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Why $250,000 per couple is not RICH: Class warfare & The Budget Deficit fix

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Today, the President  will unveil  his new debt and deficit reduction plan in the White House’s Rose garden.  It calls for $1.5 Trillion dollars in new taxes .   In sum, as summarized by ABC, the package will include $1.2 trillion in discretionary cuts that were already enacted in the Budget Control Act passed by Congress;  $580 billion in cuts and reforms across all mandatory programs; $1.1 trillion in savings from troop draw downs in Iraq and Afghanistan; $1.5 in tax reform — $800 billion from allowing the top rate Bush tax cuts to expire; $700 billion in closing loopholes and limiting deductions many of which he has discussed publicly before; $430 billion would be additional interest savings.

The Republicans are saying that the effort will be D.O.A. (dead on arrival) because they are of the position that in this economy, any effort to increase taxes on the so-called “job creators) (e.g. millionaire and billionare business men and women) would be tantamount to halting economic recovery.

The plan will include the so-called,  “Buffet Rule”, a proposal that ould establish the principle that anyone earning more than $1 million a year should not pay taxes at a lower rate than middle class Americans. The rule is named for investor Warren Buffet who wrote in August that the wealthy are being “coddled.”

Alas, I have NOT seen the bill yet however, I have heard rumblings that the bill will start with eliminating tax cuts at the $250,000 threshold level which is considered high income but certainly and by all means NOT RICH. On several occasions, law makers and the President himself have described people in this group as rich.

I had this debate with a friend of mine online and in various digital spaces recently about how it is misnomer to refer to those earning $250,000 per couple rich.

A couple earning $250,000, while making a substantial amount of money compared to most in the country – heck the world, have more obligations by circumstance of  their affluence and choice, but still cannot be classified as rich, necessarily.

Consider this scenario:

The take home monthly salary after taxes at the 34% tax bracket is $13,750 monthly.

Subtract

$4,000     mortgage payment

$900.00  lease or loan for two cars

$6,000     private school tuition for two children

$1500      Automobile Insurance, utilities, phone, gas, petrol,

$1000     Miscellaneous (grocery, dry cleaning, travel)

$1050       School loan/Life & Health insurance payments

$300       Savings/Rainy Day fund or Credit Card payments

———————————-

$13,750

And if the adults in this hypothetical scenario are not employed by anyone,  but are small business owners, their take home may be even less depending on their business expenses.  They may opt to draw a reduced salary to offset costs. Thus, even with tax incentives and tax breaks available to help sustain the business, they still have more outlay than the average wage-earner.

This hypothetical household described above  is (1)rich perhaps in education and income potential that comes from being educated; (2)rich in home ownership;  (3) rich in knowledge that their children are getting top quality care; (4)rich in having the luxury of having left over a modest monthly savings;  and (5) rich in the home equity accrued in their house (though in this market so many homes are under water that this may not hold true for all).

It’s not all gravy as people seem to think. While folks in this income bracket may appear wealthier than others, a person with less obligation, with his/her children in public school;  who is without a car and did not attend college on loans and  is not saddled with college loan payments may have more left over each month for discretionary spending to stimulate the economy than some high income earners.

Thus, the definition of rich, in my opinion, should be: having substantial liquid and assets in reserves from which one can draw and the luxury of not having to work because one has sufficient real estate, assets and investments that are earning enough revenue, interest and residuals that would absolve one of the need to work.  I may be describing the angel investor who lives off the interest of his trust fund investments here.

The answer is not to say the $250K couple that they should pay MORE in taxes or else downgrade their home, take their kids out of good schools or close their businesses because that would be penalizing people for working hard to get the best. We don’t want to be a nation that discourages hard work, education and perseverance. (though in this economy, I have seen people have to make these exact drastic cuts)

Understandably, it  may seem ludicrous to those who say the GOP does not want to tax the wealthy to make them pay their fair share in helping the nation reduce its deficit and to force beneficiaries of entitlement and social programs to bear the brunt via tax cuts.

But, in reality, everything isn’t black and white.  It’s easier when you are on one platform to look over at another group and point fingers.  It  is important that the definitions and language stay clear of these artificial thresholds that create division unnecessarily among various income tax brackets.

Otherwise, the budget and deficit talks will indeed create a micro-version of class warfare.

The President is the president for all income-brackets not just the middle class.

 

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One comment

  • You’re correct to point out that income is not the same as wealth. However, it’s a fact that ‘wealth’ is a subjective term — even when discussed in the context of material possessions.

    It helps to define ‘income’ for what it is in order to have a reasonable discussion about income taxes. ‘Income’ is money or other benefits derived from the sales of labor. Income taxes are actually a type of sales tax. Sales tax rates are routinely adjusted up or down for legitimate purposes, depending on various economic conditions, public policy goals, and fiscal needs at a given point. Sales tax rates may be specific to a single industry or activity. Sales taxes are not assessed against personal holdings (‘wealth’) — which partially explains why characterizing a 10% increase in the marginal income tax rate for the top bracket as “class warfare” is a poor argument. There are many individuals and families that are ‘equity rich, but cash poor’; they aren’t affected by changes in income tax rates.

    We now know the income tax cuts from 2001 and 2003 were actually expenditures we could not afford then or now. In that they account for a considerable amount of our current national debt and annual deficits, the fiscally prudent thing to do is to let them expire, in stages, in order to put the Federal gov’t on sound financial footing.

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