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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.

Anne K. Mulligan July 11, 2012 at 12:24 PM
I think that it's important that people understand how the tax on those making over $250,000 works. The higher tax starts AFTER that first amount, meaning that everybody pays the same percentage on the first $250,000 they earn and the higher tax impacts only the earnings above and beyond that initial amount. There's been a lot of confusion on the issue, but that's what bracketing is about.
CuriousOrange July 11, 2012 at 12:56 PM
Warren Buffet would tax >$1MM, which makes a better sound bite if not sounder policy.
RMK July 11, 2012 at 02:25 PM
Anne Mulligan is correct - if you make $250,001 a year, at the higher rate you are taxed on that ONE DOLLAR over the $250K marker. Muddying the water is a specialty for those who want to suggest that taxing the wealthiest at the slightly higher margin of the Clinton years is OuTrAgEoS. Bush implemented those cuts for the wealthiest (without ever offsetting the cost to the American people) to stimulate the economy... and the exact opposite happened. The wealthiest didn't invest in the cuts back into the economy, they invested in their overseas tax havens and Swiss bank accounts in true Romneyesque fashion. Romney's dad was more honest a broker about his due taxes and transparency of his papers than Mitt is. The bigger issue here is that President Obama is recommending what both parties claim to support: extending taxes for the neediest. However, the Republican Party wants to see the tax cuts to the wealthiest 1% extended costing trillions in the end to support (as they did during the Bush years). There is also the GOP argument over small businesses making over 250K being targeted. This falls flat when we see that there are only 3% of small businesses who will actually be affected - and at a rate of taxation on those dollars that exceed the 250K bracket.
pat July 11, 2012 at 02:42 PM
Are these people out of there mind, if you are making 150000 a year then you are doing just fine. I am able to own a home and a car and pay all my bills making 75000 does that mea. I am poor? Or below middle class. I think people making over 150000 should be paying a higher tax.
Jason Bagley (Editor) July 11, 2012 at 02:46 PM
Comment left on the Stratford Patch Facebook page: Dave Fuller: "Very valid points. Not only do regional cost of living adjustmetns and home prices play a huge factor, but say you you have three children who are all smart enough to get admitted to good colleges. $250K a year quickly gets eaten up by loans and tuition. Say you or a dependent of yours has a horrible chronic or life threatening medical condition, even with insurance it will cost you a lot in co pays and Rx coverage." http://www.facebook.com/StratfordPatch
Lisa Bigelow July 11, 2012 at 06:46 PM
Thanks to everyone for commenting. Anne, yes, I understand completely how the tax works. My lede simply argues the point which the President has made repeatedly -- that those earning under 250k earn "modest" incomes while those earning over this amount are "the wealthiest Americans." Pat, I am delighted that you are doing "just fine." Keep up the good work! Thanks for reading. Lisa B.
RMK July 11, 2012 at 06:58 PM
Dave and Lisa, the line has to be drawn somewhere and to suggest that those making over $250K are going to be taxed out of their comfort zone is absurd.....and promoting that fantasy is what this commentary is meant to do, isn't it? The “middle-class” Bush tax cuts apply to all taxable income under $250,000; if your taxable income is $1 million, then you’ll receive a tax cut on the first $250,000. Under the Obama plan, everyone receives a tax cut. The Republican plan would triple the tax cut received by the richest 1 percent of taxpayers, and don't think that the wealthiest aren't aware of that caveat. They need only sit back and wait for their voices in DC to advocate on their behalf, while Lisa and Dave will leave you thinking that guy making 250,001 is getting crushed. Nice try, guys.
