A Modest Proposal
What makes someone rich?
Is it current income? President Obama likes to talk about millionaires and billionaires, which he defines as any person or family with taxable income of $250,000 or more in a given year. But surely we can do better than a definition that conflates Warren Buffett with the owner of the local auto repair shop.
How about tangible assets: Does owning a mansion make you rich? Ask an aging English Lord about his moldering stately home and you will instantly be disabused of the notion that real estate always equals wealth.
Is wealth inversely associated with age? Senior citizens are presumptively regarded as poor in our society, qualifying for Social Security and Medicare payments by virtue of age alone, and likewise cashing in on private-sector discounts right and left. Meanwhile, many elderly people, including Warren Buffett, are quite wealthy.
Wealth is really about financial security, which means access to an adequate stream of income as need arises. The ancestors of today’s threadbare English nobleman were rich because the family estate—now reduced to a public heritage theme park—guaranteed rental income. In the modern era, Mr. Buffet’s many liquid investments similarly guarantee large cash flows that he can access at will.
But what about high earning corporate managers and small business owners--rich by the President's calculus-- are they really the wealthiest segment of our society?
The popular definition of income being synonymous with wealth fuels myriad capital-destroying policies: tax rates increase, deductions phase out and college financial aid dries up, for example, as taxable income rises. Meanwhile, whatever private sector income escapes the taxman must be invested to create a capital base sufficient to fund an income stream accessible in old age. Nothing is guaranteed in the private sector. If your start-up fails there is no pension to cushion the fall. High earners in my entrepreneurial slice of Silicon Valley drive old cars and save their pennies, while hoping for a capital gain that will finally, if only temporarily, put them in Mr. Buffett’s advantageous tax bracket.
Which brings us to public workers. How are wage earners with job security, medical benefits, and a taxpayer-guaranteed, inflation-adjusted pension pegged to their final salary not rich? For grins, just calculate the eye-popping amount of after-tax capital needed to fund an inflation-adjusted annuity payment equivalent to the average public pension.
Let’s close the deficit by taxing the truly rich: public sector workers.
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Comments :
Dec '10
Re: A Modest Proposal
George Savage:
Wealth is really about financial security, which means access to an adequate stream of income as need arises. The ancestors of today’s threadbare English nobleman were rich because the family estate—now reduced to a public heritage theme park—guaranteed rental income. In the modern era, Mr. Buffet’s many liquid investments similarly guarantee large cash flows that he can access at will.
Wealth is not access to adequate income, but to ready cash flows to meet current consumption needs. We need to distinguish between types of ready cash flows. Some ready cash flows are income, using assets to generate returns that fund current consumption. Other ready cash flows are asset liquidations, in which total owned assets diminish as some are converted to current consumption.
The wealthy have access to ready cash flows to meet their current needs, and also know that they will have access to ready cash flows to meet their needs in the foreseeable future.
Sep '10
Re: A Modest Proposal
George Savage: Which brings us to public workers. How are wage earners with job security, medical benefits, and a taxpayer-guaranteed, inflation-adjusted pension pegged to their final salary not rich? For grins, just calculate the eye-popping amount of after-tax capital needed to fund an inflation-adjusted annuity payment equivalent to the average public pension.
Let’s close the deficit by taxing the truly rich: public sector workers. ·
My parents are only a few years from hitting their 60's. Their total net worth took a devastating hit during the stock and housing market crashes of a few years ago. You simply cannot put a price tag on peace of mind.
The lack of understanding and appreciation amongst crybaby public employees (mostly teachers) for what it truly means to have a defined benefit pension in the year 2011 is infuriating to me.
Aug '10
Re: A Modest Proposal
Having spent too much time lately with my local city budget, I was disheartened to see that the average wage/benefit package was double that of the average person in our community. The disparity will only create rancor when the newspaper finally quits covering for them (anyone in government during the Obama reign). Why do the unaccountable always end up in government where accountability should be Job One ?
And what of the conspiracy among public administrators to use national job/compensation standards as a canard to go to levels twice that of the paying citizenry ?
Dec '10
Re: A Modest Proposal
Mark Belling Fan
My parents are only a few years from hitting their 60's. Their total net worth took a devastating hit during the stock and housing market crashes of a few years ago. You simply cannot put a price tag on peace of mind.
The lack of understanding and appreciation amongst crybaby public employees (mostly teachers) for what it truly means to have a defined benefit pension in the year 2011 is infuriating to me.
· Apr 20 at 10:55am
The public employees have a deep understanding and appreciation of the value of their position and of the terror your parents are experiencing.
Their deep understanding and appreciation is what drives them to such extremes to preserve their perks and benefits. The only thing worse than the terror caused by the reversal your parents have experienced -- which, I hope and pray they are finding ways to survive and adapt to -- is the terror the public employees are feeling from the sudden realization that they might be put in the same position as your parents by the financial collapse of state and local government finances and the unwillingness of angry taxpayers to prop them up.
Nov '10
Re: A Modest Proposal
Wealth is defined as “an abundance of valuable possessions and money.” Abundance has a more complex definition. It is usually thought of as a very large quantity of something. Both terms can refer to things incorporeal, having no physical existence. A wealth of knowledge and an abundance of happiness might be as satisfying as any degree of tangible wealth.
An abundance of possessions and money could be enough to pay the expenses of your lifestyle with some left over. Most people who are “rich” were once “poor” but may have been happy in both states. I bet most who are rich and remember being poor don’t equate their happiness with either condition. It’s possible to remember being just as happy or more so when one was in command of much less tangible wealth. The best definition of wealth might be a plentifulness of the good things in life, however each person defines that for himself.
