Taxing the rich - what is the cutoff?

The important takeaway according to the study was that tax cuts have to be affordable (which means cutting programs). That would support the opposite conclusion of tax cuts increasing revenue.I think this goes without saying, and my one real problem with the Bush Administration (I'm not and never was real anti-war, and I think good point are made on both sides) was a general disregard for a balanced budget.

Tax cuts are generally a good idea, and the thought process that they would stimulate the economy a generally solid one, but I totally agree with you that they dropped the ball by not making up the difference by cutting spending.

Smaller government, by definition, requires the government to cut its spending. Not only GW, but the entire administration sort of got off on the right foot (cut taxes), and then decided that they could push off balancing the budget for about eight years (creating an impressive deficit).

I'm not going to pile on with the whole war expenses; they obviously did not see that coming when they took office in 2001, but they certainly did not adapt by cutting spending, and now the government is pretty helpless from a financial standpoint.

Perhaps that will actually be a good thing. Even if it's Obama gets elected, he'll be forced to cut spending, which is something that needed to be done about 15 years ago. Problem is, there will be time to be spent digging out of the deficit as opposed to solving real problems like the impending energy crisis and potential food crisis that will follow.

So while I think the decision to go to war can be debated, and the decision to stay can be debated, I really don't think the lack of a solid economic plan to support said war can be defended.

So while I think the decision to go to war can be debated, and the decision to stay can be debated, I really don't think the lack of a solid economic plan to support said war can be defended.

what part of "let your grandchildren pay for it" don't you understand?


it's perfect, no one has to sacrifice, and everyone gets what they want... well, except your grandchildren.

;)

After going all war-talk in this thread, I'm ready to get back to the topic.

Are you guys kidding in saying that $250K per year is not a good cutoff for higher taxes? This thread title may have been chosen poorly. Obama's $250K cutoff is not designed to define who is "rich." To me, you're not rich unless you have assets, excluding your primary residence, totaling $1.0 million or more. "Rich" is a balance sheet definition, not a cash flow definition. In other words, rich is based on what you have, not what you make.

But Obama does not intend to set a cutoff to tax the "rich." He's setting it up to increase revenues from a group that can afford to pay it. I understand the area in which most of us live has a very high cost of living. But if you can't live extremely comfortably in the DC area on $250,000 a year, something is extremely wrong with your budgeting process. That's what Obama's going after, those who can afford to give up 3% of their savings. If people are living paycheck to paycheck on $250K, and can't afford to give up 3% in additional taxes, they need to be smacked upside the friggin head.

To suggest the cutoff needs to be $500K, let alone $750K, makes me question the financial literacy of Americans even more than I already do.

After going all war-talk in this thread, I'm ready to get back to the topic.

Are you guys kidding in saying that $250K per year is not a good cutoff for higher taxes? This thread title may have been chosen poorly. Obama's $250K cutoff is not designed to define who is "rich." To me, you're not rich unless you have assets, excluding your primary residence, totaling $1.0 million or more. "Rich" is a balance sheet definition, not a cash flow definition. In other words, rich is based on what you have, not what you make.

But Obama does not intend to set a cutoff to tax the "rich." He's setting it up to increase revenues from a group that can afford to pay it. I understand the area in which most of us live has a very high cost of living. But if you can't live extremely comfortably in the DC area on $250,000 a year, something is extremely wrong with your budgeting process. That's what Obama's going after, those who can afford to give up 3% of their savings. If people are living paycheck to paycheck on $250K, and can't afford to give up 3% in additional taxes, they need to be smacked upside the friggin head.

To suggest the cutoff needs to be $500K, let alone $750K, makes me question the financial literacy of Americans even more than I already do.

Enter the voice of reason. I wonder if it has something to do with the American myth of 'up from your bootstraps success'. I doubt many people commenting on the thread pull down $250K+, but maybe they think that they could if only for that one big break. Plus we live in a celebrity obsessed culture where we watch all these 'stars' make millions and we talk about athletes pulling down multi-million dollar signing bonuses. Perhaps all of it makes it seem that the money just flows like mana from heaven (even if we don't ever see it ourselves) and $250K just doesn't seem like that much money.

On a side note, if anyone really despises taxes you might consider moving to South Carolina (where our libertarian heritage, like the Confederate flag, waves in the wind for all to see). It seems to me that I pay ridiculously low state taxes (especially compared to what I used to pay in Virginia) and my property taxes dropped by 50% this past year (from less than $900 to less than $450 for a house assessed at $115,000 - oh yeah, you can still get house for $115,000). Plus, all the politicians do is talk about is cutting our 'onerous tax rates'. Our public schools rank 48th or 49th (so it could be worse!) and I'm sure there isn't any corelation anyway.

After going all war-talk in this thread, I'm ready to get back to the topic.

Are you guys kidding in saying that $250K per year is not a good cutoff for higher taxes? This thread title may have been chosen poorly. Obama's $250K cutoff is not designed to define who is "rich."
Feel free to substitute "wealthy" for "rich", but that's a quote from the article.

To me, you're not rich unless you have assets, excluding your primary residence, totaling $1.0 million or more. "Rich" is a balance sheet definition, not a cash flow definition. In other words, rich is based on what you have, not what you make.
Well said. You've hit on the problem as I see it - people equate $250k/year with being "rich" or "wealthy". That just isn't the case.

