As featured in The Wall Street Journal, Money Magazine, and more!
     

$250,000 Tax Rates and You

This article was written by in Economy. 69 comments.


We’re still waiting to hear the official proposal, but you’re bound to hear a lot of talk this week in the mainstream media about the U.S. budget, deficit, and the plan to let the “Bush tax cuts” expire. Reporters are going to use the phrase “people earning more than $250,000 a year” with respect to tax rates increasing.

You probably heard this phrase a lot during the campaign in 2008. It was misleading then, too.

To put things in perspective, from bloomberg.com:

Obama has proposed allowing the top two tax rates of 33 percent and 35 percent to revert to what they were during the Clinton administration, or 36 percent and 39.6 percent, respectively.

In other words, tax rates may go up between 2 and 4 percent for the country’s higher earners. So, who does this affect? It’s not “people earning more than $250,000 a year.”

The answer is: people with a taxable income of more than $250,000 a year. Taxable income is your adjusted gross income minus your exemptions and either itemized deductions or the standard deduction. And if you’re earning that much every year, you’re probably itemizing.

Is this a good plan? I can’t say. I do know that when the middle class does well, everybody else does well, too. I think we’ve proved under Reagan and George W. Bush that giving tax breaks to just the wealthy people doesn’t stimulate the economy like it’s supposed to, but if you’ve got statistics that prove otherwise, please tell me in the comments.

But more importantly, I wanted you to know that the “250,000″ number that you’re going to hear will affect a lot fewer people than the mainstream media would have you believe. There’s a definite difference between income and taxable income.

Published or updated February 23, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦1,358
Rank: Quarter
About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 69 comments… read them below or add one }

avatar Rick

I think those who have incomes in the higher brackets will not sit idle while their taxes are raised. For example, a few years ago my wife and I were subject to the Alternative Minimum Tax for the first time. Not only did we have to pay this AMT, we also lost deductions. Not to sit idly by, my wife changed to part-time work instead of full-time and I increased my contributions to my 401K to the maximum. I also made sure I didn’t work overtime. We aren’t rich and don’t own a business. We have five children and I work as a Software Engineer and my wife as an Applications Analyst. People earning decent wages that are careful with their money have the flexibility to reduce their taxes. This is a fact that few politicians have learned. The only way to tax fairly is to do it broadly so that everyone has a stake in keeping taxes and big government at bay.

Reply to this comment

avatar Rassah

From my experiences of meeting people of vastly differing incomes (up to $1mil a year), I’ve learned that as people’s incomes increase, they get access to more options that allow them to pay less in taxes (deductions, establishing corporations, tax shelters, etc).

Reply to this comment

avatar TheMightyQuinn

The 33% bracket begins at $171k for single, $208k for joint filing ($104k if filing separately.) Where does the $250k come from?

Reply to this comment

avatar Smithee ♦1,358 (Quarter)

That’s a good question, TheMightyQuinn, it’s the number that everybody keeps reporting. Can you link us to the source of the numbers you cited? I’m more than happy to update the article.

Reply to this comment

avatar TheMightyQuinn
avatar Smithee ♦1,358 (Quarter)

Thanks for that. I found the same figures in an article at Moneychimp that includes a handy calculator. It also included this bit near the bottom:

The cutoffs for the top brackets are to be raised, so that singles making above $200,000 annually, or families making above $250,000, will be the ones affected by the higher rates.

Reply to this comment

avatar Dave_N

So, a hypothetical couple such as Rick and his wife earn say 300 000. A marginal tax rate increase from 35% to 39.6% would decrease the marginal after tax income from 32.5 K to 30.2K, a difference of 2300. But in order to save 2300 they should forgo 30.2K of income?

Never really have understood this line of thinking. Seems like an irrational hatred of taxes almost.

Reply to this comment

avatar TheMightyQuinn
avatar Rick

Dave N,

Not $300,000 – try half that. The AMT starts to bite at much lower incomes in years that Congress does nothing to negate its effects. By placing $15,000 more in a 401K I wasn’t losing any income, just delaying the receipt of it. Once my wife worked less, then deductions became available again that the AMT took away. So along with less state and federal taxes and security taxes you do not lose as much as you would think.

The point I am making is that the more you earn, the more choices you have with your money to offset taxes. My case is not a good example but it does show that even at my income level there are lots of choices. Provided of course you keep debts low and live reasonably modestly.

When I earned a living in England before emigrating I learned early that working overtime pushed me into a higher tax bracket and just wasn’t worth it. That is the trouble with progressive tax systems — in many cases they really do discourage work and encourage efforts to reduce taxes.

I don’t mind taxes but where a few simple changes can reduce my tax burden I have learned to do it.

Reply to this comment

avatar Ron

It’s not really an issue of helping the economy or not, it’s an issue of raising revenue for the government. If you raise taxes you lower revenue, its called the law of deminishing returns. There was a study done (which I cannot locate at the moment) that showed that the government raised more taxes per capita after the tax cuts took effect, than in any other time in history, even during the boom years of the Clinton era.

It makes a lot of since if you think about it because the more you tax people the more they will either lie about income or hide it. As a test, imagine if you will of a tax rate of 100%, how many folks do you think would pay that bill? It may sound rediculous but it illustrates the point by looking at the extremes.

Reply to this comment

avatar thomas

rhetoric…

why not raise the rates to 70% again? The rich do not pay their fair share. How dare they work hard and strive for personal excellence. For shame!

Reply to this comment

avatar Atul

I agree that the more money you make, the more deductions you can find to get out of paying taxes. This effectively makes our taxes more regressive than they should be. The ultimate solution I see is a huge standard deduction, like $25,000 for individuals and then a flat taxation rate for all income earned above that amount, say 30%. There would be no other deductions except for education or extraordinary healthcare expenses. Of course, I haven’t thought this all through, but in principal, such a tax system could work. Most flat-taxers don’t include the extremely large standard deduction idea that I’m advocating.

Reply to this comment

avatar TheMightyQuinn

@ Atul:

Then there’s the other alternative: tax consumption instead of income.

Reply to this comment

avatar Atul

@ The Mighty Quinn,

Taxing consumption would drive us to save a lot more money and spend less, that’s for sure. We needed that 5 years ago! :-) Today, we’re supposed to be spending, but we don’t have access to money.

Reply to this comment

avatar megscole64

What I do not like about the increased tax rate – and that is exactly what it is – is that it punishes small businesses. There are thousands of small businesses “making” up to that $250k in taxable income, but it’s not really how much they bring home.

Increasing taxes discourages production. They should change the tax rate to tax consumption or implement a flat tax. That way, the so called “rich” could pay “their fair share” (whatever that means) but everyone would have a stake in the game. The way it is now, there are so many people who pay NO income tax and the class warfare of “tax the rich” sounds great to them because they pay nothing anyway.

People’s definition of rich sure does change though…I do not think $250k is rich. Especially in high cost areas like Seattle, San Fran, NY, etc.

But the more the gov’t taxes, the more that productive members of society will cut back and stop producing…as a productive member of society I am sick of propping up those who pay nothing, have no skin in the game, but demand their “fair” share. Our system is insane.

Reply to this comment

avatar Rassah

@Ron

By your logic, having a tax rate of 0% would make the government have infinitely large revenues every year. Tax rates to revenues are on a bell curve, where too much or too little of a tax rate decreases revenues. There’s a maximum point somewhere. The main debate between the political parties is where exactly that maximum is. This is made even more complex by the fact that taxes are also used to support infrastructure, which in turns supports business. Too low of a tax rate = too low revenues = crumbling infrastructure (roads, power, communications) = loss of business revenues = lower taxable income. Rinse, repeat.

@megscole64

If the businesses do not “bring home” the $250k, they aren’t paying taxes on $250k. The businesses I know of in my area have sometimes huge revenues, some in the millions, but due to expenses, their actual net profits are way lower than that (the one I worked for that had over $25mil revenue had total net profit of about $160k in ’08). Its employees earned way less than $250k a year, too. From an (efficient) economic view, businesses tend to make near $0 in profits, since if some business makes huge profits, another will come in and undermine it by selling cheaper. And as been pointed out, those who do make $250k or more a year have options to “lower” that income through deductions and deferments. Businesses even more so through business expenses. Frankly, I’m not even sure whom the $250k tax bracket would be directed at, other than those making enormous passive income, like fund or sales managers.

Reply to this comment

avatar Xin

As far as I know, this creates a pretty big marriage penalty. The $250k number is pretty inaccurate. If you look at 2009 tax tables, married filing jointly has a 33% rate when the couple has $208k, but a single person is in that rate when he or she has 171k. See: http://taxes.about.com/od/2009taxes/qt/2009_tax_rates.htm

So if this rises to 36%, then it penalizes a second income by a lot.

