The latest point of contention in the “will they or won’t they?” session of Congress is whether to extend tax cuts to the “rich.” There seems to be a lot of discussion about what constitutes rich. Some in Congress have indicated that taxpayers making more than $200,000 per year are rich with others suggesting $250,000 or $500,000 as more appropriate thresholds for blocking cuts. Today’s headline on one major web site says “Dems Vow No Cuts for Millionaires” although the $1,000,000 figure hasn’t really been used as a suitable cutoff in most discussions about cuts.
So, I want to know for today’s “Fix the Tax Code Friday” question:
How rich is rich? If Congress were going to impose a threshold for taxpayers at the “top”, what would the “top” be?
Rich is in the eye of the beholder and in a country the size of the US, it’s hard to put a number on it. Someone that makes $100k in Nebraska is pretty rich, but someone in NY or CA, might only be getting by depending on what town they live in in each of those states, but I feel like once you’re over $300k, you are in the rich category pretty much anywhere.
Agree with Scott. As large and diverse as the US is, financially rich can be defined by anyone with an agenda. In NC, $500K is RICH, and those who are able to master $1M, they are the SUPER RICH. One of my collegues at work, who has had a less generous upbringing considers $100K rich for his family and area he lives. For me, and my environs, $500K meets the rule.
But the government is looking at not the few can pay more, but like insurance companies, more people paying more brings in the cash.
Example: those who can afford beachfront property, who most likely fall into the RICH and SUPER RICH category and upward, only experienced a 19% in their storm damage premiums this year. And you can only put so many folks on Wrightsville Beach, Topsail Island, and even less on the private island of Figure Eight where the SUPER RICH ++ live. Whereas the folks who live west of the ICW and east of US 17, were slammed a 35%+ increase. Reason is simple. More folks live on the land side than the ocean front. Beachfront folks experience the same storms, and most times many times worst. So the folks on the land side are subsidizing those SUPER RICH who have waterfront property. Why the difference? Just bottom line, more folks on the mainland, that have much less clout with the Insurance Commissioner and the NC Legislature, than the collective votes of the folks on the mainland.
The same holds true with the Bush-era tax cuts. Who benefits when the line is drawn defining RICH. The folks who make up to $250K should be glad Congress does nothing and we all pay the taxes paid before those tax cuts.
But more scary than the defining RICH and the Bush-era tax cuts, is the creeping AMT that wraps around more folks every tax cycle. Congress views the AMT as the cash cow, and one day they “will fix it”, and I believe the American taxpayers will not like the results.
Fix the whole tax system! Maybe we should “transport” the Founding Fathers back, and let them set the country on the course and economics this country aspired at the time. Reality is we can’t. Economics have driven us to this point, and eventually the bill will fall due. Just when is the question, not if.
NOTE: Ear-marks folks, are not healthy for your tax bill. If a senator feels they have a good case for a “bridge to nowhere”, then present it to their collegues and vote on it. Same goes for “studying the sexual habits of the fruitfly”. The recent Senate vote not to ban ear-marks, as a sign of superior standards versus the in-coming House, stinks. Taking home the’bacon’ gets you re-elected. (That’s a whole ‘nutter’ problem, professional politicians). Important to somebody, but not the nation as a whole, particularly in these economic times.
My opinion of Rich is anyone who earns 500K or more. This includes any and all income sources.
I agree with both of you in that being rich is subjective to where you live. In CA 100k most likely would be barely making it. When 600k buys you a house in a questionable neighborhood with bars on the windows, 200k doesn’t seem like rich at all. I live in the greater Philadelphia area. I think that for the most part anything around $300k would be rich. I don’t really think that at 200k a family of 3 or 4 could really be considered rich because the cost of daycare and housing. The thing that I don’t understand and taxgirl maybe you can explain this to me. I was under the impression that the whole issue on the tax breaks was that they hurt small business owners because it is the money they made before taxes and expenses like paying their employees. So for example, if I owned a business and had 2 employees. I paid the one employee 40k/year and the other 45k/year. If the business took in 300k. And I had other expenses that were somewhere around 70k a year or more. I paid myself 100k and reinvested the remaining money into the business for equipment, training etc. Wouldn’t it be safe to say that I would be paying taxes on the 300k not the actual profit which was more like 45k after expenses. Plus since I am the owner I would have to pay more in taxes for my salary.
