POLITICS - Just Who Is "Rich" Debate

"In Tax Cut Plan, Debate Over the Definition of Rich" by DAVID KOCIENIEWSKI, New York Times 9/29/2010

Excerpts (2pg article)

Much of the debate about whether to extend the Bush tax cuts has focused on big economic issues: how the decision might affect the fragile economy, the widening federal deficit and hiring by small businesses.

As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.

President Obama has proposed preserving the cuts for middle-class Americans and letting them expire for the top 2.5 percent of taxpayers — individuals who make more than $200,000 a year and families whose income exceeds $250,000.

But others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000. The Senate will not vote on the matter until after the midterm elections, and some Democrats are pushing for a compromise that would leave the cuts in place for those higher up the income scale.

“I think the $250,000 level is too low,” said Senator James Webb, Democrat of Virginia. “I’m asking that it be raised.”

One proposal being discussed is a millionaires’ tax, which would create one or two additional tax brackets for the wealthiest Americans and eliminate the Bush tax cuts only for those who earn more than seven-figure incomes.
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“If you make the tax law simpler, more easily understood and fairer, you end up with a higher level of compliance and more revenue,” said Senator Judd Gregg, Republican of New Hampshire, co-sponsor of a tax overhaul plan that would eliminate many deductions and exemptions and reduce the total number of brackets from six to three.
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At the heart of the debate is the fact that, like most Western countries, the United States has a progressive tax code that levies higher rates on people with higher incomes. But the concept of class and the issue of taxes are both so politically charged that discussions about how to calibrate those rates and how much income qualifies someone as rich in the contemporary United States are incendiary.
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But in some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.

“You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school,” said Vincent R. Cervone, a certified public accountant in New York City. “They’re grateful to be working. They aren’t in danger of eviction or starving. But the cost of the average house is $500,000 — five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard.”

The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.

J. Bradford DeLong, an economics professor at the University of California, Berkeley, said many of the top earners in the United States did not consider themselves rich because they compared themselves to the statistically small segment of the people who earned more than them, rather than the much larger segment who made less.

“It is pathetic and embarrassing that somebody with five times the median household income, someone in the top 2 or 3 percent of the population, thinks of himself as just another ‘average Joe,’ ” said Professor DeLong, who was a deputy assistant secretary of the Treasury Department in the Clinton administration. “Why don’t you ask someone who makes $40,000 or $50,000 a year if they have a lot in common with a family making $250,000?”
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Congress reduced the number of brackets in the 1980s in an effort to make the tax code simpler and to cut down on the abuse of shelters and deductions.

In the last 30 years, however, the percentage of total income earned by the top 1 percent of Americans has grown sharply — to 23.5 percent in 2007, from about 9 percent in 1979. And the income share of the top 0.1 percent has grown even faster — to 6 percent in 2007 from 2 percent in 1988.

Hay! A Republican with a GOOD idea, reduce the total number of brackets from six to three.

My personal definitions:

1. RICH = You are NOT in danger of eviction or starving, and DO have "disposable" income.


2. UPPER MIDDLE CLASS = Your income covers your normal expenses and you have some SMALL "disposable" income to cover unexpected expenses.


3. MIDDLE CLASS = Your income covers your normal expenses, but you spend ALL your income and have NO safety-net for unplanned expenses.


4. WORKING-POOR = You have an income, but it does NOT cover your normal and necessary expenses.


5. POOR = NO job, NO income other than government programs IF you qualify.

For clarification, "disposable" income = income NOT spent, AND includes savings and investments.

By the way, I'm in #2 above. At least as of this date.