,
B) inflation due to the $trillions pumped into the economy, or
C) long-term stagnation of home prices. 
None of the three are attractive.  C is just A spread out over time.

Yesterday, I was talking to a real estate agent, and what they're hearing from their clients is that the high demand is due to:
1) low interest rates ($300k@4% is pretty close to $350k@3%) and
2) people have more cashflow available, since they're not spending it on restaurants and bars and other activities.

I'm thinking "wait, people are spending enough on eating/drinking out that it can significantly affect their mortgage payment?"  (for the record, I don't drink alcohol, and just get water when we go out to eat)


I don't drink out much either, but last year we took DD out to celebrate her Big 21st.  Some of the cocktails in the uptown Charlotte, NC bar were $15 each!  It obviously wouldn't take many of those per month to put a sizeable dent in one's budget. 


On another recent outing to enjoy some live music I was shocked to discover that the music venue charged $100 per seat for the folks that wanted a table.  I told DW the next time we visit that joint I'll be enjoying it from the comfort of a wheelchair. ;) 




talltexan

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Re: Big Income, Big Consequences
« Reply #119 on: February 17, 2021, 11:22:15 AM »
Is that $100/seat figure during COVID? I could understand them trying to operate at 25% capacity and needing to charge that much for fixed costs.

AMandM

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Re: Big Income, Big Consequences
« Reply #120 on: February 17, 2021, 11:44:30 AM »
Yesterday, I was talking to a real estate agent, and what they're hearing from their clients is that the high demand is due to:
1) low interest rates ($300k@4% is pretty close to $350k@3%) and
2) people have more cashflow available, since they're not spending it on restaurants and bars and other activities.

I'm thinking "wait, people are spending enough on eating/drinking out that it can significantly affect their mortgage payment?"  (for the record, I don't drink alcohol, and just get water when we go out to eat)

I'm thinking, "Wait, so when the covid restrictions are over and they start going out again they're gonna lose their house?"

Dancin'Dog

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Re: Big Income, Big Consequences
« Reply #121 on: February 17, 2021, 12:07:10 PM »
Is that $100/seat figure during COVID? I could understand them trying to operate at 25% capacity and needing to charge that much for fixed costs.


It was at "The Fillmore Charlotte" before COVID.  It was for Moon Taxi, which isn't really a big name band.

zolotiyeruki

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Re: Big Income, Big Consequences
« Reply #122 on: February 17, 2021, 01:45:01 PM »
Yesterday, I was talking to a real estate agent, and what they're hearing from their clients is that the high demand is due to:
1) low interest rates ($300k@4% is pretty close to $350k@3%) and
2) people have more cashflow available, since they're not spending it on restaurants and bars and other activities.

I'm thinking "wait, people are spending enough on eating/drinking out that it can significantly affect their mortgage payment?"  (for the record, I don't drink alcohol, and just get water when we go out to eat)

I'm thinking, "Wait, so when the covid restrictions are over and they start going out again they're gonna lose their house?"
Having heard this from the one realtor, I reached out to a friend who's also a RE agent, to get his take.  He has seen:
1) There were lots of people who *would* have bought a house in 2020Q2 but didn't/couldn't, so there's a backlog of demand
2) The cost of building materials has (to a degree) pushed people toward buying an existing home.
3) Working from home has people wanting to upsize
4) Scarcity is driving more people to try and buy than otherwise would (see: toilet paper).  I wasn't expecting that one!
5) In our area, housing prices never bounced back from the Great Recession as they did in other areas--they fell, and then stagnated. (This one is true--in the 9 years leading up to covid, our house appreciated about 8%)
6) Late 20-somethings/early 30-somethings who have been living with family are spreading out

TheGrimSqueaker

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Re: Big Income, Big Consequences
« Reply #123 on: February 18, 2021, 12:34:53 PM »
What about super-loose monetary policy guaranteed for another two years? Where does that fall in this list?

I think you've basically got it right, except we somehow need to acknowledge that the economy that's being very kind to people with investible assets is also causing a lot of damage to households who rent and depend on service/entertainment sector for employment.

We need to do more than acknowledge it, we need to adjust our tax and wage laws to reflect it.