Reply to this comment

avatar Atul

@Xin

That’s not a marriage penalty. It accounts for the fact that when two people live together, they have much less than double the housing expenses, food expenses, insurance expenses, etc…

Single people have to spend a lot on things for ourselves and we don’t have anybody else to help us get things done while we’re not there. I used to travel a lot for work so I had to hire somebody to mow the lawn and shovel the snow. If I had a spouse, we could have shared in the work for no extra expense.

Reply to this comment

avatar TheMightyQuinn

Atul: “That’s not a marriage penalty. It accounts for the fact that when two people live together, they have much less than double the housing expenses, food expenses, insurance expenses, etc…”

So does it apply to roommates? How about couples merely living together? Yes, it IS a marriage penalty, since it only applies to those legally married.

I got married at the end of 2002. I lived alone 10 month of the year, but when I did my taxes, wow! I was socked with the marriage penalty (around $1500, i think.)

For tax purposes, one should get married at the beginning of the year, and have children at the end. :)

Atul: “I had to hire somebody to mow the lawn and shovel the snow.”

I hope not during the same week. ;)

Reply to this comment

avatar Atul

@TheMightyQuinn

Good point about living together versus being married, but can’t married people file their taxes separately?
In Michigan, where I used to live, it could have happened that I needed the lawn mowed and the snow shoveled in the same week. :-)

Reply to this comment

avatar TheMightyQuinn

Atul:

Yes, married people can file their taxes separately, but there’s a big penalty for it. As I posted above, the 33% bracket begins at:

$171k for single
$208k for married filing jointly
$104k for married filing separately.

Reply to this comment

avatar Atul

@TheMightyQuinn,

Yes, but I’m sure you save a lot of money on your car insurance, healthcare, and other expenses relative to a single person. :-) Also, most people who are single and not in their 20′s anymore don’t have roommates to share expenses with. If marriage is worth the $1,900, then that was the right thing to do. Also, if one spouse makes sufficiently more than the other, the lower-earning spouse pays tax at a lower bracket when filing separately. The ultimate solution is to get unofficially committed with a partner and save on wedding expenses, living expenses, and taxes.

Sorry for the disjointed random thoughts.

Reply to this comment

avatar dong

There’s also a single penalty. The impact of filing status depend mostly on how even the distribution of income between a couple is, and how large the absolute income is. Like anything with taxes it depends. My friend who is married benefits massively because his wife is student. On the other hand if I got married, my girlfriend and I would pay more in taxes and she would become ineligible for certain deductions. So it all depends.

Reply to this comment

avatar jim

Lets keep it in perspective.

This isn’t about middle class. Only about 1-2% of the nations households make over $250,000. And remember folks this is the richest country in the world. In terms of income level relative to everyone else these people are certainly “rich”.

Rassah is right. Small businesses only pay taxes on profits after expenses. So theres no special penalty to small businesses.

So if they’ve got taxable income over $250k then they are making $250k profts. There are certainly many “small” businesses out there making that much money but lets also be aware that the government considers business with up to 500 employees to fall in that “small” category.

Jim

Reply to this comment

avatar Dave_N

@Rick

A day later, my response seems a bit too personal, too directed. Sorry if I caused any offense.

@megscole64

Can you address my question about marginal income? Are you saying productive members of society will stop producing to avoid taxation? An increase in taxation from 35% to 39.6% will stop an individual’s incentive to produce?

I’m not at this level of income, but I just don’t get it. I don’t like to see my tax dollars wasted either, but in the words of President Obama, “I willing to pay a little more.”

Dave

Reply to this comment

avatar megscole64

Dave…

I’m not saying a 4ish% increase will stop all productive folks from earning or producing. But the fact is that it is a DIS-incentive to work. Why in the hell should I risk my capital in order to create a new business (which is my dream), which could possibly hire new people, if I’m just going to be punished with punitive taxes (not to mention insane regulation). The tax system is set up backwards. It rewards those who don’t earn a lot (whether or not they’re trying to earn more isn’t my point here) and punishes those who strive to create and earn more. It punishes success and rewards “failure” … there are too many people out there who pay NO taxes. They have no stake in the system.

We should be *rewarding* businesses who are successful…not giving money to failing companies to prop them up.

We don’t make even near half of $250k, but I can tell you that our taxes have gone up in the last couple of years and it really and truly does make us stop and think. Why bother working some overtime if 40% of it goes to the government? (My latest bonus had 40% taken out for taxes!) Not to mention the local state taxes on top of that. I figure we’re barely bringing home half of our gross pay. It is a DISINCENTIVE to work. I don’t see why that is so hard to understand.

Now…I’m a fairly ambitious person…I can’t stand to just sit around and do nothing just to spite the government, so no…I probably wouldn’t just stop producing. But push me hard enough and I can also be very stubborn. Hubby and I could probably live on one salary if we needed to and that would decrease our taxes quite a bit…as well as our expenses. So, push me hard enough and yes I would stop “producing”. And my lack of production decreases the amount that the government takes in.

I’m NOT willing to “pay a little more” when the money is only going to ridiculously asinine programs like ACORN (a fraudulent organization if there ever was one), to study a field mouse in San Fran, and all the other useless programs that do nothing to actually “create” anything – let alone a single job. Most of the so called stimulus does nothing more than prop up government jobs as well as some in education and health care…two sectors that rely heavily already on the government. It’s a payoff. Private business is the only thing that will create new jobs and stimulate our economy.

I’m more than willing to help charitable organizations myself…to help those around me who truly need help. I don’t need the government to forcefully take my money and use it how “they” see fit. I know better what my community needs than some bureaucrat in Washington DC. Let me keep MY money. I know how to use it…and I’d do a damn better job than they will.

Reply to this comment

avatar fiftyplus

Whenever I read or hear discussions of taxes it always seems to degenerate into somebody is just “getting my money.” During the years I’ve noticed things were better when the middle class (however you define it) has paid less tax as a percent of income we have had better economies for “all” people.
As far as taxes on small business, and you will find this when you start your own business, is to decrease profits, increase assets or net worth thereby increasing depreciation, and make as much of your income as possible appear to be an expense to the company.
Someone mentioned a tax on consumption. Generally, this takes the form of a sales tax. Sales tax pushes the tax burden to the lowest wage earners disporportionately. For example, if i make $15000/yr and spend $10000 at a sales tax rate of 10% my tax share is 1000. If I make $150000/yr and spend $20000 my tax share is $2000. The person making the lesser amount has a larger percent of income going to taxes than the higher earner.

The Last thing I’d like to comment on is this. Taxes in this country are designed to tax wage earners. Wage earners cannot hide their profits from their labor. Yeah, there are a few deductions, i.e., mortgage interest but generally, what you are paid you are expected to pay taxes.

If everyone would stop thinking about themselves and instead the good of the whole things would much improve. I know, that’s like thinking drivers entering the freeway will fit into the stream of traffic rather than cutting in as early as possible and screwing up the whole flow!

Reply to this comment

avatar Rick

The problem with “thinking of the whole” is that you assume politicians know how to spend money wisely and in a manner acceptable to most people.
But history proves you wrong.

I have no problem with taxes, per se, as long as they are applied to the kinds of things government should focus on:
Maintaining roads and bridges
Maintaining a strong defense
Managing foreign policy
Managing public property and resources (parks, etc.)
And a few various other things that are essential, such as basic education.

The problem is, once you get a politician touching money that isn’t his/hers, there is a natural inclination to misuse or misallocate those revenues.

As such, the money I earn from my job is MINE, and not the governments, and I can use it in a far more efficient manner than any politician can.

I would have less of a problem with taxation if I could tell the government precisely where the money needed to go. But the politicians don’t want that, because it would deprive them of their favorite activity – pork barrel politics, accepting bribes, and basic corruption.

If you don’t believe this behavior is utterly pervasive, then you’re terribly naive.

Reply to this comment

avatar Atul

@Megscole

The tax system is not set up backwards. There are many people who work hard, do everything right, and still can’t move up in the world. Some successful people seem to forget that. Those who make a lot less money should not take on an unreasonable burden of taxes when they can barely get by. On the contrary, those who have “made it” in a sense owe it to society to pay more in taxes since they have derived more benefit from it. I never forget how fortunate I am that I was able to get two college degrees and make a decent living. That’s because my father was educated and worked relatively hard as a middle class engineer who could support more than half of my tuition through college. But, if that wasn’t the case, then how would it be my fault?

The quest to succeed and accomplish is in nearly every one of us. I don’t think higher taxes are a deterrent. I would be happy to one day make $250K and pay into a higher tax bracket to support my country and its people. And maybe if you don’t work so much overtime, it opens the door for other people to work and make a living instead of being jobless. That’s the problem I have with many companies today. They squeeze fewer people to do a lot more work. This has diminishing returns and doesn’t help society on the whole.

