The government's new definition of rich

[Doomsday101]

(Fortune Magazine) -- Are you rich? If you make $250,000 a year, President Obama and Gov. David Paterson of New York think you are. The SEC disagrees. It tells financial firms that a high-net-worth individual is someone with at least $750,000 parked at a particular institution or someone the firm "reasonably believes" to have a net worth exceeding $1.5 million.

The reason this debate matters is that federal and state governments are looking at the worst deficits ever seen. In their desperate search for funds, they are going to tax some subset of the wealthy. Let's hope they train their cross hairs where they do the least damage.

When President Obama said he would raise taxes on the wealthy, he set the increases to start at an income of about $250,000. Gov. Paterson recently worked out a rise in New York's state income tax that takes effect at the same level. If all that those politicians mean by "rich" is the small portion of the population at the top of the economic heap, then households making over $250,000 is a fair definition: Only about 5% of U.S. households have annual incomes over $200,000.

The flaw in that definition of rich is that plenty of families making $250,000 a year don't feel rich. They probably see themselves as upper middle class, especially if they live in blue-state coastal cities and suburbs. An income of $250,000 is a lot richer in Abilene, Texas, than in New York's Nassau County, where it takes $430,000 to enjoy a similar quality of life, according to bankrate.com. So let's call them the "working rich."

What's troubling about raising the tax burden on the working rich is that this group already pays proportionately more tax than the super-rich. In addition, the working rich aren't as adept at sheltering their wealth from the tax man through deferred-compensation schemes or other loopholes.

In 2006, the most recent year for which information is available, the average tax rate for the working rich was 22.8% - that is, after all was said and done, they ended up paying 22.8% of their adjusted gross income in income tax. The floor for being in the top 1% was an income of $388,806. That same year the average tax rate paid by the super-rich - the 400 filers with the highest incomes - was only 17.2%.

When will you be a millionaire?
What is possibly more galling than the easier ride of the super-rich is that raising taxes probably won't accomplish much when it comes to getting us out of these troubled times. Consider a couple of harsh realities:

Soaking the rich doesn't stimulate the economy. It only changes who is doing the spending - the government or private citizens.

Soaking the rich doesn't even seem to increase tax revenues. The top marginal tax rate has fluctuated wildly over the past 50 years, from 91% to 28%; it's now 35%. But individual tax revenue as a percent of GDP hasn't varied much at all - it hovers at about 8% - and its variations don't correlate with the top tax rate. The reasons are many, but the bottom line is that as government deficits soar to unimagined levels, taxing the rich isn't likely to yield nearly as much as governments are hoping for, and it may not yield anything when the numbers are all totaled.

The best alternative is to rein in spending. If we are going to create record deficits, it would have been better to do it by cutting taxes than by jacking up spending, but that battle is over. Now let's be sure not to increase the stimulus, as Obama has suggested we might, and not let taxes rise in 2011 as they're scheduled to do. Most important, the Federal Reserve needs to keep interest rates low, which research shows is the main factor that ends recessions.

There is one thing that soaking the rich will do effectively, and that's redistribute wealth. Obama's new budget would increase federal payments to low- and some middle-income Americans through increases in the Earned Income Tax Credit, the Child Tax Credit, and other programs. Candidate Obama was quite clear that he intended to do that, so he can rightly claim that the voters gave him a mandate for it. Let's just understand that reslicing the pie to give the rich a smaller piece doesn't make the pie any bigger - and won't get us out of the recession any faster.


http://money.cnn.com/2009/05/04/news/economy/colvin_rich.fortune/index.htm?postversion=2009050512

[WoodysGirl]

Something that I read a few weeks back is that the 250k number was tied to two-income households.

For single income households, the number is lower...around 75k.

I'd have to look for the article where I saw that. It was in one of those tax articles.

[DFWJC]

Something that I read a few weeks back is that the 250k number was tied to two-income households.

For single income households, the number is lower...around 75k.

I'd have to look for the article where I saw that. It was in one of those tax articles.

That's right. It's 250k for the entire household...something they almost always fail to mention. It doesn't matter to me, b/c I think there is no scenario where the government should get more than 1/3 of your income.

[BrAinPaiNt]

If my household got 250k a year it would be like me being the fresh prince of belaire (sp?)...it would be a huge step and I would consider myself not only hillbilly rich but flat out rich.

[arglebargle]

That's right. It's 250k for the entire household...something they almost always fail to mention. It doesn't matter to me, b/c I think there is no scenario where the government should get more than 1/3 of your income.


I gotta agree here. This sort of thing makes a flat tax system seem much more reasonable.