A forceful detraction from any blissful state is knowing that what one has worked for and gained lawfully also makes one a target for some radical leftist who hates you for it and wants to take it away from you.
Dec '10
Re: A Modest Proposal
TeeJaw:
An abundance of possessions and money could be enough to pay the expenses of your lifestyle with some left over. Most people who are “rich” were once “poor” but may have been happy in both states. I bet most who are rich and remember being poor don’t equate their happiness with either condition. It’s possible to remember being just as happy or more so when one was in command of much less tangible wealth. The best definition of wealth might be a plentifulness of the good things in life, however each person defines that for himself.
A forceful detraction from any blissful state is knowing that what one has worked for and gained lawfully also makes one a target for some radical leftist who hates you for it and wants to take it away from you. · Apr 20 at 11:20am
Maslow is pretty clear on one point: to be happy, you need to have a clear and consistent expectation that you know where your next meal is coming from and under which roof you'll sleep tonight.
Apr '11
Re: A Modest Proposal
Is the suggestion to treat the contributions (or equivalent) to the public-sector employee pensions as ordinary income and thereby tax it accordingly? I'm in favor of this, although they'd just being paying the state with the state's money.
Apr '11
Re: A Modest Proposal
First, it is absolutely correct that this $250K="rich" formula thrown around for the last 3-4 years is objectively absurd, and it is a wonder that the GOP hasn’t lit into this issue effectively before now. Look at Monday’s WSJ’s lead editorial; the cut off for the top 1% of taxpayers is $380K – that’s a professional or reasonably successful businessman, but hardly some the example of the idle rich being chauffeured around while eating bon-bons. That $380K level is less than the $400K level used by Clinton for tax increases in the 1990s. Hasn't anyone ever heard of inflation?
Second, beyond the mechanics of measuring the point at which one magically becomes "rich", the broader issue is that there is something immoral about habitually looting a small segment of the population (regardless of income) for the sole purpose of sprinkling goodies upon the rest. If these goodies are so valuable and of such merit, then taxpayers across the full spectrum should be ponying up and carrying a proportionate burden. (Given that it is impossible to pay for everything with taxes on the top 2% alone, that is where we are inevitably heading.)
Apr '11
Re: A Modest Proposal
Rich as defined by Democrats is the amount someone can make and still be marginalized in the class war. Anyone remember Obama changing this number 3-4 times during his presidential campaign? I sure do. It seemed to go down monthly as if they were probing to see how low they could go before the blow back became audible.
Re: A Modest Proposal
These are excellent points, and nicely express the frustrations I've felt with "tax the rich" proposals for decades. If you think of a 2-dimensional graph, with "income" along the x-axis, from low to high, and "income security" along the y-axis, from low to high, the only truly "rich" people are those in the far upper right, with not only high incomes today, but the security of knowing that if they lost their jobs tomorrow they'd still have high incomes. Professionals and mid-to-senior executives largely inhabit the lower right -- they have a lot of income today, but virtually no security -- unless they stay there long enough to amass sufficient capital to generate some security, which takes many years (at least, outside of the financial sector). Public sector employees and pensioners largely inhabit the upper left -- not that much income, but lots of security. The trouble for the Left is that that far upper right space has very few people in it. So to extort more tax money, they have to pretend the people in the lower right are truly rich. Many in the upper right approve of this, to limit entry into their territory.
Apr '11
Re: A Modest Proposal
Steve: In the late 1990s I put together a graph to illustrate a somewhat different point.
The Internal Revenue Code of '86 provided that companies could not deduct executive salaries exceeding $1M, so that was one data point for defining when someone was unreasonably rich.
When Clinton ran in '92, he defined the unworthy rich as earning $500K per year. Second data point.
When Clinton raised taxes in '93, the threshold for the rich was $400K or so. Third data point.
Extrapolating the points, I showed this to my Mother living on Social Security and congratulated her because by 2000 she would be defined by the Federal Government as "rich".
Oct '10
Re: A Modest Proposal
Another definition of "the rich". Operating in the arena of business where you have a need to fund business operations with funds in excess of your personal needs to the tune of $250K or so.
So, if your need is $60,000 per year, then your auto body shop or machine shop must be able to operate for less than $190,000 per year to be below the "rich" figure. If you buy a new machine for $100,000, and a new building for $500,000, making payments for the purchase, once you have dealt with depreciation you are still "rich". If you are taxed like Warren Buffet, where do the payments on those assets come from? They come from the future employees you will not hire.
Nov '10
Re: A Modest Proposal
Logically, public sector employees, being funded via general taxation, cannot themselves be taxed; they can merely be funded less generously.
May '10
Re: A Modest Proposal
Tangentially, I also object to the equating of low income with the "poor", I have been arguing with my liberal friends recently that there are no "poor" people in the USA. Only low-income people, which is a relative term.
Poor (to me, having lived in some poor places outside the USA) means: no running water, no electricity, no glass windows, no heat other than with scavenged firewood, and no reserve food supply.
Re: A Modest Proposal
Great point. I will never forget the return from my first medical trip to Ethiopia. On the way home from the airport, I was in the checkout line at 7 Eleven holding my celebratory Slurpee (Coke-flavored, of course) and watching a local "poor" person purchasing about $30 worth of scratcher Mega Millions Lotto tickets. I couldn't help but reflect on the life-changing value that modest sum would have back in
Addis Ababa among my patients in the Lideta slum.
Sep '10
Re: A Modest Proposal
Wealth is a marker of personal behavior, nothing else.