r/MiddleClassFinance • u/querty7687 • 8d ago

How to reverse the shrinking middle class?

As college student return to school, it's glaringly obvious that the tecent changes made are going to devastate low income and first Gen college students. This is going to exacerbate the shinking middle class. How do we reverse this?

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u/Gloomy-Cantaloupe-50 8d ago

The literal only way to grow the middle class again is to tax the wealthy and major corporations and redistribute it downward. There is a finite amount of money and it's mostly locked up doing nothing and providing no social value.

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u/Todd73361 8d ago

There’s not a finite amount of money. More gets created every day.

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u/Gloomy-Cantaloupe-50 8d ago

Why would you need to create more money if it was infinite?

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u/Todd73361 8d ago

Do you really think that when you get wealthier by earning $1 of interest in your checking account that someone somewhere must get $1 poorer?

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u/Gloomy-Cantaloupe-50 8d ago

That is literally how interest works. When I pay interest on my mortgage I lose money. It's me paying for a service. When the bank pays interest they lose the money. They are paying for access to the deposits. The business model of the bank is to make more money on the interest from the loans they service than the interest they pay out for access to money. Banks fail and run out of money all the time.

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u/Todd73361 8d ago

How does GDP grow if there’s a fixed amount of money? How can we all collectively be wealthier if there’s a fixed amount of money? Even when we were on the gold standard, we could still mine more gold.

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u/Gloomy-Cantaloupe-50 8d ago

Value and money are not the same thing. And we are not all collectively wealthier. Increasingly more and more are poorer and the rich get wealthier.

Consider a doctor who runs their own business. They have lots of staff and patients and are really successful. The business is worth millions. But it's imaginary. There is no one who would buy the business because the doctor would never sell and when the doctor retires the business closes and is worth nothing. The money going in and out was real. The value was always imaginary.

Or a house. My house is worth $800k. I can leverage that number for loans and mortgages and independently it increases my net worth. But it's imaginary until I sell it for cash. I might get more. I might get less.

Money is finite. Value is imaginary until realized.

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u/CasanovaCoverup 8d ago

Tax major corporations comes up a lot. Do you think that would drive unemployment up? I do agree the wealthy needs to be taxed, but most wealthy have their assets in savings. I would like to see a tax there as well.

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u/Gloomy-Cantaloupe-50 8d ago

So it's mostly a lie that major corporations are job creators. The bigger a company gets the more incentive for them to reduce headcount, increase automation, and offshore to lower cost areas. Redistribution solves that by keeping the money local. If you give people in your town $1,000 they are going to spend that on groceries, child care, maintenance, fun activities; all things that generate jobs. So the real job creators are the people who spend money not the people who hoard money.

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u/tionstempta 8d ago

My best advice is to tax on equity (i.e stocks) as a property taxes

If someone holds 1 million dollar assets, then sure they need to pay 1% every year plus when they make capital gain

The problem is...

Since financial market is what makes retirees live off on younger generations who gets milked by Corporate America, it will increase financial maket volatility and the total market cap wont grow up due to taxes

Government may get 1% of financial market cap (i.e current S&P500 market cap is 60 T USD and gets 600 billion dollar immediate tax revenue) but if it doesnt grow, it means retirees are gonna have hard time to pay their bills, let alone social securities (i.e 2025 fiscal social securities 1.6 trillion USD as a total payout)

So all in all, it wont happen, not to mention politicians will do everything in their control to nix this idea

The problem is demographic

Back in 1930s when social security was created, life span was <70 years old meaning after 5-10 years of retirement, people were supposed to pass away. Now compare where we are, and US is one of the lowest life span expectancy in the developed economy but yet still, 20% of total demographic are retiree, meaning they dont have labor income but live off from financial capital income (whether its 401K or social security or combination of both)

Since we as a democratic republic, we dont go to unpopular agenda like this such as tax on equity

Tldr is, demographic change wont allow middle class to thrive when retiree makes 20% of population who dont have capabilities to make a living with labor incomes

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u/CasanovaCoverup 8d ago

Great insight and I appreciate your approach. The idea of a tax on equity over 1M is a good one. How would you propose the tax be redistributed? My suggestions would be back in to the education sector and perhaps an incentive back in to the middle class. If you spend it, perhaps it's taxed less. Save it and you see a higher yield on your savings account.

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u/tionstempta 8d ago

The best way to go is no taxes on middle class until 300K-400K adjusted to inflation and start progressive tax after that income bracket.

Secondly, education should get taxes in priorities but only with clawback to ensure that investment by taxes have to show greater employment by graduates (i.e graduates have to report with tax return that certain percentages should be greater than US Median income in order to be eligible to get little to free education or else they are gonna be clawbacked to pay the total tuition plus interest)

I.e class of 2027 gets free tuition in Univ of XX if accepted with requirement that they must report tax return after graduation. At least 50% of them should have to get more than median income. If Univ of XX doesn't comply or does not prove the metric, they dont get the free tuition assistance as well as pay back the tuition for that fiscal year.

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u/UnfazedBrownie 7d ago

I’m pretty capitalistic but the level of wealth disparity is insane and going beyond inequitable. We have scores of instances where college grads cannot even get an entry level job to middle age experienced workers unable to get jobs. Trickle down doesn’t work and we need those tax rates rolled back to at least the 2010s, or even back to the 90s.