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What a Difference Two Thousand Dollars Makes

In this first of two articles, the author explains why the $250,000 tax relief cutoff is unfair -- and offers a suggestion for what to do about it.

 

If you made $249,000 last year, then you probably spent this past weekend mowing your own lawn, clipping coupons and changing your car’s oil. If you made $251,000 last year, then you probably spent last weekend cruising Newport. Or perhaps you attended Wimbledon, or relaxed in your Italian villa.

According to President Barack Obama, families earning less than $250,000 are middle income Americans, while families making more than this number are “the wealthiest Americans.” Yet, despite the President’s depth and breadth of expertise in all matters concerning the economy (sic), I have a feeling that there are plenty of families living in expensive areas who would argue that a $250,000 income makes a wealthy lifestyle not only improbable, but impossible.

Look, we all know that earning $250,000 in an area where the average home price is more, well, average means living a better lifestyle. Earning $250,000 in Topeka goes a lot further when the average home costs less than $181,000. Earning $250,000 in Greenwich or Ridgefield or Trumbull -- or anywhere in the New York metro area -- well, you undoubtedly know your way around the plumbing aisle at the Home Depot.

Even Congressional leaders Nancy Pelosi and Chuck Schumer argue that the tax cuts should be extended (or, dare we say, made permanent?) for families earning less than $1 million in earned income.  Could it be that they understand that earning $250,000 -- especially in a major metro center -- in no way predicts a “wealthiest” American? To their credit, they have walked away from Obama’s seemingly arbitrary tax cut cutoff, which paints him more as a stubborn ideologue and less as a compromise-loving leader.

Our nation is lucky enough to enjoy a wide range of diverse economies. Some depend on technology or finance, while others depend on manufacturing, a local hospital, or a blend of them all. And yes, it’s true, areas that contain a large percentage of high-paying jobs tend to be located in high-cost areas. But taxing everyone the same rate without an eye on the local economy unjustly punishes some and rewards others.

One could certainly argue that a family earning more than a quarter of a million dollars in a suburban Mississippi town is probably pretty comfortable money-wise and may very well lead a luxurious lifestyle. Yet in Los Angeles -- or New York, or Washington, DC -- a two-earner $250,000 will cover your mortgage (maybe), your car payments (if you can afford a new one), your taxes (figure $13,000 at the low end), groceries (how much can a teenager eat? A lot), and maybe, just maybe, retirement contributions, travel soccer fees, a new fridge and a trip to the vet when little Rocky eats a pound of chocolate.

And don’t even get me started on higher education costs.

As I stated many weeks ago, at its heart. The reason the real wealthiest Americans get a big tax break is because they’ve saved enough to take advantage of loopholes in investment income rules, such as living off tax-free income. Does anyone really think that a family making $250K per year should pay a greater percentage in income taxes than a Rockefeller-esque tycoon? Of course not. But blaming the rich for having the good sense to take advantage of our current laws ignores the real problem.

The flat tax, an idea first put forth years ago, is worth pursuing as an option. Are you loaded and you want to buy a yacht or a waterfront home in Sagaponack? Awesome. Fork it over, big spender. Are you the manager of a tire plant, your wife is a school teacher and you’re really excited about your upcoming trip to Disneyworld or the pretty new rug in the den? Cool. Pay accordingly.     

It is infuriating when news reports surface that state General Electric paid zero taxes or that Warren Buffett’s secretary paid a higher rate than the Oracle himself. But remember: they are playing the game the way it’s meant to be played.

Let us remember an important lesson that Steve Jobs taught at Apple: do not be afraid to get rid of a product -- in this case, the IRS -- that doesn’t work right, no matter how invested we are in it. Let us not whine, but we’ve always done it this way! Let us make sure that every single American -- legal, illegal, law-abiding, non-law-abiding -- pays their fair share. Period.

KEVIN DILLON July 13, 2012 at 10:04 PM
Brian, your list applies to whomever lives at my address. These expenses would be added to the cost of educating kids that are currently not a cost the town pays for my address.
KEVIN DILLON July 13, 2012 at 10:06 PM
Amen Jim.
BlueMaize July 14, 2012 at 01:22 PM
I'm sorry, I find it difficult to feel sympathy for you. I'd like to add that my family makes significantly below $250,000/year. We have a nice house, we live in Ridgefield, and we've managed to pay veterinary fees, sports fees (really - my sister and I both played on elite teams that cost over a thousand dollars, not to mention travel fees to Boston and Philly and North Carolina and whatnot), and college costs. Recently, after eleven years, we got a new car. We belong to a golf club. By all standards, our lives are pretty damn upscale - despite the fact that we make way below $250,000 per year. I attend an expensive college out of state (mercifully, on financial aid) and every day I am reminded how privileged I have been to grow up in Ridgefield. Yes, $250,000 is "worth" a lot more in other parts of the country, but even the "middle class" in many other places does not live as comfortably as we do here in Fairfield County. I'm sure many of my "middle class" friends from Michigan, Minnesota, and even Chicago or California would be amazed at my lifestyle here. There are people in the USA who struggle to feed and clothe their children every day, and your biggest rationale against a slightly larger tax rate - which, for the record, is still lower than the pre-Bush taxes - is that you can't live comfortably enough to pay excessive sports fees, take care of your (expensive) pets, go on nice vacations, and buy yourself new appliances and cars? Really?
MAC July 14, 2012 at 03:16 PM
The bigger point, that most seem to be missing (like the forest for the trees), is that raising people's taxes is NOT going to solve the problem of overspending by the federal government! Those who were controlling congress, and this president, seem to believe that our earnings are THEIRS, to take as much of as they want!! They call tax rate decreases, such as the current rates (now in effect for over a decade) "expenditures"! Excuse me congress and Obama, but what we earn is NOT yours to take as much of as you want! These tax INCREASES PBO is calling for would not even run the government for more than a few days!! The government does not have a revenue problem, they have a SPENDING problem!!! Obama has added 5 TRILLION $$$ to the national debt in less than 4 years!!! Also, the federal government BORROWS 40 cents of every $$ it spends, and is spending 25 % of the entire GDP!!!
Bill July 14, 2012 at 08:19 PM
Jerry- I certainly agree with you that it's not worth spending my time agonizing over such things - because I don't. My point to you is "don't.bite the hand that feeds you." Which is the reason I replied to your post. "Aw, my heart goes out to those who can't maintain a wealthy lifestyle, indeed to have to scrape by, on $251,000 a year. What an injustice. What deprivations they must suffer." Why are you so resentful towards those that are financially more successful than you? You stated "I wake up every day thanking God I live in such a great town with great people, amenities, schools, services and recreational facilities. All of which I consider an incredible bargain for the modest taxes I pay. I already feel like I'm one of the wealthiest Americans" If you truly feel that way, and I sincerely hope you do, why would you care about what other people make? Why would you care if they are disappointed or upset that more of their money- that they worked for, is being taken due to higher taxes?

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