The war on . . .

Sorry this has taken so long. Fiscal year-end hit and all I have done for the past week is work. Some of us can't vote ourselves a paycheck out of the public coffers, you know.

We like war in America.

Think about it. We really do. Not the fact of war; we have no stomach for that anymore, but the idea of it . . . the battle and eventual triumph of good over evil. We have the War on Poverty, the War on Drugs, the War on Terror, the War on Crime, the War on Corruption, the War on Obesity and the War on High Prices. Now we have a new war that is capturing the attention of the nation, the War on the Wealthy.

Let me start by saying that I am not wealthy, I have never been wealthy, and although I desire to some day be at least slightly-soiled (as opposed to filthy) rich, I doubt that I will get there anytime soon. So, this is not going to be a defense of the rich by one of their ranks. It is simply a discussion about how and why the War on the Wealthy is about as misguided as anything could possibly be.

Recent weeks have seen an attempt at punitive taxation by Congress, an increase in state taxation (to take care of any dollars that Congress missed with it's 90% tax bill. Thank you Barney Frank!), proposals to limit deductions that people who make over $250,000 in household income can take for charitable giving, proposed decreases in tax credits for people who really don't make all that much money, protests against people who earn more money than you do, etc. Basically, an all out war against the rich, especially bankers.

Right now, if there is a problem in America, it is probably some rich guy's fault. In fact, reality is beginning to imitate the cartoons. Or perhaps you would like a more recent take on things. All of this leaves a bad taste in my mouth because I believe people should be allowed to keep the money they earn. Of course, this would require smaller government which we will get into (taxation and the role of the government) at another time.

The problem with sweeping generalizations . . .

I think part of the problem is that our government has made a sweeping generalizations about what it means to be rich. This generalization is not based on reality.

First of all, let's look at cost of living. There is no comparison between, say, New York City and Houston. A person making $60,000 in Houston can live a fairly comfortable lifestyle. Nice car, nice home, etc. Not overly luxurious, but a nice life. In order to live the same lifestyle in NYC a person will have to make $105,000. Uh, oh! Suddenly this guy who has no more ability to live a lavish lifestyle than he did when making $60,000 in Houston has a whole new set of problems. He is now "rich" and has an increased tax burden.

Here is an example of what I mean, taken from the New York Times, "[t]hat tax credit annually will provide $400 to low-wage and middle-income workers or $800 to couples; Mr. Obama would like to increase those figures to $500 and $1,000. The credit phases out for those with incomes above $75,000 a year and for couples with incomes of more than $150,000; no benefit would go to individuals with more than $100,000 income and couples with $200,000." It isn't important which tax credit they are discussing. What is important is that a) if you make more than $75,000 you are considered "upper-income" and therefore rich enough not to need tax credits and b) someone who makes a decent wage in Houston will be subject to this decrease in tax credit simply because they move to New York and maintained the same salary level (in relative terms). What we are talking about here is purchasing power parity. A person in Houston has more PPP than a person in New York. Put simply, a dollar in Houston does NOT equal a dollar in New York.

As you can see, it doesn't take long to suddenly find yourself in a position where, although you are not richer in real terms you are burdened by additional taxes. This is the problem with defining things like "upper-income" or "rich" in absolute dollar terms. If I made $100,000 living in Houston I WOULD consider myself to be rich. If I made $100,000 living in New York, I would NOT consider myself rich.

But, wait. Shouldn't the rich pay more?

Sure, the rich make more money, they take more from the system, so they should also give more back. The problem is, they already pay the majority of the taxes. How much more? Well, lets take a look.

http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

So, the top 1% make 19% of the money, and pay 37% of the taxes, and so forth (in theory. . . but there may be problems with this analysis. Read here for more information). But what exactly is that showing us?

Basically, the higher the percent of you take from the collective earnings of the country, the higher the percent of the total tax bill you foot. Somewhere between the 6th and 10th percentile your percent of total income equals your percent of the total tax bill you pay. That makes sense.