[Bob Sacamano]

If my household got 250k a year it would be like me being the fresh prince of belaire (sp?)...it would be a huge step and I would consider myself not only hillbilly rich but flat out rich.

:muttley: would you move to Beverly Hills?

[Hoofbite]

I gotta agree here. This sort of thing makes a flat tax system seem much more reasonable.

Fair Tax Baby!!!!!

[JBond]

If my household got 250k a year it would be like me being the fresh prince of belaire (sp?)...it would be a huge step and I would consider myself not only hillbilly rich but flat out rich.

really? 250k is not what it used to be. Especially if you are a small business owner.

[BrAinPaiNt]

:muttley: would you move to Beverly Hills?

Yes and I want a cement pond and critters.

[BrAinPaiNt]

really? 250k is not what it used to be. Especially if you are a small business owner.

You make 250k in my county and you are considered extremely well off.

But then again the cost of living is much less than many places.

[DFWJC]

You make 250k in my county and you are considered extremely well off.

But then again the cost of living is much less than many places.

It's all relative...even if your family tree doesn't split. :eek:

[Bob Sacamano]

It's all relative...even if your family tree doesn't split. :eek:

:laugh2:

[BrAinPaiNt]

It's all relative...even if your family tree doesn't split. :eek:

Never heard that one before....NOT

Now I could tell you a few good ones...but I have to follow board rules.:D

Relative humidity...if you know the joke you know why I can't continue with it.

[Bob Sacamano]

Never heard that one before....NOT

Now I could tell you a few good ones...but I have to follow board rules.:D

Relative humidity...if you know the joke you know why I can't continue with it.

PM me it, you hack

[jrumann59]

If my household got 250k a year it would be like me being the fresh prince of belaire (sp?)...it would be a huge step and I would consider myself not only hillbilly rich but flat out rich.

Living in MD 250K a year would firmly entrench my household in the middle of the middle class. The premise of the article is what I have been saying since he stumped on the 250K number. 250K does not take into consideration the location of said household. $250k goes a hell of a lot farther in Missouri than in NY or California. His number has to be adjusted using a COLA.

[DFWJC]

Living in MD 250K a year would firmly entrench my household in the middle of the middle class. The premise of the article is what I have been saying since he stumped on the 250K number. 250K does not take into consideration the location of said household. $250k goes a hell of a lot farther in Missouri than in NY or California. His number has to be adjusted using a COLA.

The number is WAY too low. But a COLA would not work for Federal Tax code. I can't even imagine the uproar and complexity involved over different fed tax rates based on what city or state you live in....talk about a mess.

I agree that dollars go further in some areas than others, but that is part of the reason people move to those places to retire, etc. Like I said before...1/3 of our income should the max tax under any circumstance.

[ChldsPlay]

The number is WAY too low. But a COLA would not work for Federal Tax code. I can't even imagine the uproar and complexity involved over different fed tax rates based on what city or state you live in....talk about a mess.

I agree that dollars go further in some areas than others, but that is part of the reason people move to those places to retire, etc. Like I said before...1/3 of our income should the max tax under any circumstance.


I'm no expert, but I also believe it would be unconstitutional. I'm pretty sure the Constitution states that any federal tax must be applied equally across all states.

[CowboyFan74]

What if you gross $250K but only net $50K, are u still "rich?"

[theogt]

What if you gross $250K but only net $50K, are u still "rich?"Why on earth would that be the case?

And in my opinion, grossing $250k is NOT rich. Not even close.

[ABQCOWBOY]

A fair tax. Why is this so hard for a smart Lawyer with an Ivy League education to understand?

[theogt]

A fair tax. Why is this so hard for a smart Lawyer with an Ivy League education to understand?How about we call it a regressive tax?

[ABQCOWBOY]

How about we call it a regressive tax?

Well, that would certainly server as a motivation to earn more money. However, I think a fair tax is probably better. I don't want to be accused of singling a certain economic segment of the populous out and using them as lambs for the masses.

[theogt]

Well, that would certainly server as a motivation to earn more money. However, I think a fair tax is probably better. I don't want to be accused of singling a certain economic segment of the populous out and using them as lambs for the masses.I think "fair tax" is a poor definition since it'd be difficult to settle on a definition of "fair." There's no question that it's a regressive tax, though. Most would consider a regressive tax to not be fair.

[ABQCOWBOY]

I think "fair tax" is a poor definition since it'd be difficult to settle on a definition of "fair." There's no question that it's a regressive tax, though. Most would consider a regressive tax to not be fair.