The effectiveness of government is another issue, but there are certain services and needs that only our government can take care of. It’s a far from perfect system, but we vote for a government that will spend the money the way we want them to. Science and arts need funding whether you understand the value or not. Private charities can’t cover all the people who have needs. This has to be done with social services run by government. If we all just kept our money and there was no infrastructure, nobody would be able to make any money and hundreds of millions of people would be miserable, probably leading to more crime. It’s interesting how other countries’ residents pay a lot more in taxes and they seem to complain a whole lot less than we do.

Reply to this comment

avatar megscole64

Atul – You and I just fundamentally disagree. I believe that anyone can become anything they want by working hard. I believe that the government should get out of the way.

Good for your dad for helping you go to college, but not everyone needs to go to college to succeed…and not everyone who succeeds has parents to help them out. I didn’t. I earned my degree and worked full time to pay for it. Anyone in this country can become anything they want…I don’t care WHAT obstacles are put in their way … if they are stubborn and never say never they can succeed. There are more stories than Oprah could ever cover about people pulling themselves up and out of desperate situations.

I’m not saying the government doesn’t have a place – but that place is ONLY infrastructure and security. Everything else is unnecessary. [And no, I don't really think government should be in the business of helping those who can't help themselves...even though I do accept that our government will always do this. I believe private charities could and would help those in need. We are the most generous people in the world.]

I don’t pay taxes to “help society”…I wish my taxes only went to infrastructure and security. I can “help society” on my own thanks. I don’t need the government to decide which parts of society are worthy of help.

Science and art have become largely political because of government funding. There is absolutely NOT ONE SINGLE reason for art to be funded by government. Not one. That is a sector for private citizens to fund and support.

I believe that government is a hindrance to success, where you clearly think that we, the peon citizens, NEED the government to “help” us live our lives. We just fundamentally disagree.

Reply to this comment

avatar Rick

Dave,

I wasn’t offended. Your comments were good. I appreciate what you have added to the discussion. I think soaking the rich is foolish because they are the ones most able to defend themselves.

Reply to this comment

avatar Xin

@Atul

So you are saying that a married couple that makes $208k is a lot better off than a single person that makes $171k because they can save money on shared housing and should pay more taxes? I seriously beg to differ. A married couple is more likely to have children and therefore need a bigger house. There are also education expenses. It is a penalty because it penalizes women who make as much as their spouses.

Reply to this comment

avatar Atul

@Xin

There are tax credits for having children so that helps some. But the only way to figure out if a couple making $208K is better off than a person making $171K is to look at how much variable money is needed per person. If it’s $37K, (which seems reasonable as I spend about $3,500 a month on everything besides my mortgage and I’m upper middle class), then they are equally well off. That means that the extra $134K is money to be spent on expenses that don’t vary too much with the number of people in the household, like mortgage, utilities, luxuries.

Anyway, as a society, we shouldn’t be worried too much about the 1-2% of the nation’s households who make this much money. An extra 3-4% in taxes isn’t going to change their lives. I’m more worried about the 20+% of the people without jobs or working at minimum wage. They can’t even feed, shelter and provide healthcare to themselves reasonably well.

Reply to this comment

avatar drjackryan

“I think we’ve proved under Reagan and George W. Bush that giving tax breaks to just the wealthy people doesn’t stimulate the economy like it’s supposed to, but if you’ve got statistics that prove otherwise, please tell me in the comments.”

Go to commerce.gov. I remember the Reagan years very well. Strong business growth dominated the news during his tenure. I remember the Carter years very well. Double digit interest rates, double digit inflation…need more? We had growth under W up until democrats took Congress in Jan 07. DJI topped 14000 around Oct 07…has been tanking ever since. Dont believe me?
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=djia&sid=1643&o_symb=djia&freq=2&time=10

Reply to this comment

avatar Smithee ♦1,358 (Quarter)

What am I looking for on commerce.gov?

Reply to this comment

avatar Atul

“I remember the Reagan years very well. Strong business growth dominated the news during his tenure. I remember the Carter years very well. Double digit interest rates, double digit inflation…need more? We had growth under W up until democrats took Congress in Jan 07. DJI topped 14000 around Oct 07…”

Yes, that was fake wealth and growth based on deficit spending and from shuffling paper and numbers around. Over the last 8 years, with tax cuts for the rich, the wars and crazy financial instruments from banks that weren’t overseen properly, that fake wealth created this bubble which has burst. And just so you know, the stock market and GDP have historically done better under Democratic presidencies than it has under Republican presidencies.

http://www.investopedia.com/articles/financial-theory/08/political-party-democrat-republican-stock-returns.asp?viewed=1
http://www.slate.com/default.aspx?id=2071929
http://www.themoneyblogs.com/trading/amateur-investors/dow-performance-since-1901-based-on-a-democrat-or-republican-as-president.

Perhaps this supports that cutting taxes for the rich doesn’t necessarily create jobs. Companies lay people off even in good times to make higher profits and squeeze the employees. Logic tells me that one hundred middle class people with an extra $10,000 helps the economy more than one mega-millionaire with an extra million dollars. That millionaire might buy one yacht or just keep the money whereas middle class people will probably buy more goods and services that spur the economy.

Reply to this comment

avatar Dave_N

I stole this from http://www.andrewtobias.com/newcolumns/090226.html but it pretty much matches my sentiment.

Be honest:

· Is the reason you’re not investing in stocks these days (a) the prospect of having to pay 15% capital gains tax? Or (b) the fear of further losses? (Well, or – c – that you don’t have any money?)

· Is the reason you don’t start a new business that (a) if it made you a lot of money you’d have to pay a lot of taxes? Or that (b) you can’t get anyone to risk the funds you need to finance it?

· Is the reason you don’t hire new workers that (a) you’re paying so much in taxes? Or that (b) with business down so much, you don’t need them?

· Is the reason you’re not spending money as freely as you used to that (a) your taxes are too high? Or that (b) you’re afraid of losing your job? (Well, or – c – that you’ve lost half your net worth and suddenly realize you’d better get serious about saving for a decent retirement?)

· Is the reason you’re unemployed that (a) taxes are too high to make you want a job? Or that (b) you’ve sent out 400 resumes and called every connection you have, but no one’s hiring.

….

Or else he’d ask a question of his own: “Do you really think the government can spend your money better than you can?”

And the answer is yes. At least for now, in this circumstance.

You, if you got a tax break, would either use it to pay down debt or increase savings – neither of which would create new jobs or break the vicious economic cycle – or you would spend it. What would you spend it on?

Would you spend it to keep cops on the street at a time of rising crime – or on Chinese-made clothes?

Upgrading our electric grid or another Korean-made TV?

Repairing our bridges or remodeling your kitchen?

Obviously, some of your spending – “greening” your home to be more energy efficient, for example – would be great. And obviously, some government spending, for all the scrutiny it will get (see, for example, recovery.gov), will be disappointing.

But as a general matter, the balance has shifted too far toward consumer spending and away from investment in national infrastructure.

Reply to this comment

avatar drjackryan

“What am I looking for on commerce.gov?”

If you don’t know what you are looking for, then how can you made the comment:

“I think we’ve proved under Reagan and George W. Bush that giving tax breaks to just the wealthy people doesn’t stimulate the economy like it’s supposed to, but if you’ve got statistics that prove otherwise, please tell me in the comments.”

Sorry, never seen a poor man make payroll, have you?

Reply to this comment

avatar Rick (not the first Rick)

My wife just got laid off. We expected it – it was not a surprise and she had been holding on long enough to get a package and unemployment.
Here’s the gig – she gets a lump sum of 2 weeks for every year (5 years) and then collects unemployment immediately. Why is this important? We put the lump sum in the bank and unemployment is 3/4 of her weekly take home. With the gas we save for her not commuting and an under the table job at a local business, she exceeds her take home – and she gets unemployment for 56 weeks! She has no incentive to find work. The loss of the 401(k) is the only downside, but given the state of the stock market, we’re not crying poor over the small amount that represented, I’ll boost my 401(k) which is underfunded.

The “stimulus” package will boost and extend unemployment by 1 full year. It’s a lousy package for the economy and it’s an incentive to not work.

My interest in green technologies is not improved by the offerings in it. I support tax breaks for green tech, but this didn’t really improve it at all. Why is natural gas not considered a “green” fuel? We have far more of this than any other nation, it’s cheap, and it’s green. Instead we focus on 20 year returns on the dollar for wind and solar? That’s idiotic. Pay me $6,000 to convert to Natural Gas from my Oil heat and then you’re on to something….

As for cutting pay to avoid taxes, nobody does that and if anyone does they’re terminally stupid. The other Rick makes a great point, however, about shifting earnings. I got hit with the AMT last year and made some alterations to avoid it this year. I will fall short of the increase in taxes as the “Bush Tax Cuts” are reimplemented. But I may hit the threshold in 2 years if I meet my revenue goals. If that is the case, I will do everything in my power to make sure the government gets the smallest possible portion of this money. I see no need to fund every liberal cause which I despise. I have worked hard, avoided debt, rarely use credit and use it responsibly, saved money, and I am one of the people Obama claims caused this “problem”. Why, oh why is Obama attacking the middle class? I don’t know. But he most definitely is.