I did a few graphs to try to make it clearer. In this one, I just did the math from the previous graph. If the top 1% makes 19% of the income and the top 5% make 33% then the 2nd through 5th percentile must make 14% (33% - 19% = 14%) and so on.

I don't know if the bar graph is as clear as the line graph, so I added both.

And if we look at who makes/pays what by the two halves:

There is certainly a lot of money being made by the top 50%. One thing that is not clear from these graphs, and I have not been able to locate a good page to break it down for me, is what percentage of the bottom 50% are teens or college kids with summer jobs, second household incomes who file separately from their higher-paid spouse/partner/whatever, people who are working only part time, or people who are trying to live on that salary. Also, where do these people live? As I demonstrated above, you need to make more money in certain areas than others with no change in lifestyle. Perhaps not everyone on that bottom 50% is doing to poorly for themselves.

So, what we can see is that, as it should be, the richer you are, the more you pay in taxes (by the way, did you notice that the top 1% pay 37% of the tax bill and the top 10% pay 68%? This means that the bottom 90% only pay 32% of the tax bill, or less than the top 1%). But who are these people? Well, you don't have to make as much as you think to be near the top of the income-earning heap. Here are the numbers for 2006.

Percentiles Ranked by AGI	AGI Threshold on Percentiles	Percentage of Federal Personal Income Tax Paid
Top 1%	$388,806	39.89
Top 5%	$153,542	60.14
Top 10%	$108,904	70.79
Top 25%	$64,702	86.27
Top 50%	$31,987	97.01
Bottom 50%	<$31,987	2.99
Note: AGI is Adjusted Gross Income Source: Internal Revenue Service

http://www.ntu.org/main/page.php?PageID=6

As you can see, our friend from Houston who moved to New York, and is still only able to afford a modest living is now almost among the top 10% of wage earners. Congratulations! Even in Houston he was in the top 26% or so.

What are you saying?

So what is my point? I don't know. I had one when I stated this post 10 days ago, but lost it somewhere along the line.

I guess I just find it ridiculous that some complain about people who work 60+ hours per week getting something in return for that hard work. If you want to make more money, work harder, learn a new skill (preferably one that is in demand), go back to school, finish school, whatever it takes. Don't just begrudge somebody else for taking the risks and making the sacrifices that you weren't willing to make (and before anyone jumps on my back about differing opportunities and stuff like that, in this day and age where we have online schooling, free internet access at libraries and things like that, ANYONE can learn a new skill if they have the mind to do so).

I guess it just makes me angry to hear about people getting death threats because they got a bonus they earned. I mean, I don't hear anyone complaining about sales guys getting their commissions regardless of how they company they sell for does. Why would anyone complain that a guy who made over $100 million for his company got a bonus based on his success even if the company is failing? Had the guys at AIG not made that money (assuming the people in question are not the ones who caused the problems they are having) then the company would have needed even more of the taxpayers' money. I sure wouldn't want that. What I want is for the company that borrowed so much money from me to attract and/or keep the talented individuals that can make money to pay me back. You have to be willing an able to pay people for their work. And to put this in perspective:

US GDP for 2008 - 14,400,000,000,000
Fed bailout/loan/guarantees - 12,800,000,000, or (88.89% of GDP)
AIG bailout - 176,000,000,000 or (1.22% of GDP)
AIG Bonuses - 165,000,000 or (0.001% of GDP)

I guess I just find the continued move toward the redistribution of wealth and the "from each according to their ability" attitude tiring. When did we stop being a nation that saw the value in hard work and started being a nation of, "If I can't live in a big house and drive a nice car no one should!" I like the way my father-in-law shows his envy. Instead of thinking the guy he sees in a nice car or house or whatever doesn't deserve those things he says, "I wish I had that and he had something better."

I guess I just find the generalization of lifestyle based on income level to be based on something other than reality. This goes toward my beliefs about taxation and the role of government, but I think we need to rework the tax system so that it is less complicated and so that we are not overburdening the very people who already foot most of the bill.