I don't know that I subscribe to that. If you make a dollar and your taxed x% on that dollar, then nothing could be more fair IMO. If you make 20K or 200K, the % taxed on each dollar is the same. I don't see the unfair part of that taxation.

[theogt]

I don't know that I subscribe to that. If you make a dollar and your taxed x% on that dollar, then nothing could be more fair IMO. If you make 20K or 200K, the % taxed on each dollar is the same. I don't see the unfair part of that taxation.Really, you don't see how it's unfair?

You must not be familiar with notion of diminishing marginal utility.

[theogt]

Let's say I have $200k and you have $20k, and the goal is to raise $66k in taxes. In order to achieve that, we can do that by taxing us both at 30%.

I would pay $60k and have $140k left over, and you would pay $6k with $14k left over. Based on what it takes for an average person to live off, who would be hit harder by this method of taxation?

Another way we could raise the same amount of money is tax me at a rate of 32% (rather than 30%) and tax you at 10% (rather than 30%). This would leave you with $18k and me with $136k.

That extra $4k in taxes has much less of an impact on me than that extra $2k would on you, because of the declining marginal utility of money. In other words, for someone that makes $200k, the loss of $4k would have less impact on their life than the loss of $2k by someone who makes $20k.

Make sense?

[CowboyFan74]

Why on earth would that be the case?

And in my opinion, grossing $250k is NOT rich. Not even close.

That's a 20% return on an investment/business. You'd be amazed how much over head small businesses have.

[theogt]

That's a 20% return on an investment/business. You'd be amazed how much over head small businesses have.That doesn't make any sense at all. You still have the $250k in terms of assets you own. You're confusing your analogy completely. What you're trying to analogize taxes to is profit margin. And that doesn't make any sense either.

And I wouldn't be amazed at costs businesses have since I stare at financial statements every day.

[CowboyFan74]

That doesn't make any sense at all. You still have the $250k in terms of assets you own. You're confusing your analogy completely.

I didn't realize assets was part of the equation. I was only speaking of revenue.

[theogt]

I didn't realize assets was part of the equation. I was only speaking of revenue.Read my edited quote. Your analogy doesn't make any sense at all. If you're going to compare total revenue and profit margin of a company to an invidual, then you have to look at total revenue produced by an individual worker, not just his individual salary or wage. The worker produces that revenue, but he pays the costs to his employer who provides him the opportunity to produce that revenue.

For example, if I'm a salesman and sell $1,000,000 worth of stuff, I have a total revenue of $1,000,000. But my take home pay may only be $100,000. I likely couldn't make $1,000,000 worth of sales without the company backing me up -- i.e., making the product, providing the office building, etc. I "paid" my employer $900,000 for those services. Just the same as a business has costs.

[lewpac]

Something that I read a few weeks back is that the 250k number was tied to two-income households.

For single income households, the number is lower...around 75k.

I'd have to look for the article where I saw that. It was in one of those tax articles.

Alright, I'm DONE wondering.............is that really YOU in the avatar? Because, if it is, I may have a serious crush................

[jrumann59]

The number is WAY too low. But a COLA would not work for Federal Tax code. I can't even imagine the uproar and complexity involved over different fed tax rates based on what city or state you live in....talk about a mess.

I agree that dollars go further in some areas than others, but that is part of the reason people move to those places to retire, etc. Like I said before...1/3 of our income should the max tax under any circumstance.

I agree using COLA would be a headache but use an number without thinking how that relates to an area is "special" olympics thinking. Maybe getting rid of the IRS on the large scale and maybe allow the states to collect all taxes, at a higher rate, and the fed takes their share from the states coffer, sort of like a tax to the states.

[WoodysGirl]

Alright, I'm DONE wondering.............is that really YOU in the avatar? Because, if it is, I may have a serious crush................
Nope, not me. It's Queen Latifah. She photographs well, huh?

I'm sorry to lose your crush, tho.

[burmafrd]

I beleive that its been worked out that a 17% flat tax on all income above $30,000 would give us as much current tax receits as we get right now.
The plus would be the billions saved as no one needs tax lawyers, accountants, H & R Block, etc to do their taxes.
Now business taxes would have to be looked at separately, but I fail to see how this would NOT be a plus.

[BrAinPaiNt]

I beleive that its been worked out that a 17% flat tax on all income above $30,000 would give us as much current tax receits as we get right now.
The plus would be the billions saved as no one needs tax lawyers, accountants, H & R Block, etc to do their taxes.
Now business taxes would have to be looked at separately, but I fail to see how this would NOT be a plus.