George E. Mulligan July 11, 2012 at 07:15 PM
I'm not related to Anne. This is to not cause problems for her. I was enjoying the what makes a Great President string both because of those within the string intent and those who posted beyond the "box." There is some much more space & freedom outside the BOX! It seems there was an editorial shut down, when someone suggests the PATCH post such a controversial blog for .... (gasp!) MONEY of AD REVENUES .... My retort is SO WHAT! - My belief is the only reason for the BUSH TAX CUTS, is so that the MAJORITY of AMERICANS could pay for INSREASED OIL / GAS / HEAT Prices which went to the OIL MEN BUSH - CHENEY PATRONS. Across the country, there are Cities going CHAPTER 11 and cutting city workers pay to $ 7.25 per hour. Their PENSIONS are being repudiated Their CONTRACTS are being negated The HOME OWNERS & BUSINESS OWNERS are in CHAPTER 7 or 11, with a SIGNIFICANT PERCENTAGE in FORECLOSURE. - Some Millionaires or people making 6 figures or more might say SO WHAT? It's their fault. It's their greed. It's their stupidity. - However if you are a millionaire business owner, and your customer base cascades in cycles of reduced number, you lose profits and become insolvent, joining their ranks. If you have great paying job and if they outsource your job to India/China where 10 people do your job better & cheaper. Now you pay attention. Like any business the patch has overhead ... can anyone live without income or appropriate resources?
Jezebel282 July 11, 2012 at 11:21 PM
Really? Are we feeling sorry for someone making $250+K and lives in Greenwich? Here's an idea: Stop taxing unemployment compensation as regular income. That would actually make a difference. Geeze, what are we arguing about here? Vacationing in the Caribbean instead of Europe next year? An Infinity instead of a BMW?
George E. Mulligan July 12, 2012 at 05:01 AM
Political bovine scatology. Super-rich have infinite ways to disguise income. Rockefeller Foundation. Prominent philanthropic organization & private foundation. 420 Fifth Avenue, NY City. http://www.google.com/search?q=rockefeller+foundations&rlz=1I7GGLL_en&ie=UTF-8&oe=UTF-8&sourceid=ie7 Trilateral Commission http://en.wikipedia.org/wiki/Trilateral_Commission Standard Oil Trust: Rockefeller, Harriman, Bush, George Pratt (&Whiteny) Schultz, Cheney Rothchild, Dupont, Hanover, Medici, Bourbon Medeliin http://en.wikipedia.org/wiki/Standard_Oil Former type Ohio Corporation (1870–1882) Business Trust (1882–1892) NJ Holding Company (1899–1911) Industry Oil & gas >> Successor(s) See list of successor entities<< Founded 1870 Defunct 1911 HQ Cleveland, Ohio (1870–1885) NY City, NY (1885–1911) Key people John D. Rockefeller, Founder & Chairman Henry M. Flagler, Senior Executive John D. Archbold, Vice President William Rockefeller, Senior Executive & NY Representative Samuel Andrews, Chemist & 1st Chief: Refining Operations Charles Pratt, Senior Executive (G Schultz) Henry H. Rogers, Senior Executive Oliver H. Payne, Senior Executive Daniel O'Day, Senior Executive Jabez A. Bostwick, Senior Executive & First Treasurer William G. Warden, Senior Executive Jacob Vandergrift, Senior Executive Products Fuel, Lubricant, Petrochemicals Employees 60,000 (1909) - Goldman Sachs http://en.wikipedia.org/wiki/Goldman_Sachs
George E. Mulligan July 12, 2012 at 05:18 AM
"So that his place shall never be with those cold and timid souls who knew neither victory nor defeat." Roosevelt gave the quote as part of an often-cited 1910 speech "Citizenship in a Republic," or "The Man in the Arena," that Teddy gave at the Sorbonne in Paris, where it was well received. A longer excerpt reads: "It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat." - Another Commander in Chief, President Richard Nixon, referred to the speech during his 1974 resignation, saying "Sometimes I have succeeded and sometimes I have failed, but always I have taken heart from what Theodore Roosevelt once said about the man in the arena, 'whose face is marred by dust and sweat and blood....' - fought the unbeatable foe
Gabriel Kotter July 12, 2012 at 09:17 AM
Oh, no one told me we were all meeting up here to play a few rounds of Number Magic. All of you who believe any of this garbage should try to get off the farm more often. They will get our money in all of the hidden taxes they will ram through. The energy taxes, the property taxes, the sewer taxes, the tax on tobaco, the taxes on gas.. You see, we are the living-- we are the exposed. We have to buy our own gas and few under 250K get to use a company card to do it. Few under that amount have accountants on call to advise tem of how best to protect their money from taxes. Keep believing that there is No Place Like Home Dorothy!
