Who’s Really Rich, Ctd.

By
Monday, September 20, 2010 at 11:08 am

Pop quiz. Say you make a steady $250,001, every year. How many dollars of additional income tax will you pay if the Obama administration’s tax plan goes through? A thousand dollars? A few thousand? Nope. Three cents.

Here’s how it works. Your taxes below $250,000 remain the same. And on that excess $1, your income tax rate increases from 33 percent to 36 percent. For most earners making between $250,000 and $500,000 a year, the Obama plan would increase income tax liability by just a few hundred dollars — an average of $600, according to the Center for Economic and Policy Research’s Dean Baker.

But those few hundred dollars proved the straw that broke the camel’s back for Todd Henderson, a professor at the University of Chicago. He and his wife, apparently a pediatric oncologist, pull in about $400,000 a year — or, at least, somewhat more than $300,000, a sum that puts them comfortably in the top 2 percent of American wage earners. They are rich. But, Henderson writes, they aren’t really rich. They are “just getting by.”

The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I’m not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.

I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren’t. …

[T]he president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay. The problem is, we can’t afford it. Here is why.

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can’t afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home.

He then runs through his expenses: Income taxes, a mortgage on a million-dollar home, property taxes, private school for three kids, payments on a $250,000 education loan for his wife’s medical-school education, retirement savings in a 401K savings plan and the stock market, and then “insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels).” He says he and his wife have just a few hundred dollars left over after that.

Of course, this family’s taxes actually won’t increase by that much. As I wrote above, they can expect a tax hit of just a few hundred dollars — and if they hired an accountant (it is not that expensive), I am sure he or she would help the couple actually save more than that.

Nevertheless, Henderson still might not feel rich. And the Obama tax hike has nothing to do with it. Henderson does not conceive of himself as rich because his fixed costs are too high, meaning he has little leftover cash and little say over where his remaining few hundred dollars go. But Henderson’s actual richness means he has hundreds of decisions he could make to free up more money for leisure and random spending. Here’s a quick list I drew together:

  1. Put his children in public schools.
  2. Move his children into less-expensive private schools.
  3. Sell both of the family’s cars, and buy one cheaper car and take public transportation and cabs.
  4. Sell one of the family’s cars and buy a bicycle. Also cancel gym membership, since biking is great exercise.
  5. Seal his basement or garage and rent it out.
  6. Sell his and his wife’s wedding or engagement rings.
  7. Sell any artwork, decorative rugs, or useless, expensive wedding gifts collected.
  8. Cancel gym memberships and take up jogging or use exercise tapes.
  9. Demand a lower APR and higher interest rate from the family’s credit card and bank.
  10. Switch the family to a vegetarian diet.
  11. Draw down on the 401K.
  12. Save less.
  13. Teach an extra class.
  14. Sell three pieces of pricey furniture and replace them with cheaper furniture.
  15. Find a cheaper babysitter.
  16. Go through the closet and remove clothes the family does not wear. Consign them.
  17. Sell his house and move somewhere cheaper.
  18. Refinance the mortgage.
  19. Do his own lawn work — or, better yet, do no lawn work at all.
  20. Paint his roof white to cut down on heating and cooling costs.

Were Henderson not actually rich, this list would be much shorter. One way or another, $600 in taxes — $50 a month — is neither here nor there for determining this family’s wealth.

Follow Annie Lowrey on Twitter


Comments

155 Comments

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KCinDC
Comment posted September 20, 2010 @ 4:32 pm

It's not really someone who “makes” $250,001. You mean someone who has $250,001 of taxable income, which would mean they make considerably more.


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Jeff
Comment posted September 20, 2010 @ 5:00 pm

Yes, but really shouldn't have to ask these people to sacrifice, We should look up to them as examples of American consumerism and praise the system where such people can exist and feel like they are the downtrodden.


Chris Dodd
Comment posted September 20, 2010 @ 8:07 pm

Annie, you're kidding me right. You're 20 ideas are a start but most of them are useless. i.e. (19) Do his own lawn work – or better year, do no lawn work at all. …..some townships/districts will FINE (that means more money) for not taking care of your lawn. (10) Switch to a vegetarian diet – again you're kidding right.


Nuttree
Comment posted September 20, 2010 @ 9:06 pm

Suggestions 3 and 4 make a lot of sense. Henderson and his wife both work at the University of Chicago and they live in Hyde Park. So they can walk or bike to work, and they don't need two cars to commute.