1. Let's stop taxing long-term capital gains at a lower rate than employment income.

There's no good reason why the person who flips a burger (generally someone with low income and a low net worth) should be subsidizing people who flip stocks, art, or real estate and who typically enjoy a higher income, a higher net worth, or both. The essence of a capitalist society is that the interests of the provider of capital are acknowledged and protected, however this shouldn't come at the interests of the people who provide the labor, innovation, small business resources, infrastructure, government, etc. Right now the economies of many nations, and the USA in particular, disproportionately favor the interests of capital providers over those of other citizens. That's unbalanced. I'm not advocating for state ownership of the means of production (I was in the Soviet Union during the last part of the Gorbachev administration and saw the endgame in action). Right now, in the USA at least, subsidies flow uphill a lot because of the tax structure.

2. Let's stop fellating large and institutional investors at the expense of everyone else.

Practices such as short selling and derivatives trading have led to the most disgusting market manipulations ever, and invariably the biggest offenders get bailed out by the federal government when their guesses go wrong. Meanwhile, the hedge fund managers and executives who make the abuses possible generally suffer no more than a slap on the wrist or a few weeks in Club Fed.

Let's remove the means by which big institutional investors intentionally bubble parts of the market. That means turning the stock market back into a means to buy, sell, and trade portions of various companies, instead of a glorified casino where the odds invariably favor the house.

If we really wanted to bring accountability to the system, when a company has something go badly wrong the shareholders of the company should be personally liable.

3. Let's require some accountability in the lending industry.

A lot of the biggest banks are coincidentally (?) heavily invested in payday lending, deliberate marketing of credit cards, and aggressive buying and selling of debt. If you have a mortgage, it might be bought or sold several times over the course of the payoff cycle. It can be difficult or impossible to figure out something simple like how to get tax information related to a loan. That has to stop. Households that have been badly affected by the COVID economy may have to liquidate assets or rely on debt.

4. Let's reduce the burden on small businesses, or businesses of any size, related to having an employee.

The countries that have best weathered the coronavirus emergency have been those where medical care is not tied to employment. Centralized medical care and intelligent medical leave policies have helped reduce large scale infection. The boot-strappin' individualist cowboy approach isn't doing well.

5. Instead of harping on increases in the minimum wage, let's equalize the minimum wage for all workers including people in the restaurant, child care, farm labor, and tipped service communities.

There's more, I'm sure, although even just one or two of these improvements could improve life significantly for the working poor while making very little difference to the honest rich. The dishonest rich will be screwed, but I'm OK with that.

YttriumNitrate

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Re: Big Income, Big Consequences
« Reply #124 on: February 18, 2021, 12:51:30 PM »
1. Let's stop taxing long-term capital gains at a lower rate than employment income.
There's no good reason why the person who flips a burger (generally someone with low income and a low net worth) should be subsidizing people who flip stocks, art, or real estate and who typically enjoy a higher income, a higher net worth, or both. ... Right now, in the USA at least, subsidies flow uphill a lot because of the tax structure.

A burger flipper is probably not the best example to use in your argument because it requires people to ignore all the other aspects of the tax code (standard deduction, earned income tax credit, etc.) and focus solely on the rate. These other portions of the tax code are significant enough that ~45% of people don't pay any federal income taxes.

talltexan

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Re: Big Income, Big Consequences
« Reply #125 on: February 18, 2021, 01:40:21 PM »
It won't make me popular, but I should at least pay lip service to the argument for taxing capital gains more gently:

if taxes distort behavior such that they discourage it, we should seek the minimum distortion possible. Because a tax on capital (via a capital gains tax) will discourage saving and investment, it discourages saving, which will lead to a long term improvement in productivity. Taxing labor only discourages short term willingness-to-work, which doesn't have that long-term impact. supplying less labor today doesn't impact that labor tomorrow in the same way.

Travis

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Re: Big Income, Big Consequences
« Reply #126 on: February 18, 2021, 05:49:07 PM »
It won't make me popular, but I should at least pay lip service to the argument for taxing capital gains more gently:

if taxes distort behavior such that they discourage it, we should seek the minimum distortion possible. Because a tax on capital (via a capital gains tax) will discourage saving and investment, it discourages saving, which will lead to a long term improvement in productivity. Taxing labor only discourages short term willingness-to-work, which doesn't have that long-term impact. supplying less labor today doesn't impact that labor tomorrow in the same way.

