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 Stratford -- 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.

RMK July 13, 2012 at 01:27 PM
Catmommie: Correction - it's a "tax" for all of 1-2% of the population who won't bother getting coverage....you know, those folks unwilling to be "personally accountable". Also of note: it is a tax that Romney incorporated effectively into Romneycare in MA.....and without so much of a peep from the personal responsibility. Funny thing, facts.
RMK July 13, 2012 at 01:28 PM
...and asks for payment via "cash".
Lisa Bigelow July 14, 2012 at 05:44 PM
Just a little side note: remember that show "Frasier" that was on some years back? One episode featured Niles the psychiatrist feeling all superior to his high school tormentor because the tormentor became a plumber and showed up to fix Niles' toilet...until he discovered that the plumber drove a fancy Benz and lived in a super posh area of Seattle, and appeared, in fact, more financially successful than Niles! My dad always told me, Lisa, if you don't want to go to college then get yourself into a trade school and open up your own business. Anyway...look for an update next week. Thanks to you all for reading! Lisa B. Lisa B.
CuriousOrange July 14, 2012 at 08:25 PM
I just read that 97% of all small business owners earn less that $250k.
RMK July 16, 2012 at 03:12 PM
Absolutely. If they make more than $250k (that 2-3% of 'small' businesses, anyway), then they aren't that small. Again, the conservative focus remains on the tiniest minority of wealthiest individuals and businesses.


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