Even asking the question how rich is rich is an indication of how far along the class warfare highway we’ve traveled. In an economy that is still reeling, witness today’s horrible rise in the rate of unemployment to 9.8%, there isn’t any good reason to raise anyone’s taxes. A hefty tax will only cause more jobs to be lost. The country needs sound predictable tax policy. To answer the question directly we are all too rich and too poor to afford job killing tax increases. Extend the tax cuts across the board for two years and take care of the debt authorization, these are the priorities. Do these things first. The AMT patch could be addressed permanently by raising the dollar amount that gets excluded and then indexing that to inflation. If that’s not too much adult activity, extend the unemployment by three months with a cap at ninety nine weeks. Three months from now start to cut the number of weeks back to twenty six weeks by taking one week away from the ninety-nine week total every week until twenty six weeks is achieved. How about that, tax and income planning that makes sense and a little bit of bi-partisanship to boot.
Why do you consider beeing rich in term of income and not in term of wealth? Seem’s strange….
Stan, the income tax provisions are based on income, not assets (wealth). That’s why I framed the discussion in those terms.
How about a sliding scale? At $1 million and up, undo the whole of the Bush tax rate cut. At $250,000 and below (the Obama number), make the Bush rate cuts permanent. And in between, undo 1/3 ($250k to $500k) or 2/3 ($500k to $1000k) of the Bush rate cuts “permanently”. And, of course, make sure the newly created brackets are indexed for inflation.
And, on a different note … please fix the AMT once and for all by indexing the thresholds … please make the capital gains and dividend cuts permanent for all (lots of retired people have investments, and with the taxability of social security, they do pay taxes) … and please pick a reasonable exemption for the estate tax and make it permanent ($1M is too little, and infinity is too much).
Keep in mind that legislators like to refer to “taxpayers making more than $XXX per year…” because it gives the impression that they’re referring to individuals, when in fact they mean households. Since these legislators are also politicians, they’re always looking for cover in the never-ending game of determining how low they can set a threshold for “rich” or “wealthy” taxpayers without sacrificing their reelection. Ultimately, all the semantics and all the loopholes in the tax code are simply a means of shifting burdens to the smallest possible segment of potential voters. In other words, our legislators know, as did de Tocqueville, that a democratic form of government is the only one in which those who vote for a tax can escape the obligation to pay it.
$250k may or may not be a reasonable number. If it is strictly wages, I can go along with that. But what about those folks that receive flow through K-1’s who have to report income on their 1040’s and never receive the cash because it is being reinvested into their businesses. Sure, they may show income greater than $250k, but received a salary much less than that. You tax those folks at a higher rate, now they have to distribute more cash to pay the tax which leaves less for capital improvements, which means slower growth (if any), which then extends the time necessary to hire additional workers. Problem is that there are few in Congress that really understand the tax law. Maybe there should be a requirement that they have to be able to correctly prepare their own 1040 before they can vote or comment on tax matters.
As is clear from the discussion above, “rich” is a relative term which in only definable in the context of each individual’s situation. We already “punish” the “rich” in the tax code with graduated rates, credit limits/reductions, reduction/elimination of itemized deductions and exemptions, AMT, etc. All the talk about “tax cuts for the rich” is propaganda! Congress is not considering cutting taxes, they’re considering making the current tax code permanent. If they don’t they’re increasing taxes! The only way to “fix” the tax code is to scrap it and start over, IMHO!!
To continue the thread WRT the subjectivity of the term, by global standards, practically everyone who lives in the United States is “rich.” If you have a house or apartment, a car (any kind, whether newer or not), a change of clothes, and enough money to eat three times a day, congratulations: you’re rich.
That said, I don’t believe needless taxation is the way to prosperity for any nation. More wealth in the hands of those who create it enables people to start businesses, hire employees, or give it away.
I hate class warfare. I wish our tax code was blindfolded like justice and didn’t seek to promote policy. So many Code Secs, so much bureaucracy, so much waste in the administration of such a pathetic tax system in the “free world.”