How would upping LTCG taxes to match income tax rates reduce savings rates? It's not like there's an alternative. It would drastically affect folks like us aspiring to retire early since income withdrawn for retirement would be affected, but people would still have to save and invest.

zolotiyeruki

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Re: Big Income, Big Consequences
« Reply #127 on: February 18, 2021, 06:06:11 PM »
Realistically, it's very difficult to regulate every kind of derivative--airlines, for example, buy options on fuel as a hedge against volatility.

But high-frequency trading?  Yeah, that's something that is an active drag on the economy, by sucking resources away from productive uses and putting them to work in a zero-sum game.

Reducing the burden for hiring an employee?  Yes, a thousand times yes.  The amount of regulation and paperwork required is simply absurd.  All you want to do is hire someone to do a job, and you end up with a part time job just managing the red tape.

Bloop Bloop Reloaded

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Re: Big Income, Big Consequences
« Reply #128 on: February 18, 2021, 07:29:23 PM »
Here in Australia the true cost of an employee once you add up minimum wage ($20/hour), superannuation (9.5%), payroll tax (4.85%), annual leave (4 weeks per year), sick leave (2 weeks per year), public holidays (2 weeks per year), and WorkCover insurance (~2%), is about $27/hour. This is for a bottom of the barrel minimum wage employee.

For $27/hour I could just get a contractor via AirTasker or otherwise use the Gig economy or otherwise outsource.  Especially given that we are talking about the very bottom of the bell curve in terms of skills/employability.

So yeah, red tape is a killer.

PaulMaxime

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Re: Big Income, Big Consequences
« Reply #129 on: February 18, 2021, 07:40:00 PM »
It truly boggles my mind how much RE differs in price across different geographic areas. $800k seems cheap to me.

My go-to comparison to drive home how big those differences are:

My house cost substantially less than a friend of mine (who stayed in the Bay Area) needed for her down payment. And our salaries aren't that different at all (she might make 10-20% more than me).

With ratios like these, I can't fathom why anyone would want to live in a place like the Bay Area. I get it - it's cool. I've visited and enjoyed my time there. How can you justify, though, paying that much difference for a house when you're only making $120,000 to my $100,000 or whatever the case may be. How big of a line item is housing for these people?...

Well, for me the overall compensation has more than made up for the high cost of living. I spent 8 years at Google and even though my base salary was about what I had made on the east coast, with stock the compensation was much higher. Then I left to form a startup that became a "unicorn". I managed to go from "normal" retirement savings to very fat FI in the past 14 years.

We bought our place for 900K in 2012 and it's now worth $1.8M. I admit that's lucky timing. After paying down the mortgage a bit and refinancing our mortgage payment is only $1365. Add in taxes and condo fees and it's around $4K per month.

I guess if you don't get a high-paying job at a tech company it's tough. But the weather is awesome and the lifestyle overall is very appealing to many.

TomTX

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Re: Big Income, Big Consequences
« Reply #130 on: February 18, 2021, 08:39:26 PM »
A burger flipper is probably not the best example to use in your argument because it requires people to ignore all the other aspects of the tax code (standard deduction, earned income tax credit, etc.) and focus solely on the rate. These other portions of the tax code are significant enough that ~45% of people don't pay any federal income taxes.

I don't accept the framing of only looking at "federal income tax" - it needs to be total tax burden. Those cap gains folks conveniently avoid payroll taxes as well.

talltexan

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Re: Big Income, Big Consequences
« Reply #131 on: February 19, 2021, 06:49:28 AM »
Like many of you, I used to believe high-frequency trading was a waste of resources.

But I'm old enough to have talked to friends who make investments that lack same-day liquidity. When I go to my 401K and put in trades, they're settled at the end of the trading day. Meanwhile, my buddy--who bought into some kind of community bank--has been trying to get his money out for years, and my parents keep waiting for some REIT they don't like to "liquidate". And we all know how much selling a house can suck.

So liquid investments seem fantastic, and--if high frequency trading helps keep that liquidity going--I may have to admit that these evil traders deserve a (small) slice of the pie.

TomTX

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Re: Big Income, Big Consequences
« Reply #132 on: February 19, 2021, 08:37:38 PM »
So liquid investments seem fantastic, and--if high frequency trading helps keep that liquidity going--I may have to admit that these evil traders deserve a (small) slice of the pie.

