What Is Rich In America?

The election is over and the Democrats won. Now we have to contend with many changes and a lot more taxes in the next four years (see my Post Election Thoughts). As I watched (as much as I could) the campaigning I was struck by the new and very arbitrary definition of rich in America. Someone has decided that a family making over $250K is rich.

When I think of rich I think of fancy mansions, exotic cars, lavish clothing, servants, rapper gold teeth (grilles), expensive pets and first class travel. What do you think of as rich? Well I decided to explore this a bit more so we could actually see what this new definition means. Let say up front I think that a family making $250K certainly has a comfortable life and compared to the millions of Americans in poverty they are rich but so are folks making $60K. This debate is about the arbitrary way this definition was set and how unrealistic it is. It is also about defining these folks in a manner that is unfair and ridiculous. Finally it is creating a class warfare that our country does not need and is unwarranted. That said here is what I found:

Obama says if you are married and together make $250K or more you are rich ($200K if you are single).

So let’s look at a family of 4 in San Francisco, CA where Mom and Dad work full time and together make $250K. Let’s see how rich they are:

With the new tax laws (39.6% for Federal tax and 13% for CA state tax) they will pay nearly 53% of their earnings in taxes. (actually they will pay a lot more once all the Obamacare taxes start to hit but we will leave those out for now).They will thus take home $117,500 or $9791 a month. Let’s look at how rich their lifestyle really is on this amount of money:

The average 2000 square foot home outside San Francisco (within 1 hour commute) is $650K or above (Zillow.com). Please note that this is not a palace or estate as Obama would have you believe. More than likely it probably does not even have 4 bedrooms and certainly no pool or fancy in home theaters or master baths. The mortgage would be about $3500-$4000 a month depending on area, down payment and mortgage rate.

So now this family of 4 has to live on $5791 a month. They have 2 cars – nothing fancy a couple of Fords or Honda's. Average car payment on a 3 year old Honda Accord is about $450 a month (KBB.com). Times 2 that $900 a month. Now add insurance of about $200 a month (CA AAA insurance). Gas in SF is about $4.25 a gallon9was as high as $5.35 a few weeks ago) and even though the Honda's give 22 miles per gallon the commute to and from work is 50 miles a day each. Add school, activities, grocery store etc. and they are spending about $600 on gas at minimum. Add some maintenance, tolls and assume we are at $1750 for transportation a month. This rich family is now down to $4041 a month.

Like all rich people they have to eat. No Caviar here, actually not even much steak. This family will average about $1500 a month on groceries (or $12.50 a day a person) and then since they are so rich figure another $250 on eating out monthly. So food will be about $1750 a month just for basics. No one in this family is drinking $100 bottles of wine; eating rib eye steaks or eating out at four star restaurants.

Since they are responsible they have insurance – health, life and dental for them and the kids (you know all rich people do this because they can’t qualify for Medicaid). Assume they have picked the lowest cost plan through their work they are probably looking at about $500 a month for their share of this coverage. In addition, they have a private life policy and a 529 for saving for their kids’ college because again they are rich and can’t qualify for any grants, loans or assistance from the government. Also keep in mind that they are scared because California state school tuition has gone up nearly 25 % in just the last 5 years and Governor “Moon Beam” Brown says it may have to go up more since the state is bankrupt. So they are putting another $500 a month toward this important goal - the same goal Obama says will make us compete globally - better educated kids.

They are now down to $1321 a month. From this they have to take out their retirement savings. Fortunately they have 401k’s at work and they contribute 4% each that is matched to some degree by their employer. Assuming they each make $125K that means they contribute $416 a piece monthly. Since this would go in pre- tax we will discount that to about $350 each or $700 a month.

These very rich folks are now down to $621. This massive sum has to cover clothing for 4, gifts for family, church or charitable contribution (let’s not forget the rich provide over 50% of all charitable contributions in the US), some form of savings for a rainy day, deductibles and co pays, OOP for the medical and dental, perhaps a sick or needy relative, maybe a movie or a date night for Mom and Dad and any other miscellaneous items (a dog - as all rich people have one of these right?).

At the end of the month I bet they are worrying how to pay all the bills but Obama and Governor Moon Beam say they are rich. Are you kidding me? These folks are middle class and they should not be burdened with excessive taxes to pay for more government and bad fiscal management.

So now you are asking – okay what is rich? Who should be taxed? Well in my mind no one should be taxed more till we get a handle on spending. Would you give your kid a bigger allowance if they had just used your credit card and racked up $20K in debt? No you would not! You would cut their allowance and make them get a part time job till the debt is paid. But we have done worse than this with the government and now we want to increase their allowance. Why?

We want to do this because our President has told us that we (the majority of the people), will not have to pay for this because the rich folks will. Since we have been brainwashed into thinking that a family making $250K is rich we are more than happy for them to solve our government’s mismanagement problems. Sadly as I have illustrated above very few families making $250K are rich - certainly not those living in urban areas or big cities and definitely not in CA or NY. But why should we worry the rich can handle it – they are just paying their fair share!

Let’s go back to the kid analogy. So let’s say that Mom and Dad say to bad Johnny who rang up the $20K in debt – don’t worry Johnny your sister has a job at the Pizza place and she is rich so she will pay off your debt. Would that be fair? Would the sister be happy? (In CA she would sue them and fight for emancipation but that is separate story for another time).

Add to this that the rich ($250K and above) currently pay 71% of all the tax revenue that the IRS collects annually. So they are already doing more than their fair share. No my friends this ludicrous argument is so illogical I hurt when I type it. We should not just increase taxes we must decrease spending. Once we have made an effort to do that and see significant cuts in place, then if there is a need to supplement debt reduction with a small temporary tax increase I would be open to discussing it. I would ask that it be across the board with the rich naturally paying more of it because they are after all RICH. (Plus our tax code calls for this disproportionate taxation of society already). We might also look at less deductions rather than an outright tax hike? We might look at taxing the true rich – those making over $1 million a year? Or here is a novel idea we tax some of the 47% of the population who pay no taxes? No not the elderly or the military but those that earn a decent living but due to our stupid tax code avoid all taxes? All interesting ideas but not one has been considered by the administration.

So now that we have full blown class warfare in our country thanks to our re-elected President, I hope those that read this will at least up the threshold before you go attacking the family of 4 I described here. Recognize these folks are just like you and struggle to make ends meet. They might make more than you but they also get NO government benefits or perks – NONE! So when you factor this in they carry a huge burden and are not as rich as we think.

So as we approach the Fiscal Cliff at the end of the year what will the geniuses in Washington come up with as a compromise? - Probably nothing even vaguely practical and certainly something that will leave us all paying more taxes one way or another. The true solution to all this is smaller government, more jobs/a bigger tax base, less capital gains and business taxes, less deductions, a flat tax system with a tiny IRS and a bright future for all. God Bless America!