The Relative Comment

soothing waves of relativity

When does wealthy become rich?

with 3 comments

What is middle-class American? This is an honest question, and seems ever more relevant as our governments become more and more polarized on issues of tax increases on the “wealthy” and spending cuts on the “poor.” If you read TRC, you’ll have no problem knowing where I stand on this issue. So here’s a discussion question: what does it mean to be rich in the United States? I know little about the reality of taxation from the governing side, so this post is for self-education.

Joe Curl in the Washington Times (I know), draws a picture of the terrible plight of the life of an American family making $250,000 per year, who the President apparently referred to as “rich”. These families are not rich, says Curl, but pay their share, and more, to the government in taxes. Curl runs down the list of taxes paid by a family of 250,000 or more, and the picture he paints is, well, terrible. The lesson is: $250,000/year is no money at all, and President Obama, for thinking these people “rich” is extremely out of touch. After all, the President raked in $5.5 million last year. Concludes Curl: “So, scratch that beach house, that trip to Florida. And you can forget about these people setting up their own retirement. They’ll now have to depend on the federal government giving them back some of the money they paid in taxes.”

After reading this, the question arose: how many Americans are in this unfortunate position of clear middle-class economic over-taxation? And should the number of families living with $250,000 or more really matter as to how they are taxed? If they earned over 250K, is that 250K open to greater taxation?

In 2008, reported 2% of American households made $250,000 or more in a year. In 2009, reported that “under 3 of tax returns” claimed $200,000 or more. Many sites and organizations find the same number, 2-3%. The benchmark of 250K seems to have been set the past few years, and the bar doesn’t seem to be moving. So we’ll say 2-3% of US households make 250K or more. Unless there is a newly expanded definition of “middle” it would seem difficult to paint the highest 3% of income in the US as middle-class.

But there are other factors. The disparity of wealth for example. Middle-class, as in the middle percentages of Americans, may not yet have reached 250K, but they aren’t too far behind. And while there may be a lot of people making 250K or more, a small percentage of those folks are making 1M or more, a much greater disparity. And a small percentage of those folks are making 5M or more. And a small percentage of those folks are making 10M. You see how this works. In the public consciousness of the United States, where millionaires are floating around on the TV and internets with a constant need for acknowledgment, a family of 4 making 250K probably doesn’t feel like they are in the top 3% (to which one might say: how do you think the rest of us 97% feel).
And then there are the taxes.

The tax argument surrounding the 250K line often seems to hinge on the notorious, beloved, ever-American “small business owner.” A great deal of our nation’s small business owners, we hear, make over 250K, thus raising taxes at the established benchmark would harm the small business owner, the business, the employees working in that business, those employees health care options, and any potential hire that may miss the chance of employment. Those are serious consequences, and if they are the result of using 250K as the benchmark, maybe we have to rethink it.

So here are the tax questions:
Aren’t there a whole lot of caveats in the tax code? Haven’t we built a tax system designed to protect these small business owners, or are those just to protect the energy companies and millionaires? Or are there no undeserved protections, and that’s simply a liberal line? Are we talking about raising taxes or are we talking about taking away loopholes and benefits we shouldn’t have provided in the first place?  Should we consider the removal of tax breaks or tax loopholes, as I understand a lot of these tax proposals are, the same as raising taxes?  If so, can we ever right mistakes in the tax code in hindsight or is that the same as raising taxes on the “small business owners” of America? Or do we always have to accept tax decisions from the past?Should it matter if that happens on those just over 250K or only on Oil Companies and the mega-millionaires? Do I have it all wrong and this is not how it works in the first place?

These questions might be mainstream left-leaning questions, eye-rolling to Republicans who see this issue as clear as day. But they are important questions that need responding to help folks like myself. Because when I think of myself and my family, who had a nice upbringing in a family of 4 in a solidly middle-class suburb with few (but our share of) hard-times, making it by fairly comfortably in the Reagan and Bush and Clinton days, our household income never even got the tail end of the breeze from the wake of a 250K annual income. Not Even Close. And now that I’m an adult and married, well 250K/year is the kind of household income we don’t even aspire to. So help me understand wealth in this country, because to me, this all makes no sense.

(*NOTE: there is a political discussion here, too, about the-Grover-Norquist-never-raise-taxes-ever-no-matter-what-pledge-theory of government. But good governance, in my opinion, rarely comes through pledges.)


Written by Christopher ZF

July 11, 2011 at 13:28

3 Responses

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  1. Thanks for the link.

    One thing that tends to get lost in the shuffle is how geography affects income. 250K in my home town in Iowa (population: 900ish) is quite a lot. In Manhattan, it’s not so much. Still, the people making 250K are not what I would call a substantial portion of the population.

    I’d be OK with some sort of geographic adjustment to the tax brackets if someone could devise a way to prevent people from cheating.

    Kosmo @ The Soap Boxers

    Kosmo @ The Soap Boxers

    July 11, 2011 at 15:32

  2. A good point, Kosmo.
    Being from St. Paul, this whole discussion of wealth and income is probably skewed towards my ‘middle-of-the-country’ sentiments.
    But it seems the geography of wealth is also becoming a bit more nuanced. One need not go to Manhattan to find communities where 250k is not so much. One need only choose certain Minnesota, or Wisconsin or Chicago Suburbs where 250K is a paltry household salary.
    Still, geographic adjustments might offer some opportunities. But the multi-home folks might just change their residencies to avoid such grievances, no?


    July 12, 2011 at 09:12

    • Right. That’s what I mean by cheating. Establish some token residence (a room in someone’s house) in a high priced locale to take advantage of the adjusted brackets, while actually residing in a location with a low cost of living. Technically, you need to live 183 days of the year in a location to make it your tax home, but I’m betting a lot of people would bend this rule.

      Kosmo @ The Soap Boxers

      July 12, 2011 at 09:44

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