I'm not seeing how HFT actually adds liquidity. It largely sucks up money via arbitrage across different markets. Money which otherwise would (generally) have benefited those longer term investors.

talltexan

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Re: Big Income, Big Consequences
« Reply #133 on: February 22, 2021, 06:41:12 AM »
Bringing prices in two different markets closer is indeed adding liquidity. The people who are aware of both markets but can only trade in one benefit.

EricEng

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Re: Big Income, Big Consequences
« Reply #134 on: February 22, 2021, 11:20:44 AM »
We need to do more than acknowledge it, we need to adjust our tax and wage laws to reflect it.

1. Let's stop taxing long-term capital gains at a lower rate than employment income.
Uhm, no.  LTCG are taxed lower to compensate for natural inflation that occurs.
IE: Hold stock for 10 years, stock grows 5% a year while inflation is 3% a year.  You have gained a little above inflation, but you would owe a lot of tax mostly just due to inflation.  This would encourage short term selling and risky bets as you would be punished by inflation for holding anything long term.
2. Let's stop fellating large and institutional investors at the expense of everyone else.

Practices such as short selling and derivatives trading have led to the most disgusting market manipulations ever, and invariably the biggest offenders get bailed out by the federal government when their guesses go wrong. Meanwhile, the hedge fund managers and executives who make the abuses possible generally suffer no more than a slap on the wrist or a few weeks in Club Fed.

Let's remove the means by which big institutional investors intentionally bubble parts of the market. That means turning the stock market back into a means to buy, sell, and trade portions of various companies, instead of a glorified casino where the odds invariably favor the house.

If we really wanted to bring accountability to the system, when a company has something go badly wrong the shareholders of the company should be personally liable.
Short selling, while villified, serves a critical function in a health stock market.  Without short selling, where is the motivation for anyone to dig into the cooked books of corrupt companies or fake technology developments (Enron and Nikola stock comes to mind).  Why would you hold the shareholders of a company liable?  How would they even know the company was doing something wrong without hedge funds profiting to dig into it?  You take away the canarie in the coal mine (hedge funds research and short selling) and then tell the miners (shareholders) to accept the consequence?
3. Let's require some accountability in the lending industry.

A lot of the biggest banks are coincidentally (?) heavily invested in payday lending, deliberate marketing of credit cards, and aggressive buying and selling of debt. If you have a mortgage, it might be bought or sold several times over the course of the payoff cycle. It can be difficult or impossible to figure out something simple like how to get tax information related to a loan. That has to stop. Households that have been badly affected by the COVID economy may have to liquidate assets or rely on debt.
Uhm, no they are not.  Yes, payday lending is terrible and large, but it is a tiny business for big banks.  Annual revenue in PayDay loan industry is around $11billion and total loan amount is around $46 billion in 2017.  Banking industry total commercial loan amounts for perspective is around $15 trillion or $15,000Billion.  The $46 billion in payday loans is 0.3% of what banks loan.
https://www.ibisworld.com/industry-statistics/market-size/check-cashing-payday-loan-services-united-states/#:~:text=The%20market%20size%2C%20measured%20by,is%20%2411.0bn%20in%202021.

TheGrimSqueaker

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Re: Big Income, Big Consequences
« Reply #135 on: February 22, 2021, 03:20:46 PM »
We need to do more than acknowledge it, we need to adjust our tax and wage laws to reflect it.

1. Let's stop taxing long-term capital gains at a lower rate than employment income.
Uhm, no.  LTCG are taxed lower to compensate for natural inflation that occurs.
IE: Hold stock for 10 years, stock grows 5% a year while inflation is 3% a year.  You have gained a little above inflation, but you would owe a lot of tax mostly just due to inflation.  This would encourage short term selling and risky bets as you would be punished by inflation for holding anything long term.
You're assuming that inflation is natural. It isn't. It's the result of monetary policies that encourage inflation, such as rampant government borrowing and debt accumulation. It really isn't necessary to subsidize speculation or investment to cover the consequences of bad fiscal management.

Quote
2. Let's stop fellating large and institutional investors at the expense of everyone else.