See, the problem isn’t income – it’s where the income is earned. As a 2 child family in NYC area, $250,000 a year is solidly middle class. I don’t earn that now, I’ve only earned it once in the last 10 years, but I can tell you it isn’t that much. I don’t belong to a country club, I go to the municipal pool, and I have a modest house in a good community. I take 1 vacation a year. I do most of my home repairs by myself.

Despite all this, I don’t classify as a millionaire in assets held, I don’t spend like a millionaire, I can’t save like one. So how am I rich?

I agree that cutting taxes on the very wealthy don’t improve the overall economy, but raising them doesn’t either. The best solution is to cut taxes for the middle classes, and have the government spend and borrow less.

The solution to the current mess? Borrow less, let mortgage rates fall, let me and others like me refinance. I will get a $1,000 a month break if I can refinance to 4.5%. $1,000 which will let me buy a new car, put some money in the bank, pay down my mortgage faster, buy more things. A stimulus package HAS TO STIMULATE THE MIDDLE CLASS, not the poor. The poor don’t add to the economy and don’t know how to add to the economy. We have to support them, yes. But the stimulus package does more for the poor than it does for the middle class. It will NOT work.

Reply to this comment

avatar Smithee ♦1,358 (Quarter)

Well, for example, I could look at the movement in the Gross Domestic Product over the years 1980 through 2008, but that would disprove your theory, not prove it.

However, there are competing theories of what constitutes economic growth, so I wanted to see which one you were subscribing to.

Reply to this comment

avatar Rick

Rick (the other Rick) said: “As for cutting pay to avoid taxes, nobody does that and if anyone does they’re terminally stupid.”

In your circumstance it may appear stupid but consider this:

My wife cuts two days of work out of her week to help remove us from the AMT. How much money does she really have if she didn’t cut her hours?
Federal taxes 25%.
State taxes 5%.
Social Security 7.65%.
Tithe (voluntary) 10%.
She ends up with almost half her pay gone (47.65%). But monetarily we are not finished. We now pick up deductions that we did not qualify for before as well as reduced commuting costs.

With two more full days a week my wife spends a lot more time with her children (all grown now), grandchildren, siblings, and ailing father. She is less tired and enjoys life more. Who can say what the monetary value of this is?

You point out that your wife “has no incentive to find work” because the benefits of not working outweigh the benefits of working. In our instance when we factor in taxes, the AMT, and the value of my wife’s time, she also has no incentive to work those two days a week. Your other points about cutting taxes I agree with, well said.

Taxation, when coupled with other factors (for example the value of your time), becomes a powerful dissuader to work.

Reply to this comment

avatar Rick (the other Rick)

I think you misunderstood my comment.
Nobody reasonably cuts their pay JUST to save on taxes. You’ve put a premium on time at home, as has my wife.

I view it this way – if 2 people are working and earning $275,000 per year combined (one at 125,000 and the other at 150,000), there is not a high likelyhood that one will cut their pay JUST to save taxes. The overall savings would not be worth it, regardless of the premium you place on less work/more family (unless you’re like my mother who valued family over work and damn near went broke in her pursuit of the ideal).

However, in the case of someone like my wife, who earns about $30,000 a year, cutting pay to benefit from taxes is worth it. Assuming you are in the top bracket because one earns 230,000 and one earns 30,000 – having one earner reduce hours or having the lower earner stop working is beneficial IF you value someone at home. If you lose 30,000 and drop out of the top bracket, you essentially lose about $12,000 in take home. I can say with little hesitation if THAT is the case, then valuing family is worth it. And in my case, my wife and I agreed that since she’s collecting unemployment the only loss we really face is the 401(k), which isn’t gaining us anything right now anyway (it’s a long term thing but she doesn’t like to think long term).

If, however, you’re someone who values the cash, losing $12,000 is substantial. For one thing, it pays for the nanny, which adds to the economy. Dropping that off the list takes 2 people off the pay scales and adds only 1 back (the replacement for the 30,000 earner, who probably comes in at a reduced rate).

Taxing the “wealthy” is a tricky exercise. Chances are that in dual earning homes over $250k, BOTH earners are making more than $75k – which means you’re unlikely to see scenarios where people quit their jobs to reduce their taxes. It really doesn’t make sense.

There will be a few odd situations where this does take place, but you can be sure they are few and far between.

I do agree taxation is a powerful dissuader for work. I disagree with Obama’s view that reducing my witholding will mean I’m more likely to SPEND the money. Fact is, anything extra that I have on a bi weekly basis goes into savings right now anyway. I’m someone who will get alot back in my paycheck due to the stupidity on his part. The government WAS getting an interest free loan from me each year of about $8-10,000. Now they are only getting $6-8,000, which will increase the deficit and debt and make it harder for him to balance the budget, as he claims he will magically do after doubling the debt in 20 days (and he complained about doubling in 8 years!!!!).

We WERE on the verge of turning the corner on this recession. Most indicators were showing some signs of bottoming out, or reversing. Consumer confidence had climbed the last 2 months. With each government move into the markets, however, and each comment about increasing taxes for the transfer of funds, and each extra dollar going to support foreclosures that benefit few people who can help the economy, we are moving down a road which will see unemployment increase. Even today, my wife said “I’ve worked for 23 years full or part time – it’s time for me to get back what I put into the system, since he’s offering it.”

I’d never have heard that from her 5 years ago. We are a family that values work and effort. But we don’t value paying for people who can’t manage their finances.
It does put some pressure on me to perform at a higher level, of course. But why should I? Where I am now, I will only keep a marginal amount of any increased performance. Where’s the incentive to do better?

Reply to this comment

avatar Atul

Come on people. How many professionals say they want to hold back their career because they don’t want to pay higher taxes? In certain dual income households, (especially where children are involved), some people analyze this, but I would argue that it’s good for the families to value people over money.

And perhaps when progressive taxes dissuade some people to work it ends up making more opportunity for others to work and take up slack? It may not seem fair to the individuals affected but perhaps it’s a good thing from a societal greater good standpoint. It increases employment and keeps fewer people on unemployment.

Companies everywhere squeeze employees to do more than one person’s work so that they can save on benefits and expenses by having fewer employees. Most white collar jobs that I know of don’t pay overtime so we are forced to work more for the same pay (and same taxes). While employers save on overhead, this shuts a lot of people out of the job market. De-staffing cuts down on the quality of work that gets done and important long-term stuff just doesn’t get done. It’s shortsighted in many cases. I’ve seen it at my last 3 jobs.

On the other side, some companies “create jobs” by turning one full time position into two part time positions that don’t pay out nearly the same in benefits. It’s a funny game and employee tend to lose out.

Sorry for going off on a tangent, but it’s somewhat related.

Reply to this comment

avatar megscole64

Atul…you sound very bitter. I work in a white collar job and am not anywhere near the top…or even the middle. I have never been asked to work more than one person’s worth. Perhaps you aren’t working in the right job but people have CHOICES. If you think you’re being screwed at work than find new work. But don’t talk about punishing those of us who work hard because we WANT to and who like our employers.

There are labor rules (in our state…not sure everywhere) that forbid denying overtime to certain white collar administrative positions. But the higher up the food chain you get, the more you make (and the more responsibility you have), and the laws are different. People at this level in most jobs may have to work some occasional overtime (or maybe a lot), but most are allowed to take time off that isn’t their vacation time. Called comp time. My boss can leave the office whenever he wants but he also works on weekends when needed. And he LOVES his job!

The employers are not the bad guys. It’s not us against them. Your ranting makes little sense. Pitting employees against employers is illogical.

I’m at a level where I’m required to get overtime … which I HATE because it requires me to fill out ridiculous time sheets. It’s annoying. I’d much rather work “unpaid” overtime when needed and have more schedule flexibility.

There are trade offs. But there are also choices. If I hated my job I would find a new one. Yes, even in this environment.

I don’t see how punishing employers with higher tax burdens helps the employees you claim to care about.

Reply to this comment

avatar Dave_N

“As for cutting pay to avoid taxes, nobody does that and if anyone does they’re terminally stupid.”

I agree completely, yet it is often repeated that these progressive taxes cost jobs.

Reply to this comment

avatar Atul

Meg,

I’m not bitter at all. I just know what I see and things aren’t like they used to be. I’m not pitting employees against employers for the sake of doing so. I’m warning people that the employers have already done a lot to pit themselves against the employees

By the way, I’m actually pretty happy with my job and very fortunate that I have one. A lot of people don’t have jobs partially because of what I talked about in my prior post. I know how to manage my employers’ expectations. Quality work on a task takes time and attention. More tasks take more time. I’m not opposed to working somewhat longer hours but I’m not going to completely dedicate my life for an employer that will drop me the instant they feel they don’t need me anymore. Loyalty that used to exist is long gone. This is why I have started my own business on the side.

