As the debate over the expiry of the Bush tax cuts heats up, and Obama continues to defend a tax hike on the “super rich,” it’s worth getting more perspective from those who will actually bear the brunt of the hike.
Todd Henderson, a law prof who writes for the blog Truth on the Market, has written a great essay titled We Are The Super Rich, about how he and his wife live on about 450K per year (via Marginal Revolution).
(UPDATE: Todd Henderson says this estimate of his family’s income is too high. Based on additional information, we estimate the figure to be about $400,000 a year.)
He notes, first off, that he and his wife paid nearly $100,000 in federal and state taxes last year, meaning that financing the government is his #1 family expense.
Here’s what he says will happen if his taxes rise:
Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.
If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art centre, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.
If these cuts don’t work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.
Here’s the fundamental question: Are the majority of the “rich” or “super-rich” like Henderson — namely, people who pay their taxes normally (with very few shelters), don’t have exorbitant wealth, and generally spend a fairly significant portion of their income? If so, then it’s easy to imagine Obama’s tax hike having a very negative effect.
If the taxes mainly land on the exorbitantly wealthy, who have all kinds of tax shelters, and sock away a huge chunk of their income each year, then it’s not going to be a problem.
How many of the rich are like Todd Henderson?
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