One car, and perhaps a Zipcar subscription for the rare occasions when they both need cars, should be perfectly adequate.


alowrey
Comment posted September 20, 2010 @ 10:01 pm

Well, to be honest, no. When people have to cut back, they tend to find dozens of ways to do so… the point is that Henderson has tons of options, given his income.


Thomas
Comment posted September 20, 2010 @ 10:40 pm

Wonderful to see that Ms Lowrey knows better than the Hendersons how to spend their money. Yes, they could put their kids in the same public schools that the Obamas refused to use, or into the same less-expensive private schools that the Obamas also did not choose. Ms. Henderson could commute to Evanston–she has an office there–by bus, or train and bus, or train and train, or by taxi (about $100 each way, I'm guessing). Mr. Henderson could ride his bike, in his business attire (required for teaching), all winter long, or save money by relying on taxis, always a reliable call in Hyde Park. Or he could walk. It would be better if he walked, surely. And better for the kids, too. And they could take in boarders. Maybe some students would enjoy sharing their home. They could sell their furnishings, their clothes, their wedding rings. Lowrey, for now, is not recommending that they sell their children, or any of them, though surely she'd say that they shouldn't have had them.


Skeptical
Comment posted September 20, 2010 @ 11:15 pm

a vast majority of your suggestions are one time fixes though, and equate to “sell your valuable assets,” something that can only be done once, to cover a fixed increased monthly tax expense. what should be done once they've sold all the valuable assets and have only the cheap ones you suggested they buy left? And did you really just suggest that someone try to sell their house in this market?


Michaels
Comment posted September 20, 2010 @ 11:25 pm

You also gotta love Henderson's zeal to pull the ladder up behind him. He and his wife apparently needed lots of student loans to get their degrees. Well w/out government backing, who would have loaned them that money? And w/out its tax-exemptions, how viable would a costly private U like Chicago be? And w/out tax-deductible health insurance and medicaid, how many kids could afford treatment by his wife? And w/out gov't support, how many of those treatments would even exist? These Randian simpletons should take their churlish schtick to Somalia. Let's see what Galt-like heights they can reach there.


Guest
Comment posted September 20, 2010 @ 11:48 pm

You talk about so much of this like it's beneath notice, but you know, there actually are people who do these things to get by. I take the bus to commute whenever I have to go a long ways, like to school, and when it gets nice in the summer, I bike to work. If I just need to go to the store or the bank, I walk. My mother was never able to get a wedding ring from my father, and instead got married with an inexpensive engagement ring; there isn't even the option to be selling rings for money. Which is really too bad, because our house went into preforeclosure when my mother (the only steady paycheck in the family, since my dad owns two struggling small businesses and my sister and I both work for him) fell and broke the tip off of her shoulder earlier this year and was out of work.

In order to get by, we're going to have to make a lot of tough choices. We're almost certainly going to be moving into an apartment, which means finding homes for our cats and scaling back on our belongings. My dad might have to give up on his businesses and go back to working for a corporate company, where they'll ask him to do a lot of hours for unrewarding work, but at least he'll be able to contribute to the care of his family more. We'll be cutting some of the fat out of our lives, because we made some unfortunate decisions over the course of a decade that overextended our reach and left us unable to act when we were hit by a family emergency.

The point here is, we can make those changes, and we will. It isn't a horrendous thing to have to live a slightly more humble life. Families like Mr. Henderson's have the luxury of being able to evaluate their expenditures, and they can decide for themselves what's important to keep and what they can sacrifice. Other families have less luxury; it hasn't gotten to the point in our household where we might have to pick between paying for health insurance or filling the tank of the family vehicle, but there are plenty of other families out there that are struggling to meet with even more basic necessities. A $600 tax on families that make more than $250,000 a year can certainly force them to make changes if they've extended themselves to the limits of that budget, but it would do the same for any other family of any other economic class as well, who are “just getting by” with much fewer resources than families like Mr. Henderson's.


Guest
Comment posted September 21, 2010 @ 1:03 am

Absolutely there are people who do those things to get by. And you'd like to require the Hendersons to do them as well. Right now they get to make decisions within their budget, and you'd like to force them to make some different decisions. And they will, certainly, which was the whole fucking point at the beginning. They'll spend less on services, and they'll probably have fewer restaurant meals, and maybe they won't buy a new car as often, and maybe Ms. Henderson will drop her Evanston practice because it isn't worth the trouble to get there, and in general maybe they'll work a little less, in particular Ms. Henderson, who earns much more on an hourly basis than Mr. Henderson. All of that will have quite predictable effects: unemployment, business closings, reduced access to medical care. All so you can stop feeling so damned jealous of what they have. What a sick joke your ideology is.