As for your prior response to my prior response ( :-) ), to think that anybody can succeed in our country with equal likelihood is naive. Issues of class, family money, race, gender come into play regularly. I still think ours is the greatest country on earth to “make it” though.

And private charities can in no way support everybody who has needs. Who would orchestrate to make sure that whole communities weren’t left out and that subsidies are given out evenly? The government is the only organization that oversees our whole country and can come anywhere close to doing this properly. Sure, it has issues, but it’s the only way to do it properly. That’s why other countries work the same way.

Giving some employers higher tax burdens only matters when they’re making money, but rolling back tax cuts on the wealthy is not “punishing” them. Most business owners don’t make $250K. The top 3% of our country can afford to do more to help our country since they’ve benefited so much and don’t have to worry about feeding and sheltering themselves. Punishing the lower and middle classes with more of the burden does more harm to our economy and society in general. The ultimate incentive would be to reduce taxes for companies that create jobs or to penalize the sending of jobs overseas. It would be hard to monitor though.

Reply to this comment

avatar Rick (the other Rick)

True, more jobs are created. But they are lower paying and have a lower tax rate, particularly if 2 jobs are created.

Most families (such as mine) value family over money. But the trade off is not direct nor is it the same for every family. Were it not for the extended and expanded unemployment benefits, I doubt my wife would be doing what she’s intending on doing.

And don’t forget, if you get laid off (intentionally, as some people do), the job creation is also offset partially by the unemployment benefits paid.
So you potentially get less in taxes even as you pay more out. The concept of higher taxation is usually lose/lose.

Reply to this comment

avatar Rick (the other Rick)

You misunderstood my point. This comment wasn’t meant to be supportive of progressive taxes. Progressive taxes DO cost jobs if the tax system is designed poorly.
This is why many Eastern European nations employed a flat tax – it promotes job retention and creation even as it promotes the payment of taxes.

Progressive taxation reduces overall growth, this is pretty well proven out over history. So people may not QUIT jobs, but they certainly will have fewer available to them.

Even so, there is a group of people, dual income types with one high and one low wage/salary, where losing one salary will BENEFIT their overall lifestyle.

Reply to this comment

avatar Rick (the other Rick)

I believe that given equal opportunity and skill, this country DOES allow people the chance to get ahead. When I interview people for jobs, the items you mentioned (class, money, family, race, gender) DO NOT come into play at all. I have never hired someone because of the family they were in, how much money they have, what race or gender they are. It’s absurd to think that’s taking place, on a larger scale.

In places like boardrooms, this WAS the case as recently as 10 years ago, but the tech revolution has altered this situation as well. Boardrooms across the US have become increasingly diverse (given the lousy performance of boardrooms in the last few years, one may wonder if this was particularly wise).

I have worked in companies which promoted diversity over skill. Both companies eventually faced financial difficulties and were forced to be sold. This is not an argument against diversity per se, but against diversity for diversity’s sake – which is what these companies valued.

As far as employee/employer relationships go, my staff has a very nice life. Sure they aren’t the highest paid in the industry, but they come and go as they like, work from home when necessary, and we are generally considered the best back office in the business. The occasional complaints I do get about pay I will respond by saying “try my job for a week – work with management, work on weekends, work at night”. I don’t LOVE my job, but in order to get the pay packet I desire, it’s necessary. I have developed skill sets to manage these things. Many people are not capable of these skills, and the last person who complained about pay spent a year doing a poor job and lying to me about what they were doing. They finally left for more money, and I spent 3 months cleaning up their mess. (before you say why didn’t you fire them – it takes ALOT to fire someone these days, particularly if the person is a woman or a minority)
This person left me with a disaster to fix – a disaster nobody else could work on because it was my responsibility. Sadly for this person, they took a new job and were laid off after 3 months when their new company collapsed.

Pay packets, job enjoyment, responsibility and skill sets are all intertwined. People value all these things differently. Some value work over family (I know one guy who has blown through 4 marriages – he’s wealthy as heck, but can’t stay out of the office). Some value family over work (I try to be as flexible as possible with my workers, but with the understanding they will be paid slightly less as a result).

At the end of the day, when you finally get right down to the basis of what we’re discussing, we all want one thing. We want to get paid a fair wage, with the ability to take care of our families, and not have the government take much of what we earn.

In the book of Samuel, as the Israelites ask God for a King, He points out to them that a king will enslave them, and take their goods that they worked for. Over time, we have seen this is correct. Even democracies will do this. Income taxes are a form of coerced payment – not unlike the “taxes” the mob collects from business for protection. This isn’t to say taxes are a bad thing, but they do have to be managed very carefully – and I believe this administration is playing fast and loose.

With regard to outsourcing – remember the Depression was partially the result of trade barriers. If you support barriers to job outsourcing, it’s a form of trade barrier. Perhaps you’d do well to read some David Ricardo and understand exactly WHY outsourcing is not a bad thing. Over time, Ricardo’s views have been proven correct.

Reply to this comment

avatar Atul

These discussions are too much fun and I like to write.

Rick,

It’s easy to say from a non-prejudiced person such as yourself (who I assume to be white and male), that race and gender don’t matter. I could never understand what it’s like to be an African-American or a woman and neither can you. We both don’t know what they face, but if you talk to them, many of the negative reactions they encounter can’t all be their imagination. Because I look Middle-Eastern I did sense some hatred shortly after 9/11. I’m not blaming any setbacks in my career on it, but these things can be an issue with some people. For instance, I knew another Indian guy who changed his first name on his resume to sound more mainstream and responses to his resume increased. I’m not advocating promoting diversity over skill, but diversity of all kinds does make a company stronger.

Job satisfaction is dependent upon a lot of things that haven’t changed. You make interesting points and bring up great examples. I’m just saying that many, (not all) companies today don’t value their employees as an asset of skill/knowledge that are human and can only do so much work. You can only take away so many headcount before department effectiveness goes down. At a prior employer, we had about 25 people in our department and we paid proper attention to what needed to be done and we became experts. Eventually, our portfolio of products doubled, but headcount was reduced by half. There’s no way everything can get done as well. The original 25 people weren’t sitting around doing nothing for 3/4 of the day.

The biggest lesson I’ve learned from Christianity is that we should all live simple lives and give to the poor and not care about material belongings. That’s what Jesus did. That lesson resonates in just about every religion. No religion’s main teachings are about less taxes versus more versus getting what you deserve. But capitalism does generate wealth for society, so we need taxation that keeps the economy strong while not leaving people hungry and unhealthy. As the wealthiest country in the world, we should best be able to take care of our people. It’s the ethical thing to do.

I agree that protectionism isn’t good for the overall world or U.S. economy, but our standard of living has nowhere to go but down because the world is getting flatter. Whether we go down with an open market or with some other way to slow the decline is up to us. Hard work and entrepreneurism will definitely help, but we’re losing our manufacturing base which, to me, is a sign that the party’s over.

OK, that’s my last comment. I need to get some work done.

Reply to this comment

avatar Squeezer

what are you smoking? Under Reagan when he dropped the tax rates, we had the largest peace time expansion of the economy in history. and under bush 43 you had very good years of the economy from 2003-mid 2008.

Reply to this comment

avatar Rick (the other Rick)

Atul,
You’re simply wrong. Perhaps you suffered a knee-jerk reaction post 9-11 to your heritage, and that’s unfortunate. One of my best friends is Middle Eastern and she says she never felt any backlash, nor has she ever had a problem finding a job with a name like hers, which is clearly Middle Eastern.
But your racist comment about how easily I can comment without knowing how others feel is beyond reproach. It makes some very LARGE assumptions about who I am, where I’m from, and what I’ve done and seen. It is comments like that which perpetuate racist behavior rather than solve it. I make no assumptions about the people I interview – I analyze them purely on their experience and skill sets. I have hired men AND women of all races and backgrounds. For anyone to step into my office and say I treated them differently because of who they perceive themselves to be would be a HUGE misperception on their part, probably based on their own internal need to have some kind of differentiation.
I reject these assumptions, and am offended by the way you portrayed not only me, but the methods by which people in the US manage their affairs. If you were correct, then it would be impossible for our current president to have been elected. He had virtually everything going against him based on your views. Yet he is our president. And yet, for some reason, I continue to hear how “things haven’t changed”. Why? Because the people who perpetuate lies like this don’t want them to change, it undermines their power base.

Did your friend do better by changing his/her name? Perhaps. Or perhaps in changing their name, they adopted a better attitude and were more welcomed into interviews.