One would imagine that might play into (even if it is just a small amount) in why no politician that has a realistic chance of winning the presidency actually runs on a flat tax proposal.

I think it would be a good thing for everybody but it just seems that it is one of those things that everyone seems to love but also something that has no realistic chance of happening.

Oh well...we can still hope.:D

[theogt]

I beleive that its been worked out that a 17% flat tax on all income above $30,000 would give us as much current tax receits as we get right now.
The plus would be the billions saved as no one needs tax lawyers, accountants, H & R Block, etc to do their taxes.
Now business taxes would have to be looked at separately, but I fail to see how this would NOT be a plus.No, you would still have all of the tax advisors with a flat tax, because you would still have a system of deductions and credits, which requires experts to navigate. Changing the brackets to a single rate would not change that at all.

The only thing different would be that you're switching to a regressive tax system which squeezes the middle class even more. The reason that a flat tax doesn't have a chance in hell to pass is because it's a stupid idea.

[Temo]

No, you would still have all of the tax advisors with a flat tax, because you would still have a system of deductions and credits, which requires experts to navigate. Changing the brackets to a single rate would not change that at all.

The only thing different would be that you're switching to a regressive tax system which squeezes the middle class even more. The reason that a flat tax doesn't have a chance in hell to pass is because it's a stupid idea.

In some ways, a flat tax would actually be less regressive than our current system. That said, I've always been in favor of a progressive consumption tax.

[theogt]

In some ways, a flat tax would actually be less regressive than our current system.I fail to see any way in which it would be less regressive than our current system.

That said, I've always been in favor of a progressive consumption tax.A consumption tax is certainly regressive, NOT progressive.

[DFWJC]

I beleive that its been worked out that a 17% flat tax on all income above $30,000 would give us as much current tax receits as we get right now.
The plus would be the billions saved as no one needs tax lawyers, accountants, H & R Block, etc to do their taxes.
Now business taxes would have to be looked at separately, but I fail to see how this would NOT be a plus.

I'd be all for a flat 17%, as it would be great for me, but it cannot fly. If you think people complain about the middle class paying too much now (right on wrong), they would go nuts with this.

It's not that some would be paying more so to speak, it's just the same issue that some will be concerned about other people not paying "enough" in their point of view. Some people are all too eager to pay the government more, if it does not come out of their pocket. 17% is fair no matter how you shake it, but it is not progressive....and that will always be an issue.

Other obvious issues with the flat tax is how it would affect certain industries--take real estate for example. Will the mortage deduction still exist? If not, won't that devalue real estate? and so on......

[iceberg]

if obama wants more tax money tell his dem counteparts to start paying what they owe.

[PosterChild]

if obama wants more tax money tell his own cabinet appointees to start paying what they owe.

Fixed it fer ya

[burmafrd]

When Steve Forbes was running for President and he was pushing the flat tax (and this would have NO deductions for anything- just a flat 17% of your gross earnings) he found that much of the opposition to it came from home owners wanting their deduction. No matter how he explained how much they would save BEYOND that deduction they still opposed it.
That is my wish: a flat 17% tax on your gross income and no deductions. Anyone could do their taxes in 5 minutes with no help.

[Jarv]

When Steve Forbes was running for President and he was pushing the flat tax (and this would have NO deductions for anything- just a flat 17% of your gross earnings) he found that much of the opposition to it came from home owners wanting their deduction. No matter how he explained how much they would save BEYOND that deduction they still opposed it.
That is my wish: a flat 17% tax on your gross income and no deductions. Anyone could do their taxes in 5 minutes with no help.

Yeah Burm, I was going to mention that about Forbes also. I don't recall the thread but a while back someone blabbed you can't argue with a certain article because Forbes agrees with it and he is smarter than you...Bla Bla...

It would be funny if it was the same person who is against the tax. No way I'm saying it is, but its funny how sometimes you can quote someone to prove a point and be against that same person to prove another point.

[theogt]

When Steve Forbes was running for President and he was pushing the flat tax (and this would have NO deductions for anything- just a flat 17% of your gross earnings) he found that much of the opposition to it came from home owners wanting their deduction. No matter how he explained how much they would save BEYOND that deduction they still opposed it.
That is my wish: a flat 17% tax on your gross income and no deductions. Anyone could do their taxes in 5 minutes with no help.Not having deductions is idiotic.

[jrumann59]

Not having deductions is idiotic.

It is and it isn't, ultimately this where people seek shelter whether their deductions are accurate is another story. Taking "fraud" out of the tax code will turn off many to this propsition just like Forbes tried to explain.

[theogt]

It is and it isn't, ultimately this where people seek shelter whether their deductions are accurate is another story. Taking "fraud" out of the tax code will turn off many to this propsition just like Forbes tried to explain.Ever heard of throwing out the baby with the bathwater?

[iceberg]

Ever heard of throwing out the baby with the bathwater?

it was one of my hobbies as a kid. : )

[burmafrd]

for someone who prides himself as some kind of economic "expert" OGT seems very opposed to flat taxes.

[theogt]

for someone who prides himself as some kind of economic "expert" OGT seems very opposed to flat taxes.Just because some of the conversations on here are above your head doesn't mean I think I'm some kind of expert.

[iceberg]

Just because some of the conversations on here are above your head doesn't mean I think I'm some kind of expert.

and just because you said "some" doesn't mean you didn't mean "most".

[theogt]

and just because you said "some" doesn't mean you didn't mean "most".:laugh2:

[jrumann59]

Ever heard of throwing out the baby with the bathwater?


I am actually on the fence about the deduction-less flat tax but I can see the point of both arguements. Ultimately you want as much money coming in with in reason and want as little as possible to be excluded legally. Unfortunately the the wealthier you are the more you are likely to want to keep more than your fair share, its human nature.

[burmafrd]

That is why the flat tax is the best way to go with NO DEDUCTIONS for anyone. Everyone pays the same percentage. There is no more fair way to go then that.

[jrumann59]

That is why the flat tax is the best way to go with NO DEDUCTIONS for anyone. Everyone pays the same percentage. There is no more fair way to go then that.

The question then is how will that affect people donating. Donations while they are meant to be from the heart, I would say a good majority is for tax purposes.

[theogt]

The question then is how will that affect people donating. Donations while they are meant to be from the heart, I would say a good majority is for tax purposes.It's not just that. All sorts of economic behavior is tax driven. You're talking unintended consequences to the nth degree if something like this were ever implement.

Of course, it won't be because it's idiotic.

[Temo]

I fail to see any way in which it would be less regressive than our current system.

Because in certain situations, people at the very high end will pay very little percentage-wise compared to people on the low end, if you include payroll taxes.

A consumption tax is certainly regressive, NOT progressive.

Yea, which is why I specified a progressive consumption tax. IE, consumption between 0-25K is taxed at X%, 25-50K is taxed at Y%, etc. Although not that simple, it would have to be a formula that continually gradually increases the %, so that there's no big jumps from one level to the next.

There's a lot of economic models that suggest that this may be the most efficient form of taxation, especially if your goal is to encourage saving (which the current tax system actually penalizes to a degree).

[ABQCOWBOY]

Theo, I`m sorry, I am just getting back to this thread. No, I do understand the point you are trying to make. I think you have to probably set some minimums there but essentially, you gotta make what you gotta make. There have been times in my life where I worked two and three jobs to make what I needed to. At the end of the day, people will make the money they have to and be taxed fairly for it. I didn`t make 250K when I started. It took work. I do believe in a fair tax.

[ScipioCowboy]

I'm undecided about the flat tax proposition.

However, the point about deductions is quite valid. According to a study done by the Tax Foundation of America, despite popular belief, the tax cuts instituted by President Reagan actually made the tax code more progressive, not regressive. This is because he eliminated many of the deductions and shelters that were previously allowable.

[sbark]

The question then is how will that affect people donating. Donations while they are meant to be from the heart, I would say a good majority is for tax purposes.

....gotta discount the charity for tax purposes only ......

The working poor in America give more to charity than the middle class

The American working poor are, relative to their income, some of the most generous people in America today. The nonworking poor, however—those on public assistance instead of earning low wages—give at lower levels than any other group. In other words, poverty does not discourage charity in America, but welfare does.

Upper level income people often give less than the working poor

Among Americans with above-average incomes who do not give charitably, a majority say that they ‘don’t have enough money.’ Meanwhile, the working poor in America give a larger percentage of their incomes to charity than any other income group, including the middle class and rich. http://www.arthurbrooks.net/statistics.html (http://www.arthurbrooks.net/statistics.html)

[jrumann59]

Yea, which is why I specified a progressive consumption tax. IE, consumption between 0-25K is taxed at X%, 25-50K is taxed at Y%, etc. Although not that simple, it would have to be a formula that continually gradually increases the %, so that there's no big jumps from one level to the next.



Not to be a smart alec but how would one go about properly calculating how much one person consumed? Would one file a tax return with a receipt for every item bought over a years time? Or would their be a national ID card that gets updated every year with ones taxes that gets scanned at the register and a proper sales tax is calculated? Really please tell how this system works, I am truly curious.