Guest
Comment posted September 21, 2010 @ 1:04 am

Yes, we are nothing outside the state, to which (or is it whom?) we owe everything.


Really?
Comment posted September 21, 2010 @ 3:02 am

I like this suggestion – “# Sell both of the family’s cars, and buy one cheaper car and take public transportation and cabs.” So, when he is on call at the hospital and has to make an emergency trip in, he rides the bus?


Marlys
Comment posted September 21, 2010 @ 4:01 am

The doctor would probably be the one who used the car most days. The professor would probably be the one on the train or bus.


snuh
Comment posted September 21, 2010 @ 5:04 am

i cannot imagine a circumstance in which a pediatric oncologist would be called on in an emergency. what's an oncologist supposed to do in an emergency? “get this kid some chemo, stat” i mean come on.


Guest
Comment posted September 21, 2010 @ 5:08 am

All of this ranting is besides the point that an extra $1-600 a year in taxes would not, in fact, force the Hendersons to do these things or change their lifestyle in any meaningful way.


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Forrest
Comment posted September 21, 2010 @ 11:43 am

Let's see: $400,000 minus $100,000 in taxes et cetera, divided by five persons, equals $60,000 per family member — again, after taxes.
National median income 2009: $49,777 BEFORE taxes.
$60,000 is more than $49,777, Mr Henderson — but setting aside this most obvious variety of finger-wagging, maybe everyone should stop and contemplate just how much wealth the super-rich have extracted from America that even the likes of the Hendersons don't feel comfortable.


Rburns9519
Comment posted September 21, 2010 @ 11:47 am

He could give $600 less to the Republican Party.


Guest
Comment posted September 21, 2010 @ 1:38 pm

Yeah, I stopped working entirely because I found out that making money means having to pay taxes.

Seriously, what kind of scam is that.


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Pingback posted September 21, 2010 @ 4:41 pm

[...] at the Economic Policy Institute, writes to note that our hypothetical $250,000-a-year earner from this post might actually see his household’s taxes go down, if Obama’s changes go through: Obama [...]


Michaels
Comment posted September 21, 2010 @ 4:01 pm

No, guest, you're having trouble w/non-binary thinking. Of course, Henderson isn't “nothing” w/out the state, but he's not “everything” w/out it either. What's so hard about understanding that Henderson's “success” flows from a COMBINATION of smarts, hard work + government policy and luck? And we're not talking about Henderson paying “everything” to the state — just a few percentage points on less than half his earnings, barely enough to pay for the $1 trillion war he never (as far I can tell) objected to.


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[...] Who's Really Rich, Ctd. « The Washington Independent [...]


Guest
Comment posted September 22, 2010 @ 12:14 am

And… exactly what ideology is that? That government services are an important part of following up on the promises of the Constitution, and that in a rich society like ours, people probably shouldn't be told to go starve quietly on the streets because they're unable to find employment? That in a time when the economy is destroying the middle class, money might have to come from somewhere to repair it?

I think you and I have very different ideas of how the world works. I could give you a point for mentioning the use of disposable income on the economy, and for that reason, I wouldn't support any outrageous tax against high-income families – but the question for me is, is this an outrageous tax? Which I don't believe it is.

The whole line about people just dropping practices or working less hours or whatever, though, I don't buy. Let me give you an alternate perspective: My grandparents on my father's side are a good deal more fortunate than my family. My grandfather owns his own energy business, and my grandmother is a very successful real estate agent in a very high-end neighborhood. They would almost certainly be affected by a tax like this. They, like our family, have been cutting costs since the recession hit; they don't take as many vacations, for one, and they've cut back on Christmas spending, and altered their lifestyle in other minor ways so that they can “get by”. They still live very happy and rewarding lives; they can still afford to take the whole family out on vacation every couple years, and get all the kids new gaming systems, plus covering the schooling costs for me and my cousins.

So, when they started bringing in less money for more work, did they decide “you know, the economy just isn't earning us as much money, it's time to retire?” GOD no. They work just as hard as ever! Even in a lousy selling market, my grandmother is constantly meeting with clients, holding showcases, all that. My grandfather had thought about retiring a few years ago (because he was at that age and had health concerns to think about), but changed his mind and kept at it as hard as ever. Why? Because that's the sort of people they are. They aren't spoiled; they worked their way into what they have while my dad was growing up, and they don't just QUIT because it isn't as easy. Unless we are to assume that my grandparents are atypical, and most people who get that much money really are too spoiled to keep working at it if they make a little less – in which case, I'd say that leaves an opening for go-getters to step into their shoes, so that doesn't bother me any – that entire line of logic is flawed.


