Friday, November 30, 2012

What Constitutes Rich in America?

What Constitutes Rich in America?

With the “fiscal cliff” looming ahead there has been much discussion about the pros and cons of increasing taxes on the rich. The difficulty, however, in addition to the theoretical differences in the major political parties with regard to the potential long-term risks in taxing the rich more, is defining what constitutes “rich”.

While the Obama administration and Democrats contend the voting public gave them a mandate to tax “the rich”, there is a contentious dispute as to what constitutes rich in America. For the 98% that means anybody earning more than the median. But that is not fair. Essentially, if 98% of the population votes to raise taxes on the rich, they are voting to increase taxes on anybody but them. But, is it fair or even reasonable to allow an electorate to vote to increase taxes on others? I think not!

The arbitrary threshold of $200K for an individual and$250K for a family also causes consternation. While many may concede that an individual earning an annual income of $200K may constitute extremely comfortable, it is not reasonable to presume that a family with an income of $250K would qualify as wealthy.  From my humble perception, if one earning $200K equals wealthy, than 2 earning $400K may constitute wealthy – but certainly not 2 earning $250K. How on earth does Congress decide that 2 or 5 can live almost as cheaply as one? While this may have been reasonable in 1933, it is certainly far from reasonable in 2012.

Additionally, the theory that one must be taxed at a significantly higher rate if a couple earns more than $250K would certainly cause me to reevaluate my commitment to marriage. Rather than pay a significantly higher tax rate, if my partner earned $140K and I earned $120K, I would opt to cohabitate or, if already married, divorce and live together, to avoid the punitive taxes.

Again – I do not fall within these parameters, but if I did, this is what I would espouse.  They only fair options: (1) a flat tax on all income with no deductions or exemptions; or (2) a federal sales tax on everything but food. Oh too bad if somebody on welfare has to pay 25% tax on cigarettes or beer. Guess they can’t afford it. If somebody is on the dole, they shouldn't  buy luxuries!

1 comment:

  1. Agreed Vivian, and in a perfect world a flat tax or national sales tax makes sense. We don't live in that world, sad to say, and the logic you espouse falls on the deaf ears of our elected officials. Steve Forbes tried to implement this years ago and failed, as I am sure you recall. Given that reality, the next best thing is the graduated scale we have today, which has been tinkered with for decades. Sure the 220/250K is arbitrary, and perhaps unrealistic, but i think the intent is to bring it closer to the flat tax you endorse. It is illogical that I pay 18% taxes on my income and someone making 20 million pays 14% tax on theirs. Sure, the simple way would be to eliminate the loopholes, etc. that allow this inequity, but again the political will is lacking. Thus, (or ergo if you like) the simplest method is to push for the current levels. No doubt it will be compromised before too long, and likely wind up somewhere higher up the income ladder.