Practices such as short selling and derivatives trading have led to the most disgusting market manipulations ever, and invariably the biggest offenders get bailed out by the federal government when their guesses go wrong. Meanwhile, the hedge fund managers and executives who make the abuses possible generally suffer no more than a slap on the wrist or a few weeks in Club Fed.

Let's remove the means by which big institutional investors intentionally bubble parts of the market. That means turning the stock market back into a means to buy, sell, and trade portions of various companies, instead of a glorified casino where the odds invariably favor the house.

If we really wanted to bring accountability to the system, when a company has something go badly wrong the shareholders of the company should be personally liable.
Short selling, while villified, serves a critical function in a health stock market.  Without short selling, where is the motivation for anyone to dig into the cooked books of corrupt companies or fake technology developments (Enron and Nikola stock comes to mind).  Why would you hold the shareholders of a company liable?  How would they even know the company was doing something wrong without hedge funds profiting to dig into it?  You take away the canarie in the coal mine (hedge funds research and short selling) and then tell the miners (shareholders) to accept the consequence?

No, I put the responsibility for investing and regulating corrupt and dishonest behavior back on the shoulders of the people who are already paid to do so. Specifically I would require the SEC and the IRS to actually investigate securities and tax fraud, respectively. When we go to the trouble of having law enforcement specialists, I think it's reasonable to expect them to enforce the law instead of leaving it up to the consumers (commercial and otherwise).

Quote
3. Let's require some accountability in the lending industry.

A lot of the biggest banks are coincidentally (?) heavily invested in payday lending, deliberate marketing of credit cards, and aggressive buying and selling of debt. If you have a mortgage, it might be bought or sold several times over the course of the payoff cycle. It can be difficult or impossible to figure out something simple like how to get tax information related to a loan. That has to stop. Households that have been badly affected by the COVID economy may have to liquidate assets or rely on debt.
Uhm, no they are not.  Yes, payday lending is terrible and large, but it is a tiny business for big banks.  Annual revenue in PayDay loan industry is around $11billion and total loan amount is around $46 billion in 2017.  Banking industry total commercial loan amounts for perspective is around $15 trillion or $15,000Billion.  The $46 billion in payday loans is 0.3% of what banks loan.
https://www.ibisworld.com/industry-statistics/market-size/check-cashing-payday-loan-services-united-states/#:~:text=The%20market%20size%2C%20measured%20by,is%20%2411.0bn%20in%202021.

Payday lending is smaller than the entire banking industry, but it is extremely profitable and almost salaciously predatory. The same can be said of a great deal of the credit card and commercial lending you describe as acceptable banking practice. Not all of it is. When credit cards are intentionally marketed to young people, college students, or people who have just declared bankruptcy, the rates are high and the intention is to make the "customer" into a long-term cash cow.

https://www.cnbc.com/select/us-credit-card-debt-hits-all-time-high/ gives a figure of $930B for all credit card debt in the United States, which is a non-trivial slice ($0.93 T out of $15T, or 6.2%). That debt is not spread evenly across everybody. It, like payday loans, tends to disproportionately affect a few.

zolotiyeruki

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Re: Big Income, Big Consequences
« Reply #136 on: February 22, 2021, 03:57:44 PM »
What's the alternative to payday loans, then?  You have a group of people who, either through their own poor choices (more likely) or gross misfortune, find themselves in need of a short-term loan, and none of the traditional institutions meet that need.  My first thought was "can they get a cash advance with a credit card?" but I imagine that if they're getting a payday loan, that option is off the table, i.e. they've either maxed out their credit cards or don't qualify for one. I can think of a few options, but none of them seem workable to me:
1) ban payday loans entirely
2) force payday lenders to assume greater risk by capping interest rates
3) require better financial management from the would-be borrower in return for the loan

Telecaster

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Re: Big Income, Big Consequences
« Reply #137 on: February 22, 2021, 04:25:47 PM »
2) force payday lenders to assume greater risk by capping interest rates

This one.  Charging excessive interest is called usury and it used to be illegal from the time of the Bible up until the 1980s or so when the credit card lobby got the laws changed.  Payday loans can be 100% or more.    For people who aren't very good with money--which is a lot of people--you can completely screw yourself into a debt position that is impossible to repay.   This is especially true if you are lower income and need a payday loan in the first place.  The interest adds up so fast you can't pay it off.   

