What a Difference Two Thousand Dollars Makes

In this first of two articles, the author explains why the $250,000 tax relief cutoff is unfair -- and offers a suggestion for what to do about it.


If you made $249,000 last year, then you probably spent this past weekend mowing your own lawn, clipping coupons and changing your car’s oil. If you made $251,000 last year, then you probably spent last weekend cruising Newport. Or perhaps you attended Wimbledon, or relaxed in your Italian villa.

According to President Barack Obama, families earning less than $250,000 are middle income Americans, while families making more than this number are “the wealthiest Americans.” Yet, despite the President’s depth and breadth of expertise in all matters concerning the economy (sic), I have a feeling that there are plenty of families living in expensive areas who would argue that a $250,000 income makes a wealthy lifestyle not only improbable, but impossible.

Look, we all know that earning $250,000 in an area where the average home price is more, well, average means living a better lifestyle. Earning $250,000 in Topeka goes a lot further when the average home costs less than $181,000. Earning $250,000 in Greenwich or Ridgefield or Trumbull—or anywhere in the New York metro area—well, you undoubtedly know your way around the plumbing aisle at the Home Depot.

Even Congressional leaders Nancy Pelosi and Chuck Schumer argue that the tax cuts should be extended (or, dare we say, made permanent?) for families earning less than $1 million in earned income.  Could it be that they understand that earning $250,000—especially in a major metro center—in no way predicts a “wealthiest” American? To their credit, they have walked away from Obama’s seemingly arbitrary tax cut cutoff, which paints him more as a stubborn ideologue and less as a compromise-loving leader.

Our nation is lucky enough to enjoy a wide range of diverse economies. Some depend on technology or finance, while others depend on manufacturing, a local hospital, or a blend of them all. And yes, it’s true, areas that contain a large percentage of high-paying jobs tend to be located in high-cost areas. But taxing everyone the same rate without an eye on the local economy unjustly punishes some and rewards others.

One could certainly argue that a family earning more than a quarter of a million dollars in a suburban Mississippi town is probably pretty comfortable money-wise and may very well lead a luxurious lifestyle. Yet in Los Angeles—or New York, or Washington, DC—a two-earner $250,000 will cover your mortgage (maybe), your car payments (if you can afford a new one), your taxes (figure  $13,000 at the low end), groceries (how much can a teenager eat? A lot), and maybe, just maybe, retirement contributions, travel soccer fees, a new fridge and a trip to the vet when little Rocky eats a pound of chocolate.

And don’t even get me started on higher education costs.

As I stated many weeks ago, at its heart. The reason the real wealthiest Americans get a big tax break is because they’ve saved enough to take advantage of loopholes in investment income rules, such as living off tax-free income. Does anyone really think that a family making $250K per year should pay a greater percentage in income taxes than a Rockefeller-esque tycoon? Of course not. But blaming the rich for having the good sense to take advantage of our current laws ignores the real problem.

The flat tax, an idea first put forth years ago, is worth pursuing as an option. Are you loaded and you want to buy a yacht or a waterfront home in Sagaponack? Awesome. Fork it over, big spender. Are you the manager of a tire plant, your wife is a school teacher and you’re really excited about your upcoming trip to Disneyworld or the pretty new rug in the den? Cool. Pay accordingly.     

It is infuriating when news reports surface that state General Electric paid zero taxes or that Warren Buffett’s secretary paid a higher rate than the Oracle himself. But remember: they are playing the game the way it’s meant to be played.

Let us remember an important lesson that Steve Jobs taught at Apple: do not be afraid to get rid of a product—in this case, the IRS—that doesn’t work right, no matter how invested we are in it. Let us not whine, but we’ve always done it this way! Let us make sure that every single American – legal, illegal, law-abiding, non-law-abiding – pays their fair share. Period.

Eric Cameron July 13, 2012 at 01:24 PM
When Harry Reid was asked why he would not support extending Tax cuts for ALL taxpayers he said....."It's the help Paris Hilton legislation," he said. "It would give people like her a tax break for doing nothing — $46 billion of the American people's money to help Paris Hilton and others." This is their mindset. It is THEIR money not yours. They start with the premise that everything you have belongs to them and then decide how much to let you keep.
Eustace Tilley July 13, 2012 at 02:16 PM
And Harry Reid has no problem using our money to build monstrous government projects in his home state and yet is afraid to have the Senate propose a budget. "We don't need a budget, you'll know where the money goes when we spend it"
Franklin Wong July 16, 2012 at 02:59 PM
Just want to be clear about the impact of letting tax cuts for families earning over $250,000. Using your example. Please correct me if I don't understand tax regulations. At $249,000, my tax bill remains unchanged. At $250,000, my tax bill remains unchanged. At $251,000, with the expiration of the tax cuts in my tax bill increases by $30.00.
Amo Probus July 16, 2012 at 03:09 PM
I'll make you a deal: For every $1 in tax hikes, the Government is REQUIRED to cut expenses by $2 untill sanity is restored in Wilton, in Hartford and in DC.
Franklin Wong July 16, 2012 at 04:20 PM
Hey. Just doing a reality check on the example used in this blog. Just trying to connect the dots between wealth effects and tax policy which this blog seems to be attempting. I agree that current tax policy applied unevenly and applied disparately across differing economic and social groups. But unfair is in the eye of the beholder. Just ask "the 1%" whose wealth has increased dramatically coincidently with lower tax rates over this past generation whether tax policy is fair. Purely speculating, that the1% would tell you tax policy is unfair.


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