Who’s really got the money?

September 23, 2010

USA/

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.

24 comments

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This is very well written! The burden of the massess should not fall on a small fragment of the population as it will disenfranchise them. Paying ‘more than’ someone else can and should never be equated to ‘fair’ as it just isnt fair. The starting point should be to spend less. And if you cant do that, find someone who can before you dig into someone else’s pocket.

Posted by VBala | Report as abusive

I really don’t get your point. So what if a billionaire has two arms and legs and puts his pants on one leg at a time? He’s still a billionaire! That means that he’s worth at a minimum $1,000,000,000! That’s 20,000 times what the average American earns. And you almost sound as though you pity the poor fellow. Are you saying that the wealthy are not really wealthy after all? Are you implying that they shouldn’t be taxed at a higher rate? Are you saying that because our economy has changed so much in the last 50 years that we need to reevaluate the social contract and go back to a pre-New Deal mindset?

Posted by IntoTheTardis | Report as abusive

While I agree with the basic concept, it can go too far. A person making a 7 figure annual income who chooses to buy a $10mil house and send his kids to a private school in Sweden may have a negative “personal balance sheet”, but he is still far wealthier than someone making $20,000, living in a shack, sending his kids to a run-down public school and managing to save a few hundred a year.
I have no patience for people who whine that $250,000 is not wealthy (“I mean, do you have any idea how expensive it is to hire a maid these days!?”).

Posted by tusents | Report as abusive

“As Congress struggles with the question of whom to tax to fix a number of fiscal sinkholes of its own making”

That one sentence says it all. And it explains why people of means are so upset with their plan to tax the rich. They don’t feel they should have to pay the price for Congress’ lack of responsibility. Maybe we ought to make up the difference by reducing salaries in Congress or cutting back on the number of representatives. We also need to trim the travel budget and other unnecessary perks. That is what a struggling company would do to get back int he black. I bet if Congress had to be faced with that they would find a way to cut back on the deficit.

Posted by Bdy2010 | Report as abusive

To add to this article. I think wealth is about having to access to things, not really owning things. In the old days being royalty actually gave you access to things no one else had such as music and plumbing and solid shelter. We all have that now. Wealth is mostly about having access to things you need and some things that you want. You don’t really need to own everything. A good financial planner will ask you good questions like, “do you really need to buy that boat when you could just rent the same thing for far less commitment. How many times will you actually have the time to use it over the summer?” I just found out I can borrow a $200 GPS at the library for three weeks at a time. I also I found out most libraries loan art-work as well. Do I feel rich? Heck no, but I feel great that I didn’t spend all that money.

Posted by richmitch | Report as abusive

Mr. Wasik raises some interesting points here, Roosevelt’s Economic Bill of Rights would certainly be a great thing to actually revisit.
What needs to be more fully addressed is the increase in real poverty across America as the Champagne Glass of wealth distribution becomes more and more top heavy year after year. Considering the harrowing differences between families pulling in six-figure salaries with their homes situated in differing regions, forgets the millions and millions of people for which home ownership itself has become a pipe dream along with choice of locale.
I was talking to a poor friend of mine as well the other day who has a Master’s degree and has considerable experience and is even published, he looked like pretty much everyone else, except he had missed one or two meals each day for the past month and has been using the ill-stocked food bank with his head down to feed himself and be ready for upcoming job hunting.
The growing proportion of poor people predicated by the excesses of the wealthiest is a hidden phenomenon worthy of much more concern than the odd suave hidden billionaire.
Income has been the best measure of health (of all types, physical, mental, social) for as long as health statistics have been around, if the billionaires are ready to let their fellows literally starve and go without any semblance of real “protection from the economic fears of old age, sickness, accident and unemployment.” Then they are inhumane and should be outraged for their fellow man, use their influence to forward the real changes to the system which are called for to protect the larger society which has allowed them to become, and I’ll coin it: overwealthy.
I refuse to accept that the growing proportion of poor people is unrelated to the increasing wages of the very few, and then to accept that they should get or maintain current tax cuts effectively shows that the very rich run the whole table and are not planning for the long term with fraternity, or human flourishing in mind. They are hoarders and worthy of an Oprah-style intervention…Oprah?

Posted by NConn360 | Report as abusive

Bravo, John Wasik.

Posted by Vertigo | Report as abusive

The government always hones in on the “top 3%”, or about 9 million Americans that make more than $250,000, considering them “wealthy”. What we often forget is that the top 1%, or about 3.1 million people, control 99% of the wealth. The other 2%, or 6 million people, are hardworking Americans, who, at a few hundred thousand per year, are not really *that* wealthy if you consider the factors presented in the article above. If the government takes 50% of their yearly income, that becomes much more of a detriment than if they take 50% of someone making say $2,000,000 per year. Long term wealth, and future obligations like education, which are ever-increasing, is much less of a detriment to the latter income earner than the hard worker making $250,000. $250,000, or $125,000 after tax, is much closer to zero than $1,000,000 after tax. Also consider that many business owners, who would have put some of their salary back into their businesses as retained earnings could no longer do so.