People who follow Mustachian practices and don't screw themselves with debt are the tiny minority of people.  Most people fuck themselves by buying shit they don't really want or need on credit.  It is basic human nature to want stuff now and pay later.   Sad to say, but a large fraction of people can't help themselves and need to be prevented from getting in over their head. 

Making usury illegal again would undoubtedly mean some people would lose access to credit.  But it also means the remaining people would be charged fair rates.   It would also likely mean that illegal loan sharking would become a big thing again.    Interestingly, Mafia loan sharks charge less interest than Payday loan companies:

https://www.montgomeryadvertiser.com/story/opinion/columnists/josh-moon/2015/03/27/mob-sharks-better-rates-alabama-payday-lenders/70549586/



EricEng

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Re: Big Income, Big Consequences
« Reply #138 on: February 22, 2021, 04:30:43 PM »
You're assuming that inflation is natural. It isn't. It's the result of monetary policies that encourage inflation, such as rampant government borrowing and debt accumulation. It really isn't necessary to subsidize speculation or investment to cover the consequences of bad fiscal management.
It is a natural part of a growing health economy.  It is part of the balance that must be struke between interest rates and growth.  There is a ton that goes into that finance experts could wax for hours on.  However, the 2% inflation target has been long accepted as a good target.  You can get inflation without massive govt debt or govt subsidizing stocks.
https://www.stlouisfed.org/open-vault/2019/january/fed-inflation-target-2-percent
No, I put the responsibility for investing and regulating corrupt and dishonest behavior back on the shoulders of the people who are already paid to do so. Specifically I would require the SEC and the IRS to actually investigate securities and tax fraud, respectively. When we go to the trouble of having law enforcement specialists, I think it's reasonable to expect them to enforce the law instead of leaving it up to the consumers (commercial and otherwise).
Elizabeth Warren and I agree with you.  The SEC and IRS were defanged by previous administration though and that will take time and political capital to get repaired.  A large segment of the population supports a political party that opposes keeping business honest and punishing corruption which makes this hard to fix currently.  I also want to see the Consumer Protection Bureau get some teeth back again.
3. Let's require some accountability in the lending industry.
...
Payday lending is smaller than the entire banking industry, but it is extremely profitable and almost salaciously predatory. The same can be said of a great deal of the credit card and commercial lending you describe as acceptable banking practice. Not all of it is. When credit cards are intentionally marketed to young people, college students, or people who have just declared bankruptcy, the rates are high and the intention is to make the "customer" into a long-term cash cow.
Yes, there is a lot of predatory lending out there.  However, I'm not sure how you are proposing to fix that through "accountability in lending industry".  That is an extremely complicated problem that you have to walk the fine line (if there even is a line) between protecting people from themselves and restricting their access to debt tools.  Restrict poor people from borrowing money and that dives unintentionally hard into some racist territory even with the best intentions. 

I did like Warren's argument for caps on pay day loan %s.

TomTX

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Re: Big Income, Big Consequences
« Reply #139 on: February 22, 2021, 05:01:41 PM »
Bringing prices in two different markets closer is indeed adding liquidity. The people who are aware of both markets but can only trade in one benefit.

Which does not require high frequency trading. At all.

robartsd

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Re: Big Income, Big Consequences
« Reply #140 on: February 22, 2021, 05:19:30 PM »
We need to do more than acknowledge it, we need to adjust our tax and wage laws to reflect it.

1. Let's stop taxing long-term capital gains at a lower rate than employment income.
Uhm, no.  LTCG are taxed lower to compensate for natural inflation that occurs.
IE: Hold stock for 10 years, stock grows 5% a year while inflation is 3% a year.  You have gained a little above inflation, but you would owe a lot of tax mostly just due to inflation.  This would encourage short term selling and risky bets as you would be punished by inflation for holding anything long term.
I've often heard the double taxation argument (corporations pay income tax on earnings, then investors pay income tax on their realized gains) against treating LTCG as ordinary income. If the goal is to adjust for inflation, wouldn't it be better to just make it explicit (adjust cost basis for inflation when computing the gain).

reeshau

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Re: Big Income, Big Consequences
« Reply #141 on: February 22, 2021, 07:04:05 PM »
You're assuming that inflation is natural. It isn't. It's the result of monetary policies that encourage inflation, such as rampant government borrowing and debt accumulation. It really isn't necessary to subsidize speculation or investment to cover the consequences of bad fiscal management.