As for diversity, I can tell you specifically that there is no sure proof that ethnically or racially diverse workplaces perform better. I know for a fact that the companies I worked for that stressed it above all else performed dysfunctionally. This isn’t to say I’m opposed to diversity – to the contrary, I support and promote it. But when I am told that my next hire MUST BE a specifically designated gender/race descent in order to fulfill a demographic quota, I essentially eliminate a vast amount of the highly skilled work force and am potentially forced into hiring sub standard employees (which has happened on at least 2 occasions with me due to puffed up resumes and interview tutoring on their part).

I do agree that most religions promote less of a reliance on material ownership. I have studied Islam, Judaism, Buddhism and I am Catholic. But to say from a religious perspective that certain tax structures are religiously ordained is absurd AND dangerous. Jesus said “Give to Caesar that which is Caesar’s and give unto God that which is God’s”. Basically, he was clearly saying religion makes NO claims or commentary on the affairs of man in the political or economic realm. When considering the Book of Samuel, it’s clear this is a common theme. God prefers to NOT impose His will upon man via a political process, because political processes are essentially corrupt or easily corrupted. Redistribution MUST be a choice in order to have value. Democratic processes are rarely unanimous, so saying the current Congress and Administration have a mandate would be a lie.

Furthermore, it has been proven time and again that middle and lower class families in the US are much larger charitable givers, as a % of income, than higher income levels. It’s also been shown that charitable giving declines as the government enforces more redistribution – creating a struggling environment for many charitable organizations, which are more effective in combating poverty than the government itself.

What I find truly fascinating is how people can use 1 recessionary period that mimics a situation we’ve seen before (1979-1982) to freak out and call for HUGE changes to our economic and social structure. In the last 28 years, we have had MASSIVE growth and introduced many new technologies. Our productivity has soared, and prices have remained relatively stable. The 3 recessions during this period have gotten progressively weaker. Then we have a typical recession, and somehow something has changed? We are using an economic blip as “proof” that something is “wrong”? Please tell me how we argue that after 28 years in which we’ve had fully 25 years of incredible performance that something was done improperly? I’d have to say the statistics argue otherwise. Now if our current recession were to last for 25 years, then there’s a 50/50 chance you’re right. But something tells me people who are knee-jerking their way into this path are overreacting to a natural economic situation.

Joseph Schumpeter, one of the greatest economists of the 20th century, pointed out that recessions are necessary in a capitalist environment and viewing them as an anomaly is incorrect and can lead to some very poor decision making. I’d say we’re seeing that.

Reply to this comment

avatar Atul

Wait, before I respond to the rest, I said you were “non-prejudiced” but not everybody is.

Reply to this comment

avatar Rick (the other Rick)

I don’t care what you said, your follow up commentary made it clear that I MUST be prejudiced because I can’t envision how others live.
What I do know is that most of what you said is simply not my experience, and I have worked in 7 different companies in 23 years, so I have a broad base of knowledge from which to judge.

Further, it’s ludicrous to assume that things are easier for white males. You were right in assuming I am one. What you aren’t aware of is that I’ve lost job opportunities simply for being a white male due to quotas. I’ve been the most qualified person for the job – of that I am 100% sure. I know I’m the best at what I do, my resume always generates a positive response and a great deal of interest.

So to say I don’t know how it feels is foolish and ignorant.

Reply to this comment

avatar Smithee ♦1,358 (Quarter)

Hi, Squeezer:

Here’s what I know about Presidents and the increase in GDP:

http://www.fivethirtyeight.com/2009/02/clinton-economic-record-and-rising.html

Here’s what I know about Presidents and the budget deficit:

http://zfacts.com/p/318.html

In my original article, I asked for statistics that prove that cutting taxes for only the wealthy stimulates the economy. So far nobody has provided any. (Though I see we’re having a stimulating debate about racism and whatnot. Not sure where that came from.)

Reply to this comment

avatar Rick (the other Rick)

Smithee,
one of the flaws in these studies is they simply correlate the years the presidents are in office with economic performance.
The benefit/detriment of a president DOES NOT immediately accrue the minute a president steps into office. After all, his first budget doesn’t get created for 9 months, and won’t have an impact for at least 6 months AFTER that. So to be fair, all economic performance should be shifted about 15 months to be accurate.

As a result, Reagan’s, Bush 1 AND Bush 2 would all see improvements. Clinton would see a decrease because he’d pick up 2001, which this author conveniently left off for dubious reasons.

It is also unclear whether the president should get credit for growth or Congress. Frankly, I’m a believer that Congress should get credit for all economic performance – they pass the budgets, which are ALMOST NEVER what the president wants (Bush 2 was the only president who got what he wanted for 6 years).

One thing that is VERY CLEAR is that a Republican Congress and a Democratic President produce remarkable results. Probably because that particular Congress was very much a responsible Congress (very different from the Republicans who replaced them by 2002) when it came to fiscal aptitude.

Reply to this comment

avatar Rick (the other Rick)

Oh, by the way, the debate on racism was unintended on my part. I was affronted by some comments about race in this country. How we can have our first black president and still be told we are racist, or view race in a demeaning fashion, is simply beyond me. I may not have voted for him, but it certainly wasn’t because of race – based on his current bumbling, I’d say he’s doing just about what I’d have expected – infusing too much government into our lives.

Reply to this comment

avatar Atul

Rick,

I don’t mean to offend you and I hope you will regard my comments not as attacks on you, but to debate your points. I appreciate your arguments too, but I think you’ve read into many of my comments beyond what I meant.

Sure race relations have come a long way. Obama is proof of that. I never said things haven’t gotten better. But in my opinion dismissing racism or any other form of prejudice can be more damaging to race relations than being aware of it and being sympathetic to those who experience it. My comments and observations do not perpetuate racist behavior. Hatred and misunderstanding does. To think that prejudicial behavior has been eradicated is a dream that simply isn’t true. Regardless of somebody’s worldly experiences and learnings, how can anybody exactly know what it’s like to be of a different ethnicity? I can’t. You can’t. To stretch my argument to an extreme, we both can’t know what it’s like to be pregnant. Sure we can be sympathetic, but we don’t completely know. I agree that reverse racism isn’t right either.

I don’t advocate hiring purely based on minority status over hiring on skill. Diversity does make companies better able to cope with globalization though. For example, if one our sales engineers wasn’t a Chinese American, it would be harder for us to do business in China due to language and cultural differences.

I never said 9/11 made my job searches more difficult, but you don’t know how some people looked at me a few days after the event. I may have been hypersensitive but it wasn’t all from my imagination. It’s not fair to use one anecdotal story from your friend as proof that it didn’t affect people. Right after 9/11 , people were shot and killed for wearing turbans! There are hate groups still in existence today. That’s all the proof you need. Contrary to what you might think, I don’t dwell on the idea that somebody else might be racist. I live my life open to people by treating them as individuals, just as you do.

I didn’t say that tax structures were or should be religiously ordained. I just said religions want us to take care of our fellow humans.

Our economy and innovation has come a long way, but a lot of where we’ve come recently was based on a bubble of debt and fake wealth. I could live like a millionaire to if I maxed out my credit cards and kept paying the minimum balance. I would call this current economic crisis more than a blip. Investments of just about every kind are down, we’re seeing deflation, jobs are being lost, companies are dying, consumers don’t have confidence, credit isn’t flowing, home prices are down and foreclosures are rampant. Now we’re resetting ourselves to reality. The government has to do something. We’ll turn things around, but it will be tough as the world becomes more global. I hope I’m wrong but I’d be willing to bet money that the standard of living in the U.S. will go down in the next 10 years and even more in 25. My generation, (Gen X), is the first generation that is less well off than our parents. I don’t see things turning around for Gen Y.

Reply to this comment

avatar Rick

RE: Racism – racism is perpetuated by hatred and misunderstanding. These are also perpetuated by overstating the impact of things. Racism in the US is virtually unheard of. This isn’t to say it doesn’t exist – only a fool would say that – but it is also foolish to continually assault people with claims of racism when none is truly apparent. The cases in which racism is employed as a means to an end remain as plentiful today than 30 or 40 years ago, yet nobody debates that racism has decreased – so why are cries of racism so prevalent? I don’t say we shouldn’t discuss it, but to continually lay blame on “the white man” or things of that nature perpetuate reverse racism, which breeds further racism. The best way to move forward is to stop blaming problems on racism, using it as an excuse, or accusing people of it. I was, no lie, told that I was racist if I didn’t support Obama. This is true. But clearly not supporting Obama in and of itself is not racist, as he has proven out our worst fears of being a big spending Democrat. Yet it remains a rallying cry, and I have heard it used yet again when I said I didn’t support the “stimulus” package. Somehow, if you don’t support him, for many people, you must be racist. If you don’t support diversity, you must be racist. These are lies which perpetuate racism in and of themselves.
I rarely discuss race, because I never see it as a factor in my daily life. As a person of Irish ancestry, I am well aware of the old “no Irish need apply” signs in my family’s past. I am sensitive to items of this nature. But I can deal with a good demeaning Irish joke, too (What is a Irish 7 course meal? A 6 pack and a potato.) Sadly, many others are incapable of accepting who they are and realizing a good demeaning joke can sometimes infer friendship and acceptance.

