How much is rich?

Paul Krugman, in the New York Times, provides a sensible answer to a tricky question:  how much is rich?

In his entertaining book “Richistan,” Robert Frank of The Wall Street Journal declares that the rich aren’t just different from you and me, they live in a different, parallel country. But that country is divided into levels, and only the inhabitants of upper Richistan live like aristocrats; the inhabitants of middle Richistan lead ample but not gilded lives; and lower Richistanis live in McMansions, drive around in S.U.V.’s, and are likely to think of themselves as “affluent” rather than rich.

Even these arguably not-rich, however, live in a different financial universe from that inhabited by ordinary members of the middle class:  they have lots of disposable income after paying for the essentials, and they don’t lose sleep over expenses, like insurance co-pays and tuition bills, that can seem daunting to many working American families.

Krugman’s point is, there is a grey area between “middle class” and “rich”.

It’s an important distinction when it comes to tax policy. At a time when the USA is running an enormous deficit, it might be good policy to increase taxes. But many middle class people are having trouble making ends meet — the housing crisis is of particular note — and you might want target your tax increases at “the rich”. If you can figure out who they are, exactly.

I like the observation that the inhabitants of “lower Richistan” don’t lose sleep over expenses, like insurance co-pays and tuition bills. That resonates with me. I’m certainly middle class (at least on paper), but I can’t afford to pay my kids’ tuition for them. They have to rely on government-sponsored student loans, which means they’ll graduate with some thousands of dollars of debt.

(Note:  I live in Canada, and I understand that, to some extent, I’m comparing apples to oranges here. Overall taxes are higher in Canada, and we look to the government to provide more of our services.)

If I could pay my childrens’ tuition, and not lose any sleep over it — i.e., I still had a cushion to insulate me against unexpected expenses — yep, I’d consider myself rich!

With that definition in place, Krugman turns his attention to McCain’s and Obama’s tax proposals.

Mr. McCain wants to preserve almost all the Bush tax cuts, and add to them by cutting taxes on corporations. Mr. Obama wants to roll back the high-end Bush tax cuts — the cuts in tax rates on the top two income brackets and the cuts in tax rates on income from dividends and capital gains — and use some of that money to reduce taxes lower down the scale.

According to estimates prepared by the nonpartisan Tax Policy Center, those Obama tax increases would fall overwhelmingly on people with incomes of more than $200,000 a year. Are such people rich? Well, maybe not:  some of those Mr. Obama proposes taxing are only denizens of lower Richistan, although the really big tax increases would fall on upper Richistan. But one thing’s for sure:  Mr. Obama isn’t planning to raise taxes on the middle class, by any reasonable definition — even that of the Bush administration.

This is important, because McCain has been hammering away on the theme, Barack Obama will raise your taxes. To be blunt about it, McCain is guilty of lying repeatedly on this point.

If you reside in Richistan, McCain’s your candidate. But for the rest of us,

Obama’s tax plan skews the other way, aimed at strengthening benefits for lower-rung taxpayers and raising rates at the top. His plan would restore the Clinton-era rates for the two highest tax brackets.

So when John McCain insists that Obama will raise your taxes, he’s talking to people like himself. That is, the rich. And even for the rich, Obama only wants to return to the Clinton-era tax rates:  when the American economy was smokin’.

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6 Comments (+add yours?)

  1. Bill
    Aug 22, 2008 @ 15:49:47

    Rich? Well from my socialistic perspective, riches start with the first penny you earn above what you need to be comfortable. Thus most people that live in Canada are Rich and I am sure there are a lot of people in the third world that would agree.

    Reply

  2. juggling mother
    Aug 22, 2008 @ 16:39:58

    How much is rich?

    everyone knows the answer to that…….

    Just a little bit more than you have ROTFLMAO!

    Reply

  3. nebcanuck
    Aug 23, 2008 @ 08:22:48

    I have to say that Bill’s point is one that’s becoming harder and harder to ignore.

    Globalism has brought a new light on the idea of poverty. Considering even the poor in our country eat and survive (albeit often without residence), we can hardly claim that anyone who is “middle class” is “poor”. Considering we are able to borrow in order to go to school, considering even as a student I have more than enough to eat, a nice home, and more electronic equipment than anyone really needs, I would have to agree that we’re all rich.

    However, keeping that in perspective, many people are genuinely living in poverty as far as the books go. When I am done school, I will have more than $20 000 to pay off. Until I have payed it off and put away some money in my bank account, from a purely financial viewpoint, I technically have less than $0.

    If it were just the occasional person, one would have to shrug it off. But the fact that more than half of our population is in the same situation begs some serious questions about how realistic our society is. What is this fabricated world of debts-that-never-go-away? What does it mean for us to have less than a dollar to our name, but still be able to buy Starbucks coffee? The line between rich and poor depends highly on your definition. If it’s based on material goods, we are indubitably rich. If it depends on financial balance, we are indubitably poor. I really don’t have an answer for which is the correct definition, although from a Biblical standpoint (which I always resort to in my own life), I would have to go with material goods.

    Reply

  4. Stephen
    Aug 23, 2008 @ 12:59:54

    I think we’ve strayed some distance from the topic I was intending to address here! But Bill’s point is well taken, and there’s no denying that it’s an apt response to the title of the post.

    I agree: based on Jesus’ standards we’re all rich in the industrialized West. Does that mean that all Christians should take a vow of poverty, and hold their material possessions in common? I’m thinking of Bill’s specific framing of the question: that you’re rich as soon as you have one penny more than you need to be comfortable.

    Indeed, I’m not sure that “comfortable” would be Jesus’ standard. If you have a penny more than you need to adequately house and nourish yourself and your family, you should probably give that penny away to someone needy. “Sell your possessions, and give to the needy.

    The post concerns secular society and its tax policies. I doubt that even a radical Christian would agree to let the state take every additional penny via taxation, and redistribute it as the state sees fit.

    Reply

  5. Bill
    Aug 25, 2008 @ 09:01:54

    The problem with tax, and state distribution is that it not only goes to the betterment of mankind but to the enrichment of the nation. .

    The question being should we suffer a degree of poverty for the benefit of the world?

    Reply

  6. Stephen
    Aug 25, 2008 @ 12:45:15

    But there’s another issue here.

    If I put $20 into the offering plate at church, or write a $200 check to World Vision, my giving is voluntary, and I can give in a way that consistent with the dictates of my conscience.

    Taxation is enforced by the state with all its coercive powers. And the state may choose, for example, to fund abortions with that tax money — which may conflict with my conscience.

    Hence the distinction between Jesus’ sayings and the tax policy of a secular government. They really are two separate issues.

    Reply

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