Business owners are the primary creators of good jobs, which equates to increased wealth and better living conditions. These owners are weary of expansion and revitalization because of the looming government taxation and tight credit markets. This hinders economic growth because the risk ultimately lies on the business owners themselves. Many of the so-called “wealthy individuals” are in fact business owners, and if you tax them even more, they are less likely to grow than if the government did not enact these new taxes and regulations. Risk aversion is a full time duty of business owners, and will grow if the reward for the company comes with reasonable risk. It is the government’s duty not to bail them out, but set the table to allow businesses to feel good about commerce and growth without having to take on unreasonable risk, especially where a downturn could put companies out of business and land the owners, or creator of jobs, out on the street with nothing, since many owners must put their personal wealth up as collateral for credit lines. Business owners create jobs, and that in and of itself should be considered a form of taxation paid to the government. If the government were to back off and let business owners put money back into their companies to grow, expand, create good jobs, and improve the jobs and lives of their current workers, then the private sector could effectively begin to fix itself and help in boosting us out of the rut we currently find ourselves in, without adding to the mountains of national debt.

Posted by ERecycler | Report as abusive

“Who Has the Money” is a deceiving title. Instead you just want to make the question of taxes more complicated. You seem to insinuate you must have to be a billionaire to be rich. According to Forbes the rich got richer by 8% during this downturn we are experiencing. In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers).

Posted by dennisaa | Report as abusive

I understand and respect the point John Wasik is making. However, in practice I don’t believe it could be both simple enough to implement AND comprehensive enough to be effective. And unfortunately, I also believe such a system would only worsen the current argument about who deserves to pay more in taxes. With an increase in the factors affecting how much a person will pay in taxes, a corresponding increase in the reasons for resentment will follow.

That doesn’t mean that I don’t like this article. In fact, I actually love it. John is absolutely right in furthering the discussion about the American tax system. Most tax arguments nowadays simply argue “How Much?”, but perhaps there are better questions we could be asking. America has a wealth of ingenuity, and if we ever get a chance to have a rational discussion without both sides shouting each other down, then perhaps we could tap into that ingenuity.

Posted by gmmw | Report as abusive

what a load of rubbish. “If you can’t save money for the future, you should receive better incentives to save and benefit from lower payroll taxes”??? or maybe you shouldn’t spend as much on frivolous things you don’t need. I agree wealth should also take into account what social benefits you receive but it is also about choices. Your kids could go to a community college or a basic one that is not hundreds of thousands?? you could opt to live in a trailer rather than a fancy 4 bedroom home. Just because you cannot budget and live and save according to your level of income doesn’t mean you should get a helping hand.

Posted by jamessmithson | Report as abusive

I’m so tired of hearing about who to tax and how much to tax. We have too many taxes and too much government. The size of government and the amount and means of taxing should be such to motivate as many people to work as hard as they can and to benfit from such. Have the “experts” determine that level.

Posted by Waldo313 | Report as abusive

Income tax is pretty straight forward. You don’t tax money a family already has. You tax what they bring in, What they purchase, and locally their real-estate. Local and State taxes go to keeping up our infistructure & you see the results every day.
The government doesn’t creep into people’s bank accounts and take money (Unless you are on the losing end of a custody battle)
I’m not sure understand what this article is about. But I do know that the proposed Federal tax increases will still be much less than what we used to pay. a 3% increase on 250,000 or more isn’t going to kill anyone.

Posted by Tracy-Lee | Report as abusive

Waldo313 wrote: “We have too many taxes and too much government.”

We often hear this sentiment, but these people never make any concrete suggestions.

Do you remember the bridge that collapsed in Minnesota? Many other bridges are in poor shape. Should we fix them using tax money? If not with taxes, then how?

All civilized societies banded together to create police and fire departments, and their expenses are reimbursed with taxes. Are these examples of “too many taxes”? If you are a true libertarian, you would agree to a scheme where fire departments billed a home owner for the complete cost of fighting a fire. But what happens if the homeowner cannot pay?

Many of these people declare that we have too many taxes, but then they demand that the USA return to being a Christian state. If a city displays a nativity scene, everyone pays for it; this is a hidden tax. Do you agree with religious taxes like these?

Posted by saucymugwump | Report as abusive

FLAT TAX. end of story.