Catmommie July 12, 2012 at 12:33 PM
You forgot the Obamacare...that's a tax in disguise.
George E. Mulligan July 12, 2012 at 02:40 PM
Gasoline Tax & Heat Tax: only reason BUSH TAX CUTS for lower & middle income class by BIG OIL > Rockefeller, Bush, Cheney, & Shultz (grandfather was J D Rockefeller partner/Treasurer) graduated London School of Economics PATRON to Condosleeza Rice. Other OREOS: Colin Powell & Obama. How would Malcolm X term those? Dr. Martin Luther King Jr. was murdered on the 1st anniversary of being against ALL WAR & SO VIETnam WAR, specifically. - We get Warrior Colin Powell, Warmonger Sleeza Rice, & Afghan WARLOCK OBAMA? He also pointed out AMERICAN NEGRO had the World's NINTH GREATEST BUYING POWER compared to ALL the WORLD'S NATIONS. 1 - Weapons Traders hated him. 2 - Police hated him 3 - KKK hated him 4 - Chambers of COMMERCE feared & hated him. 5 - Political bosses hated him. He was like CHRIST at GETHSEMANE. You can SEE the TEARS in his eyes, hear the tremor in his voice, read the brilliance of his speech text (LONG LIFE has it's place) in the COMBINED WEBSITE: "I've been to the MOUNTAIN TOP" SPEECH. "the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note." http://www.americanrhetoric.com/speeches/mlkivebeentothemountaintop.htm That was a MAN of: PEACE. ELOQUENT POWER. SCHOLARLY BRILLIANCE: HUMAN DECENCY CORE VALUES QUINTESSENTIAL TRUE/IDEAL AMERICAN http://www.learnoutloud.com/Free-Audio-Video/History/Speeches/I-Have-a-Dream/7283
jmonty July 12, 2012 at 09:20 PM
The top 5% (households with income of approximately $175,000) take home 31% of the nation’s pay, but are obligated for about 60% of all income taxes. The top 2% pay half of all income taxes. I don't see anyone complaining about that. Should I pay 90%? 100%? Would that make it better? For the record, I live in Stratford and have a household income of $350,000, and you will still find me in the plumbing aisle at Home Depot.
CuriousOrange July 12, 2012 at 11:30 PM
You must be one of those rich plumbers who fixed my sink.
George E. Mulligan July 12, 2012 at 11:58 PM
Nixon supposedly used C.R.E.E.P. Plumbers? Politics of envy will not solve the American peoples' problems. In 2010 total US wages/salaries came to $ 6,009,831,055,912.11 State + Federal Treasuries "Profit" More from Gasoline Sales than U.S. Oil Industry October 26, 2005 By: Jonathan WilliamsScott A. Hodge. Note: An updated version of this study, "Tax Gouging at the Pump," April 2, 2008, http://www.taxfoundation.org/legacy/show/23069.html. Fiscal Fact No. 38 High gas prices & strong oil company earnings generated new tax proposals in recent months. Some lawmakers have called for new “windfall profits” taxes— similar federal law in 1980 signed by President Jimmy Carter— to tax major oil companies' profits @ 50 % rate. Many commentators voiced support for increasing gas taxes to keep the price of gasoline at post-Katrina highs, thereby reducing gas consumption. http://taxfoundation.org/article/state-and-federal-treasuries-profit-more-gasoline-sales-us-oil-industry In fact, recent decades governments have collected far more revenue from gasoline taxes than the largest U.S. oil companies have collectively earned in domestic profits. (Click here for previous analysis of state, local & federal gas taxes.) According to data compiled by the U.S. Department of Energy’s Energy Information Administration, the domestic profits of the 25 largest oil companies in the U.S. have been highly volatile since the late 1970s.
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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