Not to jump in the middle of this, but this is an interesting view.  I would argue that inflation, however measured, is a reflection of the time value of money, and so is as natural as any monetary topic can be.  Certainly it is influenced by government policies, but directly and indirectly.  But it's not as if under anarchy we would at least throw off the shackles of inflation.

maizefolk

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Re: Big Income, Big Consequences
« Reply #142 on: February 22, 2021, 07:22:30 PM »
You're assuming that inflation is natural. It isn't. It's the result of monetary policies that encourage inflation, such as rampant government borrowing and debt accumulation. It really isn't necessary to subsidize speculation or investment to cover the consequences of bad fiscal management.

Not to jump in the middle of this, but this is an interesting view.  I would argue that inflation, however measured, is a reflection of the time value of money, and so is as natural as any monetary topic can be.  Certainly it is influenced by government policies, but directly and indirectly.  But it's not as if under anarchy we would at least throw off the shackles of inflation.

The thing is that you can have the concept of the time value of money in the absence of inflation. For much of the the middle ages inflation was essentially nil, yet interest rates were on the order of 3-5%. Even in the 1800s, prices weren't necessarily stable, but they varied around the same mean. Sometimes they went up (inflation), sometimes they went down (deflation), but in the end it all roughly averaged out.

The idea that prices continually go up and the value of the dollar or other units of currency consistently drop is really only a feature of the post-great depression world. And if it staves off another great depression it is certainly worth it. But people were earning interest on loans for many centuries before inflation.

Wolfpack Mustachian

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Re: Big Income, Big Consequences
« Reply #143 on: February 22, 2021, 08:06:55 PM »
We need to do more than acknowledge it, we need to adjust our tax and wage laws to reflect it.

1. Let's stop taxing long-term capital gains at a lower rate than employment income.
Uhm, no.  LTCG are taxed lower to compensate for natural inflation that occurs.
IE: Hold stock for 10 years, stock grows 5% a year while inflation is 3% a year.  You have gained a little above inflation, but you would owe a lot of tax mostly just due to inflation.  This would encourage short term selling and risky bets as you would be punished by inflation for holding anything long term.
I've often heard the double taxation argument (corporations pay income tax on earnings, then investors pay income tax on their realized gains) against treating LTCG as ordinary income. If the goal is to adjust for inflation, wouldn't it be better to just make it explicit (adjust cost basis for inflation when computing the gain).

That double taxation argument doesn't really hold up to me as much since the corporation and I are two separate entities. What does hold up to me on a gut level is that I paid taxes on my income when I made it, then invested it and am now paying taxes again on money that I had already earned. I wouldn't be able to reduce my taxes if I didn't invest it and it lost value due to inflation caused by government monetary policy, so why should I have to pay money because I managed to invest it in a way that kept up a little more than with inflation when I already paid taxes on it when I earned it in the first place.

All that being said, I was much more passionate about philosophical arguments when I was younger. Now I realize money is more fungible than all of that, so it's pretty much the government taking as much money as they can or at least as much as they choose to.

AO1FireTo

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Re: Big Income, Big Consequences
« Reply #144 on: February 22, 2021, 08:26:24 PM »
Sad about the kids, divorce is terrible.

My wife and I looked at some rather large houses this year, we were going to move her parents in with us.  We keep walking around thinking, who's going to clean all this space, and do we have to buy all this new furniture just to fill up the place.  We could have easily afforded them, but I don't think they would have brought us joy.  We've learned over the years, the more stuff we have the worse we feel.  Once in a while we'll see a nice house that has just sold, we'll go online at the courthouse and see what's owed on the mortgage.  More often than not, those luxury houses come with an equally large mortgage.  I'll take my smaller paid for house thank you very much.


ysette9

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Re: Big Income, Big Consequences
« Reply #145 on: February 22, 2021, 08:28:17 PM »
I also used to think that Payday loans were all evil until I listened to this Freakonomics podcast on the subject. It helped me understand that it is more nuanced than we would like to believe.

https://freakonomics.com/podcast/payday-loans/

I won’t summarize everything out of laziness but this quote stuck with me after all this time:
“DeYOUNG: Borrowing money is like renting money. You get to use it two weeks and then you pay it back. You could rent a car for two weeks, right? You get to use that car. Well, if you calculate the annual percentage rate on that car rental — meaning that if you divide the amount you pay on that car by the value of that automobile — you get similarly high rates. So this isn’t about interest. This is about short-term use of a product that’s been lent to you. This is just arithmetic.”

talltexan

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Re: Big Income, Big Consequences
« Reply #146 on: February 23, 2021, 06:31:38 AM »
Indeed I listened to the Podcast as well. I actually was surprised at how harsh Dubner was to Marc Fusaro about his communications with industry lobbyists, thought he broke a barrier from journalism into editorializing.

TheGrimSqueaker

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Re: Big Income, Big Consequences
« Reply #147 on: February 23, 2021, 08:10:33 AM »
I also used to think that Payday loans were all evil until I listened to this Freakonomics podcast on the subject. It helped me understand that it is more nuanced than we would like to believe.

https://freakonomics.com/podcast/payday-loans/

I won’t summarize everything out of laziness but this quote stuck with me after all this time:
“DeYOUNG: Borrowing money is like renting money. You get to use it two weeks and then you pay it back. You could rent a car for two weeks, right? You get to use that car. Well, if you calculate the annual percentage rate on that car rental — meaning that if you divide the amount you pay on that car by the value of that automobile — you get similarly high rates. So this isn’t about interest. This is about short-term use of a product that’s been lent to you. This is just arithmetic.”

I'm not against short-term lending or interest rates that reflect additional risk taken on by a lender, provided the "risk" is in fact based on the borrower's actions and not on a secret file that frequently contains false, misleading, out of date information or factors not related to the borrower's conduct (as opposed to gender, age, ethnicity, location, and other things the borrower can't change). I also would insist that the borrower be mentally competent and able to repay, the debt product is appropriate to the borrower's level of financial acument, the lender is prevented from unilaterally piling on fees and structuring transactions in a way that maximizes penalties to the borrower (example: processing automated withdrawals such as the mortgage or credit card payment before automated deposits such as a paycheck to create an excuse to apply an "insufficient funds" fee when no NSF condition occurred). I prefer that debt collection fees not be stacked up so that they more than double the amount of the debt, and that debt not be mindlessly sold (and sometimes completely fabricated) to collectors, particularly if a debt has already been repaid or never existed in the first place.

None of these conditions exist in the US banking and lending industry, because debt purchasers and banks grease too many politicians. The FICO score is frequently based on false information, and interest rate decisions are routinely based on false or misleading information that cannot be cleaned up by a borrower. Victims of fraud or identity theft often have credit problems that follow them for a lifetime, and my own credit report contains addresses in cities I've never been to and names I've never used. I have found it impossible to remove the false information from the record, and Experian and other credit reporting bureaus refuse to remove it because it's "based on public records". What public records? Where? They refuse to say. They can keep their precious proprietary algorithms, but I think they should be at least required to cough up the origin of disputed information and to clean up false information.

TomTX

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Re: Big Income, Big Consequences
« Reply #148 on: February 23, 2021, 07:35:10 PM »

That double taxation argument doesn't really hold up to me as much since the corporation and I are two separate entities. What does hold up to me on a gut level is that I paid taxes on my income when I made it, then invested it and am now paying taxes again on money that I had already earned.

No, you pay taxes on your gains - not the "money you already earned".

Unless you have a stupendously bad tax preparer, I suppose.

TomTX

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Re: Big Income, Big Consequences
« Reply #149 on: February 23, 2021, 07:37:10 PM »
Sad about the kids, divorce is terrible.

My wife and I looked at some rather large houses this year, we were going to move her parents in with us.  We keep walking around thinking, who's going to clean all this space, and do we have to buy all this new furniture just to fill up the place.  We could have easily afforded them, but I don't think they would have brought us joy.  We've learned over the years, the more stuff we have the worse we feel.  Once in a while we'll see a nice house that has just sold, we'll go online at the courthouse and see what's owed on the mortgage.  More often than not, those luxury houses come with an equally large mortgage.  I'll take my smaller paid for house thank you very much.

Do you have space on your lot to install an ADU? My sister has a huge lot and built an ADA-compliant ADU, my parents will be moving there this year (they are already fully vaccinated).