Posted by RailBended | Report as abusive

This author is avoiding the answer to our problems:
1) Let people support themselves.
2) Don’t force individuals to pay for others’ bad decisions.

These combine into a single idea: phase out safety nets. Some reasons why safety nets are bad:
1) They steal from the productive and innovative citizens while handing it back out to people who don’t want to work and “just want their check.”
2) Thus, the government creates a real disincentive to be productive and innovative, resulting in an ever-increasing pool of check-grabbers as well as an ever-decreasing pool of people to pay for it.
3) This scenario results in the same horrific debt that we face.

Here is Roosevelt’s “Economic Bill of Rights” described in plain, honest language:
We (the government) say that everyone deserves a certain quality of life. You don’t need to earn and save to support yourself. We will take from those that do in order to pay for it. You don’t need to do honest business with others, because we will fill the gaps when you don’t.

This results in a system in which it’s increasingly difficult for individuals to stay out of poverty and companies to do honest business. Every government handout has worked under the same principle (stimulus, bailouts, etc.). Why do you think we have such a large federal deficit?

Tell me, do really want to support a government that steals from the workers and gives to the takers? Takers will never stop demanding more, and workers will have to work ever-harder to support themselves /and/ the takers.

Posted by seanka | Report as abusive

@saucymugwump — you miss the point entirely. The bridge didn’t collapse because there wasn’t enough tax revenue to pay for it — there is an ENORMOUS amount of tax revenue. The problem is, we waste it. Some people advocate getting rid of the Departments of Energy and Education because they do no produce benefits greater than the funds they ingest. This may be true — I don’t have the data. But if it is true, why on earth would we ever keep them?? Get rid of them. There are many more examples. Don’t tell me that all of our money is spent wisely. Consensus estimates are that there is a good 25-40% waste component in government spending. Then there is guaranteed pensions. Are these pensions good? Well, they’re great for the tiny portion people who have them, but the problem is that the rest of us, many who have no such retirement net, and perhaps no retirement savings at all, have to pay for those pensions. Yes, they are wonderful in theory, but in the same way that a nice new car would be for a poor family: great, but totally unaffordable. That poor family shouldn’t give up food to afford the car because the car has benefits, they should balance the marginal benefit of each dollar they spend, and the car would never make that cut. Whether or not it was a great car (or a great pension) would never even enter the discussion, because it’s unaffordable. That’s where the community needs to get back to: not only what is wonderful and beneficial, but what is affordable. And then you have to rank items by how beneficial they are. The problem is, our political system does not take such systemic calculations into account. For example, a Senator from let’s say, Kentucky, only gets credit for spending federal dollars in Kentucky, even if he/she knows that the money would be better spent in other states. Even if he/she entirely agrees that Kentucky is the last state where federal dollars need to be spent, he/she will not, cannot, agree to that. They are expected to “bring home the bacon” by the voters, whether they’ll admit it or not. And THAT, my friends, is the heart of America’s public financial problems. Money is spent poorly because the system is set up to incentivize poorly thought-out spending. Our politicians are at fault and the voters are at fault. We need to amend our political spending calculus — at the local, state and federal level — so that any one particular politician can only propose spending in ANOTHER politician’s area, not their own. Then that proposal has to be seconded by a large number of other politicians. Is that a perfect system? Hardly, but it’s a start.

Posted by TheOracle | Report as abusive

“sinkholes of its own making”

That says it all. So reduce the budget of the Congress, cut back on travel and expenditures, eliminate any redundant job functions, cut back on support personnel and we should see a cost savings. This is what any business would do if it was in trouble. Why shouldn’t we expect the same of Congress especially when they dug this hole to start with.

Posted by Bdy2010 | Report as abusive

Why not take the class warfare aspect out of it? The graduated tax system is the only way we have right now of paying for government and its impossible to say how much government needs because we can’t agree on what government should do. Until such a time we shouldn’t change tax rates as drastically as we did in 2001 and 2003, rather we should limit changes to a very most annual or bi-annual amount to allow time for revenues and costs to settle down.
Let’s also quit trying to determine who’s rich or wealth. I’m wealth to those making half of what I do. It’s totally arbitrary.
Most of the financial benefit from the large tax cuts went to those making 200k or more per year. Restoring the tax rates at the high end will not devastate the economy – those making this much did quite well during the 90′s with those rates. And besides, they are taxed at the same rates as the hoi poloi up to that amount.

Posted by k2isnothome | Report as abusive

[...] This post was mentioned on Twitter by Lauren Young and Megan Moynihan, MzYun. MzYun said: Who’s really got the money? http://ow.ly/2IPZj [...]

I meant “small annual or bi-annual.” And wealthy not “wealth.” Seriously, I’m not illiterate, just careless.

Posted by k2isnothome | Report as abusive

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