I disagree that this is more than a blip. This depends on how you choose to view things. If you view things from a negative standpoint (and it seems you do) then things will never get better. I refuse to accept negativity as a point of view from which to base my judgements. I see things improving all the time, even now. We can choose to focus on things that are bad, and thus make them worse, or we can focus on things that are good and help improve them. My situation today, despite a massive sell off in the market, is 100% better than it was 9 years ago. So is my children’s situation and their future. Sure, I was better off 1 year ago – but if I gauged everything based on recent past, I’d drive myself insane. I prefer a holistic view.

As for religions telling us to take care of others – wow, what insight! Yes, that’s facetious…but fairly so. Your comment added nothing to the discussion. My point was that while religions tell us to take care of others, religions ALSO point out that it has to be a conscious CHOICE to take care of others in order for this to have value in our lives. At what point does having the government do the work for us (inefficiently, unfairly, and full of corruption I might add), provide value and benefit to our lives? We’re not making the conscious choice to help – we’re being coerced into it by a kleptocracy! This is where the infusion of religious thought and care within politics and economics FAILS BADLY!!! Never allow your religious beliefs or understandings overwhelm common sense from a political point of view. They are very different things.

Reply to this comment

avatar Atessoni

You can say racism is unheard of when you arent the one being discriminated against. Let a minority tell you when they are or arent being discriminated against.. Not you. White males still make more in general than other minorities, including women. Heterosexual white males fair the best, however gay males have focused on fairly lucrative jobs, ie computers, graphics etc, so their earnings on average are higher than heterosexual males. That doesnt mean they arent still discriminated against, only that they focused on jobs where homosexuality wasnt a factor.

You can’t know for 100% what the motivations were behind your not being hired. Companies dont only hire based on qualifications, they usually take numerous criteria into account. There may have been a personality conflict, they may have thought you wouldnt fit in.

It seems like you may suffer from the inability to identify with anything outside of your immediate sphere of influence, which is quite common among the 20 something crowed.

You sound like my Tea Party uncle! Do you automatically make the right choices or did your parents set rules and guidelines for you? They do that not because they know for 100% you are going to break certain rules, but because they have learned from history that those arw issues that parents and children have been faced with ib the past. Government regulations based on race arent there for the non discrimatory, they are there stop or deter those who are racist & discriminatory. Without have those laws and regulations, we have no recources when someone is discrimatory. They deter racism, but we know they dont always stop it, so we have the laws and regulations to address it when we do come accross it.

Reply to this comment

avatar megscole64

Dang…I got pulled back in.

Atul…I am also a Gen X’er (or about there…I honestly am not sure where the lines start and stop for the X, Y gen).

I am by FAR doing better than my parents were at my age without any question. Even during this economic “blip”. And even with losing 50% of my retirement account. I STILL have more retirement savings than my mom.

My father had a double Masters and my mom had her Master of Science and became an RN. Both were doing better than their parents at 30.

And today I am doing better than my mom. I don’t even have a masters degree and I make more at 30 than she did (even adjusted for inflation).

To make a statement like that is just ignorant of reality. Nearly every single generation lives better than their parents did. Are things difficult right now? Sure. But it is nowhere near the level of Depression era. And this situation is NOT permanent. Even with the asinine actions of the Obama administration, things will eventually pull around.

I agree that people lived beyond their means and that there was a huge bubble. But WE did not and now WE (my husband and I and all those who paid their bills and followed the rules) are being punished by those who did not. We’re still doing fine and even if I lose my job we’ll still do fine. Because we plan and we save and we know how to live within our means…we didn’t buy a bigger house than we could afford, nor did we fall for the line about an adjustable ARM mortgage. Those who did, weren’t paying attention and were greedy.

Oh…and this economic environment COULD have been a blip. Now I’m not so sure. I work in the investment world. My company is looking to lay off 20% of the company in the next month. The last year has been very tough but it will turn around eventually. This company was started DURING the great Depression. It has a solid vision and will come through this. I just hope that the damage Obama is doing (and that Bush II and the Democratic congress did the last two years) doesn’t make this Blip a much bigger hurdle. What we really need is a true economic conservative…not the spend crazy Socialist big government guy in charge right now.

Since he’s taken office the market has hit its 10 year low (not saying it’s ALL his fault, but the last 2,000 point drop is all his) and gas prices at the pump have risen because of his anti-drill policies. That’s not exactly helping the common middle class person.

Reply to this comment

avatar Luke Landes ♦127,490 (Platinum)

Meg: A number of studies have shown that middle class families have less income left for discretionary spending and savings than 30 years ago. That’s great that you’re doing better than your parents — I may be, too, but probably only due to my “second job” and the fact that I don’t have children — but your experience doesn’t necessarily reflect the majority of the country when taken as an average. I’ve discussed this at Consumerism Commentary in the past. Generation X, or likely the younger part of Generation X plus Generation Y, is right now the first generation that on average is not keeping up with the past.

But that may not hold forever; if the economy cycles back strongly, age groups that are now finding it difficult to make ends meet while living a life similar to their parents will likely surpass the previous generation in living standards and expendable income.

The thing about statistics is that we often find they disagree with our immediate personal experiences. (“That can’t be true because it isn’t true for me.”) There are a lot of people in this country, and a good percentage of them are not like us.

Reply to this comment

avatar Rick

Flexo,
I would dispute your argument on whether or not this generation is better off than the last. I rarely see a child without Nike (or some high end brand) sneakers, some kind of IPod or music player, a home without a DVD player or even a small flat screen TV. Fact is, our expectations are SO high, we come to believe we are “worse off” today than our parents because we don’t have what we WANT as opposed to what we NEED.
My parents were divorced. My father was a surgeon and lived a middle class lifestyle until the 1980′s, when his salary and prospects improved dramatically (due to some risk taking on his part, entering a region underserved in the medical field because people said it was depressed…it wasn’t). My mother and her husband lived a VERY POOR lifestyle with 6 kids (I was one). I never went without, but we didn’t have a lot. I loved visiting my dad once every 6 weeks or so – I got a few new clothes, he bought us books, and I saw how the “other half” lived. It was a good dichotomy to grow up with.

I was motivated to do well, and I have. My father couldn’t offer any assistance in getting employment, I’m not in medicine. My mother couldn’t either. I had to go off and make it on my own. Which I did.

Today I look back on what my mom had and realize that I couldn’t get much worse off, so comparatively I’m doing much better. But I’m also doing better than my father and I’m not making as much money as he did at his peak. How could that be?
Truth is, when my compatriots were off taking vacations the first 5 years of employment, I was staying home and visiting family. I was maxing out savings and 401(k). I didn’t advance as rapidly as some of my compatriots (some of whom are now looking for work – advancement doesn’t always correlate with skill), but I was smart with my money. That is why I’m better today than my father at the same stage, and it’s why I’m better off today with 2 kids than I was 15 years ago with 0 kids (or 10 years ago with 2).

I have an MS now in Econometrics, with a heavy emphasis on statistics. I have found most statistics are misleading because they are delivered in a fashion to make a point – usually whatever point you want to make.
But a good statistician can spot flaws and objectively analyze the real back stories. Truth is, while real wages have stagnated over the last 20 years, the real prices for almost everything have fallen significantly. Only housing, in the last 7 years, has risen in real terms.

Truth is, if a person is not living as well or better than your parents, the causes are probably limited to a few reasons:
1. they haven’t been smart with their money
2. they don’t value certain things in a similar fashion to their parents (by taking 2 or 3 vacations a year, which their parents never did, they fail to recognize the improvement in their life…or by going out every Friday, which their parents never did, they fail to see the differentiation in lifestyle)
3. they took jobs that don’t pay as well as their parents (even then, as my case points out,this is NOT a one-size fits all reason)
4. they view their WANTS as NEEDS as opposed to the other way around and have a very skewed view of how to manage money.

I can point to people all around me who have these problems, and they don’t recognize it until it’s pointed out to them. Once they see the reality, the usually become more optimistic and their demeanors improve dramatically.
In addition, I usually point out things they can do to improve their lives. One story I found especially interesting occurred a few years ago. My sister ran into a woman I once worked with. The woman told my sister to thank me. My sister asked why. The woman replied “I’d always wanted to open my own business, but never thought I could. Your brother told me to set aside 10% of my income and I wouldn’t miss it, but I’d save enough in a short period of time to start it. He was right, and now I have a thriving business.”

Attitude and following solid advice is important. Since most people ignore good advice, they typically get angry and depressed with how things turn out, and then say they’re not doing well. Perhaps they’re not doing as well as they’d like, but almost always they’re doing better than people in the past.