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Pingback posted September 22, 2010 @ 4:24 pm

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steve
Comment posted September 22, 2010 @ 7:23 pm

I'll give you the conservative response I've heard to this a thousand times. Of course, it was in response to how challenging it can be for a “low-income” person to have to count on public transit all the time. The conservative response was this:

“Work harder. Make more money. Be happy.”

So, maybe our “poor” friend should “just make more money.”


steve
Comment posted September 22, 2010 @ 7:27 pm

Each day, the difference between conservatives and liberals becomes more clear.

Liberals have empathy.

If a group of 100 people were stranded on a deserted island waiting for rescue and food supplies were short, a conservative would be the one hoarding the food. After all, rationing isn't fair, and he had a first-class ticket!!


Lwear1
Comment posted September 23, 2010 @ 3:00 am

This is in response to everyone…….for the past 2 years our president has made presentations to our school-age children to stay in school, study hard, get good grades, go to college to get good jobs. What's the point? If you study and work hard to make an “opportunity” of success for yourself, why should these hard workers have to pay more for those who did not study and work hard? America was the “land of opportunity”. But now “the more you maketh, the more he taketh away”. We might as well have our children go to trade schools rathe than colleges. If our children have great jobs, they will not be able to benefit from the fruits of their labor. I don't get it. There is no longer the land of opportunity. That has been squashed by the 405 of persons living in our country that do not pay taxes. Maybe we should look into that category rather than the category that has tried to make something for themselves.


Lwear1
Comment posted September 23, 2010 @ 3:02 am

Sorry for the typo. I meant for the “40% of persons living in our country that do not pay taxes”. And yes, this is an accurate number.


Lwear1
Comment posted September 23, 2010 @ 3:06 am

I agree. The Henderson's have worked hard to get where they are. Leave them alone. Let's clean up welfare. I bet my life there are millions of dollars that are abused there. Or, maybe tax foreign products. That way more companies would have to move their manufacturing plants back to America and supply jobs here. Then the workers would definitely have to pay taxes. By increasing taxes on foreign made products, it may bring America back around. That would make it more pleasing to buy “American made” and leave the tax brackets more equal.


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Andy D.
Comment posted September 25, 2010 @ 12:54 am

Terrific list of suggestions. I particularly favor getting bicycles and not doing lawn work at all.


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Pingback posted September 25, 2010 @ 3:26 pm

[...] Ezra Klein: I think people are actually quite confused about how the tax cuts work. So here’s Annie Lowrey*: Pop quiz. Say you make a steady $250,001, every year. How many dollars of additional [...]


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Paul
Comment posted September 26, 2010 @ 4:19 pm

Annie Lowrey,

Are you and the Washington Independent deliberately misleading the readers? Did you deliberately misuse the statistics on the average amount of extra tax of an average rich person (anyone who makes $250,000.01 to $6,000,000,000.01 and above) to mislead your readers to believe that is the same amount the Henderson's will be paying?

I am incensed about the lack of journalistic integrity you, Annie Lowrey, has and the Washington Independent's willingnes to back up that lack of journalistic integrity.

You have attempted to mislead me to believe that the Henderson's will only be paying $600.00 extra on taxes, and therefore their blog complaining the extra tax irritated your sense of fairness and justice? AND that falsehood is the foundation of your article?!

Since you are the one who so proudly published this article, you must show us how you calculated the extra tax burden on the Henderson's family to be only $600.00! If you got it from other sources, what did you do to confirm the accuracy of the information that you were given!

As much of an idiot that I am in math and tax accounting, how did you calculate the extra tax burden of the Henderson family, who makes $400,000.00 income, to come out to $600.00? How does 3% extra on all income above $250,000.00 come out to be $600.00! You might as well tell your readers that the extra tax burden on them will only be $6.00.

To reference your own words on the specific situation of the Hendersons:

“But those few hundred dollars ($600.00) proved the straw that broke the camel’s back for Todd Henderson, a professor at the University of Chicago. He and his wife, apparently a pediatric oncologist, pull in about $400,000 a year — or, at least, somewhat more than $300,000″ … YOU are telling us that the Henderson's will only pay an extra $600.00 in taxes when they make $400,000.00 per year.

Did you even bother to do the calculation on the extra tax burden on the Henderson's family before you tell all your reader that YOU have concluded that all they have to do is reduce their expenses by $50 per month or $600 per year?

Please, someone prove to me that I am an idiot. It would be super for me to learn that their tax will only go up by $600.


MariaH
Comment posted September 28, 2010 @ 4:09 pm

After high school graduation, how many productive hours and money did a subspecialist like them spend to reach this status? Do you seriously believe they are rich considering that their operational cost is $1,000/hour and their take home pay after taxes is $60/hour? Would you recommend that they both take part time jobs and mow their own lawn? What will happen to all the jobs that are attached to their profession when they go part time? After all, that is where the operational cost of running a medical practice comes from, really. Your job is on the line when we start discouraging young people to invest a heck of a lot of time time and money for this kind of profession. Let's do a quick math instead and tell your children to go for a vocational course. At least, there will be no student loans to pay, your son can buy the cheapest lemon car and not worry about getting stranded somewhere because of engine trouble, your son will never worry about somebody dying in the hospital just for the fact that he is late for work AND he will have a guaranteed 6 hours of uninterrupted sleep/day ,etc, etc. What I want everybody to understand is that this kind of hard work should not be punished. There has to be a socially acceptable algorithm on how to tax the rich. Doctors are not rich. They all have to maintain a lifestyle that is different from the rest because their ” productive hours” are definitely different from yours. What happened to the other professions that are in shortage here in USA? Apparently, it is not a problem right now because we have done a beautiful job outsourcing demands to another country. Too bad, that was your job that you lost, too. Should I send you to India for your knee replacement since all the surgeons in this country has gone “part time” ?


Maggie May
Comment posted September 30, 2010 @ 2:57 pm

I'm no longer surprised that many miss the point – the Henderson's earnings are their money and is real money, any additional taxation is reducing their real money in their real budget and does have an impact on their budget.

The author above feels obligated to tell the Henderson's how they should spend their money, without consideration of how the changes they specify impact others. But that's how it is when another opines about someone else's earnings and budget.

Put the kids in public school. An obvious choice amongst those who feel entitled to tell the Henderson's what to do with their money. Let's not forget, the Henderson's are paying for public education they are not using for their children. Then they're paying for private education too. If they pull their children from the private school, who is impacted (besides the kids)?

The teachers in the private school, the administrators in the private school and anyone else working for the private school. You see, the Henderson's, in addition to supporting the public schools through their tax dollars are ALSO helping to maintain jobs in the marketplace by spending money to send their children to private school. If all the “rich” people simply moved their kids to public school, imagine not only the over-crowding and budget issues, imagine too how many more will be unemployed. Unintended consequences of unsolicited advice.

Consider too the advice to mow their own lawn and ditch the housekeeper/childcare. Interesting advice – telling the Henderson's to purposely unemploy two individuals! Again, unintended consequences – adding to the unemployment rate rather than actually discussing the heart of the issue.

I've read a number of articles and opinons on the Henderson's and few are really getting the issue – why is it okay to take more from the Henderson's, but not okay to expect the lower earning citizens to have skin the game too? When 43% of the country pays no income tax, why is it okay to expect the Henderson's to pay more?

Why is it okay to criticize the Henderson's spending habits and debt? They both followed the path to higher earnings – they deferred entry into the workplace to educate themselves and between them accumulated an average debt load these days. Yet they do not have any student loan interest deduction because they're making too much. The entered the workforce later than their peers, so they're starting off in debt, with less years to accumulate weath for retirement and they're making a good level of earnings, but they have NEGATIVE net worth. That's rich?


7thson
Comment posted November 23, 2010 @ 2:30 am

First, I agree with other posters. How the Hendersons choose to spend their money is their business. And yes paying $100K in taxes each years feels like you’re being robbed especially when you feel you need to forego cable television to make ends meet.

I think the author was being a bit facetious with some of the suggestions of how the family could have more income though her point about the tax increase not ruining the Hendersons was a very well made point.

I would like to know other spending habits of the Hendersons, such as what kind of cars do they drive? Something tells me if you are living in a million dollar home you are not driving Toyotas. How much do they spend monthly on Starbucks/take out/restaurants/artisianal cheese shops/wine, etc. It may equal some folks monthly take home pay. Now I am being facetious.

Again, I agree with the author that because of their education/proffessions (a commendable choice to give their kids the better education I might add) and lifestyle their fixed costs are very high and that is more the problem than taxes.

Now, why are taxes so high? Wars, the military mainly, private contractors, corrupt government, wasteful spending…we all know this.

I heard that when one of Elvis’s accountants complained about the amount of taxes they paid to the IRS that year, Col. Tom Parker shot back, “you know who doesn’t pay taxes? Poor people!”


Whatadick
Comment posted December 10, 2010 @ 2:44 am

Fuck you!


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