But Obama does not intend to set a cutoff to tax the "rich." He's setting it up to increase revenues from a group that can afford to pay it. I understand the area in which most of us live has a very high cost of living. But if you can't live extremely comfortably in the DC area on $250,000 a year, something is extremely wrong with your budgeting process. That's what Obama's going after, those who can afford to give up 3% of their savings. If people are living paycheck to paycheck on $250K, and can't afford to give up 3% in additional taxes, they need to be smacked upside the friggin head.
I agree. However, it's naive to think that $250k in an area like DC, San Diego, San Francisco, etc. buys you complete economic freedom. I think that is no-question possible at $500k, but I don't exactly have experiential data to prove that.

To suggest the cutoff needs to be $500K, let alone $750K, makes me question the financial literacy of Americans even more than I already do.
Any cutoff is arbitrary. Why not $225k? Or $300k? Maybe $250k is ridiculous, and it should be $175k? I'm sure they didn't pick that number out of a hat, but I'm equally sure there is no basis to establish $250k as the optimal cutoff.

Being a financial analyst by trade, I put together a quick budget for a couple, with 3 kids, living in Maryland around the DC area, making $250,000 per year. I calculated their Federal Income Tax liability, their tax return assuming they're susceptible to the Alternative Minimum Tax, their Maryland State Income tax liability, and made a bunch of other assumptions shown in the table below.

As you can see, this couple can afford to put away 10% of their income towards retirement, save $300 per month per child for each of their 3 kids' college education, take a $5000 vacation each year, spend $5000 on Christmases and Birthdays, spend $400 per month on fun stuff, pay someone to take care of their yard, make $5000 in annual upgrades to their home, drive two very nice cars without worrying about gas, and spend $200 per month eating out. It even assumes that the youngest of the 3 kids needs daycare.

Even after all that, this couple saves money. You're going to tell me they can't cut out some of that lavish spending to give 3% more to the US Government? I tell you one thing, I wouldn't feel sorry for them at all, they can cry me a river.

PreTax Income $250,000

Expenses
Federal Taxes (61,229)
State Income Tax: Maryland (11,948)
Healthcare Insurance: PPO @ $120 per Paycheck (3,120)
Dental Insurance: $20 per Paycheck (520)
Mortgage: $750K House, $600K Mortgage @ 6.0% (43,168)
Childcare (8,000)
Car Payment 1: $30,000 Car (6,453)
Car Payment 2: $40,000 Van/SUV (8,604)
Car Maintenance (2,000)
Gasoline @ $300 per Month Per Car (7,200)
Groceries for Family of 5: $1200 per Month (14,400)
Electricity & Heat (2,400)
Water (540)
Cable TV, Phone, Hi Speed Internet, Cell Phone (3,000)
Home Maintenance (5,000)
Groundskeeping (2,000)
Total Expenses (179,581)

Discretionary Income before Federal Tax Return 70,419
Federal Tax Return: Assuming AMT Kicks In 21,407
Discretionary Income 91,827

Discretionary Spending
Retirement Savings @ 10% of Income (62,500)
College Savings: 3 Kids @ $300 per Month Per Child (10,800)
Vacation (5,000)
Christmas, Birthdays, and Gifts (5,000)
Entertainment & Merchandise @ $400 per Month (4,800)
Eating Out @ $200 Per Month (2,400)
Discretionary Spending (90,500)

Annual Savings (Loss) $1,327

I agree. However, it's naive to think that $250k in an area like DC, San Diego, San Francisco, etc. buys you complete economic freedom. I think that is no-question possible at $500k, but I don't exactly have experiential data to prove that.

Any cutoff is arbitrary. Why not $225k? Or $300k? Maybe $250k is ridiculous, and it should be $175k? I'm sure they didn't pick that number out of a hat, but I'm equally sure there is no basis to establish $250k as the optimal cutoff.

All you have to do is budget it out. See my post above. It becomes abundantly clear that $250K is a perfect cutoff.

Feel free to substitute "wealthy" for "rich", but that's a quote from the article.


Well said. You've hit on the problem as I see it - people equate $250k/year with being "rich" or "wealthy". That just isn't the case.


I agree. However, it's naive to think that $250k in an area like DC, San Diego, San Francisco, etc. buys you complete economic freedom. I think that is no-question possible at $500k, but I don't exactly have experiential data to prove that.


Any cutoff is arbitrary. Why not $225k? Or $300k? Maybe $250k is ridiculous, and it should be $175k? I'm sure they didn't pick that number out of a hat, but I'm equally sure there is no basis to establish $250k as the optimal cutoff.
Yes you are correct the 250,000 number picked was for a good reason. The lower the income Obama wants to increase tax on the great % of Americans it affects and the more people it affects the more people less likely to vote for him. If I'm correct the % of people in the US making over 250 is 2% drop that to $150,000 and the percentage of Americans affected jumps much higher.

Schneed- thanks, this gives a practical point for discussion.

One problem, though is that your childcare costs are off. It's around $1200/kid in NoVa (it goes down as they get older and the teacher/student ratios decrease, and, obviously, goes away once they hit grade school). We have 2 kids in daycare, so that puts a big hurt on the budget. I realize it's temporary, but who's to say a 3rd isn't in the picture? That gets into a separate issue, though - having kids you can't afford.

Also, it looks like you added AMT as income - wouldn't that reduce income?

Yes you are correct the 250,000 number picked was for a good reason. The lower the income Obama wants to increase tax on the great % of Americans it affects and the more people it affects the more people less likely to vote for him. If I'm correct the % of people in the US making over 250 is 2% drop that to $150,000 and the percentage of Americans affected jumps much higher.

I'm a righty, but I have to give him credit. He picked $250K very carefully. As you say, it sets a level affecting only 2-3% of Americans. Yet the revenue generated by the increase on this small group will make a significant difference to assuaging our bloated federal deficit.

Where I really disagree with him though is on that Capital Gains tax, he wants to go above 20%. Historically that has been a terrible idea. But that's another discussion.