Our current economic environment is very reminiscent of the 1970′s. It was only natural that we’d eventually have a turn of events that led to this. Anyone who thinks this is abnormal or unexpected is simply someone who hasn’t been paying attention or is poorly informed.

That said, thinking it HAS to go on for years is also foolish. Individually, we are capable of overcoming this if we work hard and use our money wisely. The problems we face are what I’ve often termed the “waste associated with plenty”. We’ve done well for SO long, we’ve forgotten what we need as opposed to what we want….and therefore can’t differentiate them or plan for them properly. So we view this in a very negative light.

I view it very positively. I have always lived carefully and spent/invested wisely (by the way, I DID NOT convert to cash because I don’t believe I’m capable of timing the market, and any good market watcher will tell you that the gains that you will get when the market turns will be ASTOUNDING). As a result, I remain cheerfully optimistic – barring a massive socialist takeover, which is possible – about my childrens’ prospects. And if the socialist future proves out, who cares? Nobody wins in that scenario – so anything I do now to “preserve capital” is wasted effort. In that scenario, the government will provide….

The best thing to do is remain optimistic, remain calm, and keep working hard. That almost always pays off.

Reply to this comment

avatar Mike

“As for cutting pay to avoid taxes, nobody does that and if anyone does they’re terminally stupid. ”
___________________

Don’t over-generalize. It all depends on the tax rate, the nature of the work, and a person’s particular circumstances. There are plenty of cases where a person isn’t “stupid” because of “cutting pay to avoid taxes”– they just have different values.

Would a salaried person quit her job and pursue a lower-paying one over an increase from 35% to 39.6% at the margin? Highly doubtful.

But consider this scenario: let’s say we’re talking about a 50% marginal tax rate (quite modest by post-war historical standards– e.g. compared to the 91% rate [!] under Eisenhower or the 70% rate under Carter), and we’re talking about a professional who charges hourly or per-project fees to clients, and we’re talking about a high earner who has more than enough income and savings. Would that person consider “cutting pay to avoid taxes”? Possibly, depending on what else he/ she could do with that time– though that’s not how he/ she would probably describe it. Rather than say “I’m cutting pay to avoid taxes,” he/ she might well express it (for example) as: “That $400 per hour I can charge SOUNDS good; but life is too short to work that marginal hour for only $200, because I don’t need $200 and I do have friends I’ve been neglecting, after all.” (These figures are, obviously, only examples).

That person thus is willing to sell a marginal hour in order to acquire income he/ she doesn’t need… if the price is right. But if the price (after tax) goes down, then he/ she prefers to keep that marginal hour for non-remunerative purposes. This is EXACTLY the sort of behavior that can be characterized by an observer as “cutting pay to avoid taxes”, though obviously it’s not the “avoiding taxes” that’s the motivation. Nor is this person “stupid.” He/ she is, though a perfect illustration of the idea that increased taxes can be a disincentive to working that marginal hour per week– or those marginal 10 or 20 hours per week– depending on his/ her personal circumstances.

Calling it “cutting pay to avoid taxes” is not the best way to phrase such behavior. But behavior with exactly that result does, indeed, take place. But how widespread such behavior is, that’s another matter.

Reply to this comment

avatar Mike

Very nicely put, Rick (quoted below).

___________________________________
In your circumstance it may appear stupid but consider this:

My wife cuts two days of work out of her week to help remove us from the AMT. How much money does she really have if she didn’t cut her hours?
Federal taxes 25%.
State taxes 5%.
Social Security 7.65%.
Tithe (voluntary) 10%.
She ends up with almost half her pay gone (47.65%). But monetarily we are not finished. We now pick up deductions that we did not qualify for before as well as reduced commuting costs.

With two more full days a week my wife spends a lot more time with her children (all grown now), grandchildren, siblings, and ailing father. She is less tired and enjoys life more. Who can say what the monetary value of this is?

You point out that your wife “has no incentive to find work” because the benefits of not working outweigh the benefits of working. In our instance when we factor in taxes, the AMT, and the value of my wife’s time, she also has no incentive to work those two days a week. Your other points about cutting taxes I agree with, well said.

Taxation, when coupled with other factors (for example the value of your time), becomes a powerful dissuader to work.

Reply to this comment

avatar Dave_N

This is an interesting discusson.

We seem to be discussing a few things:

1.) A philosophical discussion of about progressive tax rates. I believe that those who have achieved more should shoulder a higher burden. Not everyone agrees with this.

2.) A practical discussion of whether progressive tax rates deter work, accumulation of marginal profit, and by extension economic growth. Taken to the limit, I can see this might be true. However, I just don’t buy and have not seen any evidence that an increase of the marginal tax rate from 35% to 39.6% will deter any of the above.

I don’t know the limit and perhaps it is personal, but I think anytime I increase my income and get to keep the majority of it, I would. I hear people saying there is a point where they will stop working if there is too much tax. Why would these same people not quit working earlier if they kept more marginal income?

Dave

Reply to this comment

avatar Smithee ♦1,358 (Quarter)

Truth is, while real wages have stagnated over the last 20 years, the real prices for almost everything have fallen significantly. Only housing, in the last 7 years, has risen in real terms.

It has risen ridiculously high.

Also, education.

Also, health care.

Reply to this comment

avatar Rick

Yes, these have also risen, BUT you ignore several factors which offset these (and do not effect housing).

1. Growth of community colleges. This has helped keep the overall cost of post HS education down. In all likelyhood, my kids will attend a community college or state school. And this isn’t a bad thing. Fact is, my first two years of college were spent completing a Liberal Arts Core which is just as easily finished elsewhere, for less money. Ivy League schools are now actively combing community colleges for students. A large cost to many colleges has been the amount spent on what could be termed as “remedial” education – helping to bring students up to speed. Oddly, though I am very good at math, I managed to FAIL the math aptitude test my first day at college. I missed by 1 point! Laziness, I guess. I wound up in a remedial class which I aced – 3 easy credits I really didn’t have to take, but everyone else in the class did.

2. Grants and scholarships – certainly these haven’t completely offset costs, but they have grown and have helped to make attending college less prohibitive. When I attended, only about 40% of all scholarships were utilized (I remember this number because I was always looking for another scholarship). Today that number has risen dramatically.

3. Growth of Employer based Health care benefits and COBRA – my benefits today are WAY better than they were even 5 years ago. It’s often lost on many employees that the “reduction in wages” they claim they’ve had are more than made up for improved health care. While many people in the US today are “without” health insurance, the reality is that nobody really is. What they are referring to is basic coverage – the ability to go in for checkups. Only private hospitals are allowed to refuse service based on lack of insurance, but you’d be hard pressed to find any that would in a catastrophic situation. As a result, the costs of my care go to cover the costs of those who are incapable of paying.

4. Neither education or health care are really everyday expenses in the same form as housing, food, heat or clothes. Education typically is termed post HS education – since we can all send our kids to public schools, this doesn’t effect us until our kids turn about 18. Health care is important, but if we are careful and maintain a healthy lifestyle it is diminished. My mother and stepfather NEVER had health insurance while I grew up, we simply were too poor. We also led very active lifestyles and rarely had health related issues. The few times we went to the doctor, my mother worked out acceptable payment plans.

I had major surgery 2 years ago when I was unemployed and on COBRA. My insurance was minimal. I worked with the hospital to reduce fees and develop a payment plan that worked for both of us. Too many people are unaware they can do this. It’s unfortunate, but all they have to do is ask. The hospitals, for some reason, won’t tell you. But I told them upfront of my difficulties, and they worked very closely with me to sort out all the financial issues. I finished paying them off this month.

When these items are factored in, housing remains the only true impactful area of real price increase.

Reply to this comment

avatar Rick

I was talking with someone regarding Health Care today and he directed me to this, which I checked with my father. He corroborated and added one other point:

“If we wish to get health-care costs under control, then we should at least be honest with the American people and admit that we are all paying a collective fortune largely for three reasons: (1) to keep functioning into their 60s those who drank, smoked, and ate too much and in a past era would have passed on at 60; (2) to give us all an extra three to five years of mobility and functionality after we reach 75; (3) to fit us up with IVs, feeding tubes, and respirators so that in our last six months of life we can die in a rest home or among machines and specialists in a hospital rather than in our own home with a few morphine tablets for pain and a bowl of soup with a straw on the nightstand.”

My father then added one further point – if lawyers were not allowed to work purely on contingency fees, and lawsuits required plaintiffs putting up some kind of bond, then it’s likely that malpractice payouts and insurance fees would fall. Lawyers like to point to the “fact” that about 90% of all malpractice suits are found against the doctors, somehow using this to justify their position. They neglect to point out that only 10% of all cases make it to court and the other 90% are settled prior to reaching court simply to keep costs down – even winning a case would cost doctors huge sums of money to defend themselves.

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: