Thursday, August 28, 2008

Rich or Middle-Class?

Newsweek has an article written by Daniel Gross titled "Sorry, Pal, You're Rich" addressing the question of whether a $250,000 per year salary makes the earner middle-class or wealthy.

Apparently only 35% of people rolled by CNBC believed that a 250 K income qualified a household for elite rich status.

Keep in mind, the median household income in this nation for 2007 was $50,223.

$250,000 is five times that number. Only 1.9% of U.S. households have an income greater than that amount.

Barack Obama has promised to scale back tax cuts for people making more than $250,000, and now the business class is griping that people who make that much aren't rich, especially around metropolitan areas such as New York, San Francisco, Los Angeles, and Washington, D.C.

Now, let's break this all down...

For 2008, the federal tax brackets for a single person (keep in mind, there's a rather complicated gradual calculation) are roughly 30%. Let's say you live in New York City where there is a state income tax of 8.14% and a city income tax of 4%.

So overall, you pay 42.14% in income taxes total.

First, let's assume you automatically deduct 10% for your company 401K - $25,000 a year to get the 50% match (free money!)


$130,185, or $10,848 per month.

Even after taxes and future retirement savings, that's definitely not bad. Heck, that's way more than I make!

On craigslist, there is an elegant 2 bedroom, 2 bathroom Upper East side brownstone steps to Bloomingdale's and subways including a washer and dryer in the apartment listed for $2,350.

We'll estimate that the cable, electric, phone, and water bills make housing and utilities cost about $3,000 per month. Since there's really no need for a vehicle in NYC, we'll factor in the $89 a month cost for a MetroCard and about $250 a month for Taxi cabs...

Since you're making a decent salary, we'll assume you have a Blackberry with $100 a month service... and ya gotta eat, right? So $750 a month for food and groceries. $1,000 a month for fun & entertainment. Another grand for shopping...

Many folks have student loans, so we'll factor in $900 (which comes out to about $100,000 in debt)

Monthly Budget


$2,350 (Rent)
$ 650 (Utilities, phone, cable)
$ 100 (Blackberry service)
$ 89 (MetroCard)
$ 250 (Taxi cabs)
$ 750 (Food/groceries)
$1,000 (Entertainment)
$1,000 (Clothes)
$ 900 (Student Loans)

$7, 089 (Monthly expenses)


$3,759 is left at the end of the month as disposable income (more than $45,000 per year)

Wow. Even in America's most expensive city, living comfortably on a $250,000 a year salary would still leave you with $45,000 to play with after saving for retirement, paying taxes, living in a nice apartment, and not having to be too frugal. Imagine how much living in a suburban or rural area would make a difference.

I don't know about you, but that seems like a wealthy lifestyle to me. But perhaps it's all based on your perspective. True, a $250,000 income would be stretched much farther if it was earned in a family of two adults and four children. Yes, I get that. Whether someone is rich or not should not just be based on income, but on circumstances.

Regardless of whether a $250,000 income makes you rich or middle-class, this post does not have the purpose of proving that the rich should not get tax breaks. I've never understood why someone making $10,000 a year pays less in taxes as a percentage than someone who rakes in $10 million. If someone has the drive, determination, and work ethic to earn that much cash legally, they should get to keep most of it.

Some coworkers and I were discussing this article heatedly this afternoon. One of them pointed out how a flat tax would make the most sense. And I have to say that I whole-heartedly agree. Although if I had my way, the flat tax would be 5% and would only cover basic government expenses and infrastructure.

I don't want to pay for someone else's short sightedness, fleecing of the system, pork projects, and the like. If I make my own money, I believe that I deserve to keep that for myself. Whether or not I help those in need should be my choice and not a legal requirement. That takes away the liberty this country was founded upon and I feel it's wrong.

So, yes, a $250,000 income in most cases, does make a person rich. But taking away approximately $100,000 of that for the U.S. government makes me very queasy.

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