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United States Economy; What is Rich?
The volume continues to rise on the rhetoric: “Tax the rich!”
If the scene feels familiar, it may be because it recalls another, this time from Beauty and the Beast.
Remember the scene? Gaston whips the townspeople into a frenzy, convincing them that the beast is a threat, and out come the torches. And you’ve got to admit: the Prince/beast was not a poor guy.
In this presidential election, you can almost hear the Gaston-like lynch mob forming. Hillary Clinton, President Obama, Nancy Pelosi, Warren Buffet, all saying “The rich aren’t paying their fair share.”
But there’s an unanswered question. Who, exactly, is “rich”?
Where is the magical line that divides rich from not-rich? How you define rich matters, because policy is being crafted around where that line gets drawn.
The IRS gets out its microscope based on that benchmark.
Three of my students and I decided to find out how the “average” American defines “rich.”
One blustery Wednesday, we stood on the corner of 34th Street and Sixth Avenue and canvassed 150 people.
We chose that corner because it is one of the busiest in all New York City, and unlike Fifth Avenue, most people crossing Sixth Avenue tend to be commuters.
We compared our random sample population to the New York City census statistics and found that the distribution of age, sex, and cultural background was almost identical.
So though our survey might have been unscientific, the results are still revealing.
Here are our findings:
- Thirty people didn’t know what constitutes “rich” in annual income. They had no idea.
They hadn’t thought about it. That means they’re vulnerable to rhetoric that sounds great but might have devastating policy implications.
This gives policy makers ultimate power to define what “rich” is. It’s like changing goal posts in the middle of the game.
If you own a car, are you “rich”? If you compare your life to that of someone in the third world, you are rich. You are a member of the 1%. The benchmark for comparison really matters.
- The spread of what was considered “rich” was broad and surprising. Most people, male and female under the age of 25, but still of voting age, stated anything from $50K to $100K was rich. Their benchmark was lower overall.
Those who were working and raising children tended to say the number was more between $250-$500K. They know what it costs to pay city, state and federal taxes, pay a mortgage, raise children, heat their homes, and fill their gas tanks.
Then there were those who lived in Manhattan, who answered $1M-$5M. These were the die-hards who saw $100K as minimum wage for a Manhattan-dweller to “not have to worry about money.”
So, depending on who you talk to, “rich” is anything from $50K to $2MM per year. It’s pretty hard to set policy with that Grand Canyon-like divide.
We asked a follow up question: “Do you make lower, the same, or above the number you just provided”? In all cases, everyone said they made less.
What does this tell us? “Anyone who makes more money than me is rich.” We interpreted that to mean, “Tax everyone else except me. I’m not rich.”
Everyone who agrees with the Robin Hood theory of wealth redistribution believes someone else will pay the bill, not them. But this is a dangerous assumption.
According to Brian Wesbury, Chief Economist at First Trust Advisors L.P., a financial services firm based in Wheaton, Illinois, (and WSJ #1 Economist in the U.S. in the early 2000s) you won’t solve the perceived “fairness” problem or the deficit by taxing the “rich.”
If you define “rich” as the top 400 earners in the U.S. and taxes them 100%, or in essence, confiscated all their wealth, not only would you be shredding the Constitution, you’d only raise a measly $1.4 Trillion for all that trouble.
That would cover the U.S. operating deficit for one year. That’s all you’d gain. According to Wesbury, then you have another problem.
Even if it were legal, you can’t confiscate 100% of someone’s wealth more than once. Decimating the foundation of our republic by confiscating private property to buy only twelve months of time on the debt clock is a bad trade off.
The “top 400 rich” are clearly not the answer. Now you have to slide lower down the income food chain to mine for more taxes to feed the insatiable federal deficit. You know that. Our elected officials know that too, but they’re not saying it.
Take your own poll. Ask your friends and colleagues, “what is rich to you?” and you’ll be amazed at the answers. “Rich” is a much lower number than you think.
So while the rhetoric around taxing the “rich” might fuel the fairness chorus, “rich” might not be “the other guy.”
When you hear the next “Gaston” shouting “tax the rich,” with the seething crowd raising axes in frantic approval, just remember, the mob might just be chasing after you.
Dawn Fotopulos has been featured in: