Posts Tagged ‘Dividends’


This morning I had coffee with a friend who’s a CPA, and we talked for over an hour about the economy, and especially about how those of us who work for a living are getting screwed. There are almost innumerable ways — pick an area, any area — but for now we’ll stick to the purely economic. Here are few of the things we talked about:

  • Dividends and capital gains (basically profits from selling stocks and bonds) are only taxed at about half the rate of money earned through work. If you work for a living in the USA, you’re probably paying about twice the amount of income tax (as a percentage of income) as a trust fund kid who’s never worked a day in his life.
  • If you work for a living and have to spend all, or nearly all, of the money you earn, you’ll pay a much higher effective tax rate on the necessities of life than wealthy people. Here’s why (to keep things simple, we’ll only talk about sales taxes here): If you live in an area with an 8% sales tax rate, make $2,000 a month, and spend $1,000 of it on such things as clothing, food, car parts, and beer (mustn’t forget the beer), you’ll end up paying 4% of your income in sales taxes. If you’re a trust funder with an income of $20,000 a month from dividends and capital gains (i.e., income not derived from useful work), and similarly spend $1,000 on clothing etc., your effective tax rate on those necessities will only be .4% of your income — one-tenth the rate of a $2,000-a-month wage earner.
  • If unemployment is low, and wage growth starts to outstrip the rate of inflation, the Federal Reserve Board will raise the prime rate to create more unemployment and keep wages down (as it’s doing at present). How does an increase in the prime rate do this? It “cools the economy” by making it more expensive for businesses to borrow and then spend the borrowed money on new facilities, machinery, or wages for new workers. It also raises the cost of consumer borrowing, especially as regards home mortgages. And the higher the mortgage interest rate, the fewer mortgages are taken out; this puts a damper on new construction and so decreases the number of construction jobs and also jobs in the industries that supply construction firms. Hence “economy cooled” and wages held down.
  • If you work for a living, have little or no savings (as is typical), and have to borrow money for a medical or other emergency, you’ll likely do so on a credit card, on which you’ll be paying sky high interest, probably in the 15% to 20% range, if not higher. If you’re wealthy and decide to borrow money, you’ll likely pay an interest rate in the low to mid single digits.
  • Under Trump’s much vaunted tax cut, 83% of the benefits go to the wealthiest 1% of Americans.  The rest of us get crumbs and will have to pick up the tab in fairly short order, in the form of goods-and-services price inflation and higher interest rates on credit cards and mortgages. In essence, Trump’s tax cut is a massive wealth transfer from those who do useful work to the ultra-rich, who don’t. (Disgustingly, some working class people are happy to scarf up crumbs and lick their masters’ boots and grovel like dogs.) And if you think giving the rich ever more money is somehow a good idea, that’s been de facto federal policy since the time of Reagan; and how has that worked out for you? Yes, it has! Good boy! What a good boy! Lick up those crumbs! Good boy!

I could go on, but won’t.

To put it simply, the economic deck is stacked against those who work do useful work, especially those who do useful work, won’t exploit others, and have some self-respect.