How the rich soaked the rest of us

I have a personal problem with this, only b/c I and my wife are in the highest bracket...but I will use actual numbers so I make this real.

Note: I will go through this twice. I am a US citizen living in AU (just moved).

US. When I lived there I made between $120k and $150k. My wife, a doctor, made $140k. In 2009 we had effective tax rate of 35%, which seemed very high to us given our various deductions, charitable contributions and all the rest.

AU. We are now preparing for our combined AU and US taxes. Here is a quick link to the AU tax table. http://www.ato.gov.au/individuals/content.asp?doc=/content/1...

In AU, as we currently understand taxes, we have individual obligations rather than household, so our breakdown is this. I make the same wage as in the US (work remote). My wife's income went up significantly, though variably (her pay is not a salary, but based on how many patients she sees etc). We estimate her income to exceed $250k AU.

My tax rate will graduate to top out at 38%. She will graduate (any dollar over $180k will be taxed at this rate) 45%. The effective tax rate will be less than those (graduated system), but lets use those because they are round numbers.

Note: as US citizens we are obligated to pay taxes in the US even if we do not live in the country...ever again...the privilege of being US citizens.

This is crazy. I've said this before on HN, but I am clearly in the upper middle class. I am by no means "rich" or "wealthy". Yes, I understand the arguments saying I am, but it simply isn't so. Yes, we are clearly better off than most people in the world. Yes, we are doing very well for ourselves when compared to the average American or Australian. But there is hard work, luck, timing, diligence, reading, learning and timing that went into all this as well. And to see nearly half of my wife's salary above $180k AU become taxable seems excessive. Think of it this way...to make $500k a year, she needs to actually earn close to $1 million.

The problem is that we are at the low end of this spectrum. It would look worse if we were at the high end of the spectrum, but wouldn't hurt nearly as bad. Imagine making $10 million a year and seeing $5 million go to taxes. That wouldn't feel great. However, you could console yourself w/ $5million still. We cannot.

This is my point and the one I made to my wife. In a system like this, "making it" requires windfall money. There is inertia required to get to a level where you simply don't think about taxes anymore and given our position on the low-end of the highest tier, we feel the most pain. Unless we can find a way to "come into money" that far exceeds our level, we are working for the rest of our lives...which means we are not "rich" or "wealthy".

I read the article on the Chicago professor who "didn't feel rich" and I read the comments that blasted this. Unfortunately, it is true! We live well within our means; we own our home we purchased for $160k 5 years ago...even if it is worth less today, we have one car (a 10 year old used Toyota), we don't take exotic vacations or anything like that. Rather we are paid down student loans (my undergrad and her medical), maxing out 401k, IRA, two kids 529 accounts, buying medical insurance and trying to plan for retirement. Yes, again, better off than most, but not "rich" or "wealthy". We don't have F-You money (which to me means living my life not worrying about money...who REALLY has that that didn't get it through windfall or persevering).

My last point about not being rich is this: we need to work. With our net worth if something happened to one of us, we could sustain indefinitely. If something happened to both, we could sustain for approx 2 years with no lifestyle change, or 3-4 w/ reductions, perhaps 5-6 w/ extreme reductions. Those are nice cushions, but not "the rest of our lives" and we would still be in a massive hole once we recovered...and we all saw what happened in 2009 to thousands of people w/ massive layoffs and being out of work for 18+ months. Unless you are financially set (probably over $3 million in the current market...but more likely close to at least $4million as an individual), you are a working stiff, plain and simple.

I am a working stiff....it doesn't matter what "class" of working stiff I am...

> Consider two further points based on this graph: first, if the highest income earners today were required to pay the same rate that they paid for many years after 1945, the federal government would need far lower deficits to support the private economy through its current crisis; and second, those tax-the-rich years after 1945 experienced far lower unemployment and far faster economic growth than we have had for years.

A professor of economics should know better than to throw around statements like these in order to pander to those who are less educated. There were so many factors that contributed to the low post-war unemployment than high marginal tax rates for the rich.

Second, he should be aware of structural changes in the global economy. With globalization, the effects of "winner-takes-all" economics are augmented significantly. In addition, the US isn't the only industrial powerhouse anymore--Europe and much of Asia have recovered.

> Second, the richest Americans take the money they save from taxes and invest big parts of it in China, India and elsewhere. That often produces more jobs over there, fewer jobs here, and more imports of goods produced abroad.

This argument, especially coming from an economics professor, makes me highly uncomfortable. The "fixed jobs" (zero-sum employment) mentality is so wrong that I'm ashamed for him.

> The largest single recipient of such interest payments today is the People's Republic of China.

It's clear that the author is writing this explicitly to pander to general population's level of attention to actual economics and instinct to give kneejerk responses to articles like this.

> Those hedge funds and brokers likewise use part of the money rich people save from taxes to speculate in the US stock markets. That has recently driven stock prices higher: hence, the stock market recovery. And that mostly helps – you guessed it – the richest Americans who own most of the stocks.

The stock markets are shooting higher because corporate earnings are bouncing back--in part because of increased productivity and reduced hiring--not because of some conspiracy by the "rich people" to make other rich people richer. They are chasing earnings.

While I don't disagree with his belief that the tax cuts are misplaced, I found his arguments less than compelling.

I don't necessarily disagree with him but his analysis leaves out a very important point. In 1960 it wasn't really possible for rich person to live in a country like Singapore or Taiwan and still maintain relationships in the United States. That's no longer the case. With cheap flight travel, video chat, and other means of communication it's very easy for someone with the financial means to travel back and forth with very little effort. And countries like Singapore, Hong Kong, and Taiwan know this.

Given that fact it's in those countries best interest to woo rich Americans. Which means the United States now has to compete.

Meaning the US can't reasonably raise the tax rate on the top 1% higher than what it would cost them to fly back and forth from the United States if they made a place like Taiwan their own.

What a nonsense article. I expect better from HN, frankly.

It's not as though the wealthy aren't paying their fair share. Breaking down the amount of total federal income taxes by income bracket:

The bottom 40% of tax payers paid less than 5%. The next 40% paid about 25%. The next 9% paid about another 30%. And the top 1% paid the remaining 40%.

Furthermore, returning to 90% tax rates for top earners is going to do a lot more harm to the economy by taking away the wealthy's incentives to work and invest than supposed (and I think dubious) speculation-driven-price-increases.