So to open, I would like you to keep in mind that I most certainly do not make over $250K, in fact, with my spouse’s income included we still come up well short. My parents don’t make over $250K either so please no comments about how I am conjuring up the following conclusions because I come from a privileged background – the conclusions below are rooted in my talent for using simple math. Period.
The magical number
President Obama has faithfully repeated his pledge to only raise taxes on individuals making over $250K a year. So why is this number so special in terms of deficit reduction and tax revenue? It’s not. Mostly likely the Obama campaign/administration settled on a middle ground number that would excite the bottom 50% of earners (most of which pay nothing in taxes to the government anyway) and piss-off only a calculated portion of higher earners.
Before delving into the simple math that debunks this FUD, let’s just talk about the numbers and what they mean to real people like you and I. Conceivably, in a few more years, I could reach an earnings level that would, in combination with my wife’s income, put us above the magical number. Time to party right?!? Wrong. See, I live the Bay Area, and that means stuff costs more. If I was pulling in $250K a year, I might be able to afford a decent house here, but to suggest that $250K is somehow wealthy is laughable. It isn’t just the Bay Area, the same goes for Los Angeles, Boston, New York, etc. Please do the tens of millions of folks who live in metropolitan areas a favor and consider this when thinking about wages and taxes.
No more deficit, sweet! Not so fast.
So let’s dig into the data – all the following are based on the latest available year’s fiscal data:
- Roughly 2% of Americans will earn $250K or more next year – FactCheck.org citation
- The top 2% of Americans had a combined gross earnings of 2.11 trillion dollars ($2,110,102,000,000 exact amount) – TaxFoundation data sheet
- The top 2% of Americans paid $477.3 billion in taxes, which represents 46.27% of all taxes paid ($477,292,000,000 exact amount)
- Our annual federal budget deficit was 1.42 trillion dollars – Budget breakdown
- The proposed tax increase on these individuals would raise their tax rate to 39%
We need to find out how much to tax these “rich” people in the top 2% that make the
opulent in many places, middle-class sum of $250K so our country can continue its love affair with spending. Here is a simple 2-step calculation for doing so on the backs of that single group of people who produce our jobs:
- Take the deficit of 1.42 trillion and add back in the $477.3 billion in taxes that the top 2% contributed to create a baseline, please note that this does not mean we take out the tax contribution of any other income group. The real deficit without any contribution from the top 2% is about $1.9 trillion dollars
- To get the percentage of earnings we’d need to take from the top 2% all it takes is simple division, total deficit divided by the total earnings of the top 2%: 1.9 trillion / 2.11 trillion = 90.04%
The result: We’d have to tax people making over $250K a year at a rate of 90.04% in order to achieve a balanced budget.
In closing, use your brain.
It is easy to see that Obama’s magical number is less magical and more bullshit-unicorn-FUD. I know math can sometimes frustrate people. In this case simple division is dashing the utopian dreams of half the country who are apparently clueless as to the actual cost of government or the size of the economic hole we are in.
We have to ask ourselves as a people, what is fair? I personally believe anything over a tax rate of 49.99% is unfair. Above that rate of taxation, I am working as much or more for the government than I am for myself, and that friends, is disgusting. The only way out of our fiscal situation is to reduce spending. Period folks, that’s it. I hate to be the one to introduce some inconvenient truth into the debate and burst the entitlement bubble, but seeing grown-ups who still actively believe in fairytales just saddens me.