Who’s really got the money?
I was talking to a billionaire I knew the other day. He didn’t look any different from other folks. No entourage. No manservant. Not even an armor-plated Escalade.
What’s a representative profile of a wealthy person, anyway? As Congress struggles with the question of whom to tax to fix a number of fiscal sinkholes of its own making, it’s time to discuss how to define wealth in a fair and comprehensive way.
Who are these fortunate few so deserving of higher income taxes? Using President Obama’s definition, his top-tier is couples earning more than $250,000 annually ($200,000 per year for singles).
We do know that more than half of those polled want to tax the highest earners instead of extending the Bush-era tax breaks.
Yet like my billionaire friend, appearances and figures can be deceptive. It’s not fair to evaluate wealth solely by wage income. There are so many other characteristics to consider.
Wealth should be judged holistically. You need to consider if present and future health care, retirement and housing expenses are being covered by a household.
If I was to make a simple comparison between my retired father and myself, I’d consider myself much less wealthy. He has a guaranteed teacher’s defined-benefit pension, Social Security and Medicare. That’s fine with me because he’s earned it and I’m all for strong social safety nets like guaranteed pensions and health care.
Retirement is yet another bugaboo. My father never had to worry about market meltdowns impacting his pension payments. I’ve already endured three of them so far. Little wonder that there’s a $6.6 trillion retirement deficit, according to Retirement USA, a coalition of worker’s groups.
Like more than 30 million Americans, I have a 401(k), which doesn’t promise anything except exposure to punishing market risk. There’s no government-guaranteed annuity backing it up.
One measure that’s clearly ignored in determining who’s well off is future obligations. Not only do I have to fund my and my wife’s retirement with my unreliable 401(k), I have two daughters to send to college. When I was growing up, college cost in the thousands. Now it’s in the hundreds of thousands.
The president and Congress also need to make a regional adjustment on wealth measures. Somebody making $200,000 in Mountain Home, Arkansas, can be more affluent than a similar earner in Boston. Taxes and the cost of living are higher across the board in most large, metropolitan areas.
Prosperity perhaps provides a better lens of examining overall wealth. According to the Legatum Institute, one needs to factor in broad-based social benefits such as universal health care and pensions, entrepreneurial freedom, social stability, education funding, safety and good governance.
Using this rating model, the U.S. lags eight other countries in total prosperity — Finland, Switzerland, Sweden, Denmark, Norway, Australia, Canada and the Netherlands.
As wealth is a relative measure, there should be a better formula that employs something like a personal balance sheet. If your liabilities — taxes, retirement saving, education, health care, living expenses — exceed your income and investments, then your personal wealth index is probably negative.
Bottom line: If you can’t save money for the future, you should receive better incentives to save and benefit from lower payroll taxes.
There are already plenty of breaks for well-heeled investors and property owners. Universal savings plans that are not subject to income tax (unlike most bank vehicles and bonds) or market risk are a good place to start to bolster the middle class.
Congress would do well to revisit Franklin D. Roosevelt’s 1944 “Economic Bill of Rights,” which spelled out societal obligations for a decent home, medical care, education and “protection from the economic fears of old age, sickness, accident and unemployment.”
Prosperity is never a matter of rising income, lower taxes or a single social benefit. It’s the collective hope that a just society can help the weak, vulnerable and aspiring. Appearances or numbers alone will lead us astray on this account.