Wednesday, September 29, 2010

We are the Super Rich

My post about annual income and net worth was recently referred to in the comment section of another post titled Pity the Poor Couple Who Make $450,000 Per Year (Yet Another Failure of Our 'Elite' Educational System) on a blog called Mike the Mad Biologist. The commenter used the data from my post to declare that "the median net worth for people making more than $150k/year is $1.1 million." Ordinarily, I would not consider this to be a notable event since a few of my posts are frequently referenced by other websites. However, this post has over 60 other comments on it, and I wanted to find out what all of the hubbub was about.

It turns out that this post was a reaction to a blog post originally written by Professor M. Todd Henderson of the University of Chicago Law School. The original post was available on the blog Truth on the Market and had received over 400 comments. However, the author deleted the original article and has decided to get out of blogging all together. This left me even more intrigued as to what was said in the original post to start off this firestorm. So, I started a search for the original text.

Fortunately, I was able to retrieve an original version of the post and have included it below. Before I reproduce that post here, I wanted to say that I think Prof. Henderson's point of view is that President Barack Obama's plan to increase taxes will impact those who are in the lower end of the high-income tax bracket (i.e. making more than $250k per year) and those who are in a situation similar to his. It is clear that the author's family will feel the squeeze since they already have "less than a few hundred dollars per month of discretionary income" to spend. It seems that any tax increase will force the Hendersons to trim some expenses. However based the comments I've seen, I think that few readers will empathize with Prof. Henderson.

Here is the original article:

We are the Super Rich, posted by Todd Henderson on September 15, 2010 (Truth on the Market)

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.

I, like the president before me, am a law professor at the University of Chicago Law School, and my wife, like the first lady before her, works at the University of Chicago Hospitals, where she is a doctor who treats children with cancer. Our combined income exceeds the $250,000 threshold for the super rich (but not by that much), and the 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. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren’t cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

If these cuts don’t work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.

The problem with the president’s plan is that the super rich don’t pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren’t rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president’s plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Hendersons are as rich as he thinks.

Any opinions?



BlackCardMike said...

I actually dont think this post is at vacuous, and makes a valid point. With the dearth of accountability in the government - after all, why the hell does the CIA have a virtually unlimited budget - they shouldnt have to give up money fro government programs etc. Maybe the government should start heavily taxing credit card companies like the visa black for exorbitant charges on its citizens

christopher said...

What a silly person. I hate how some educated people run around using all that knowledge to try and put their emotional biases on some kind of logical platform.

Trevor Hicks said...

If that unconscionable diatribe wasn't so long, I'd actually think he were joking. Disgusting.

Fage said...

This is precisely why people tend to be distrustful of the very rich. Wasn't it Lord Acton who said "great men are almost always bad men"?

Endowment guy said...

I wouldnt trust that guy as far as i could throw him. Probably fires employees just for the heck of it. Psychopath