Class Envy
Posted by Mike Sylvester - 10/5/08 @ 9:44 am - Filed Under 2008 National Elections, National Politics
Class Envy and the tax code
You can tell a Federal election is around the corner due to the discussions about making the middle class pay less in taxes and further subsidizing the poor - ensuring that not only do they pay no Federal income tax they also get a significant subsidy via various refundable tax credits.
These conversations are interesting; however, they are truly meaningless unless they are put into context.
What is middle classed? What is poor? What is rich?
Most often economists (and politicians) use median income to determine tax policy. Our Federal income tax code is designed to tax those who make more money at higher rates while at the same time subsidizing the poor by paying them more back then they pay in Federal income taxes.
Interestingly enough the Indiana tax code is designed to tax people fairly evenly no matter what their income. In Indiana your exemptions will exclude a small amount of income from tax; however, once you get above that amount everyone is taxed evenly in Indiana.
To determine median income you have to list all of the incomes of all of the households in a particular area from smallest to largest. You then select the income figure that is exactly in the middle of that list. For example:
Lets say in Royville there are five households and their incomes are
1 $5000
2 $20,000
3 $25,000
4 $35,000
5 $100,000
Out of the above list the median household income is $25,000. $25,000 is the middle figure in the list.
Out of the above list $37,000 is the average income.
Economists normally use median income because they feel that the person in the middle of the list is more representative then the average of the list because those with really high incomes “distort” the averages.
The Federal government breaks down income by quintile. They list all of the incomes in a geographic region from smallest to largest and break it into five quintiles. A quintile is 20% of the entries on the list.
The government often breaks this list out by State or County of residence. They also often break it down by the number of members in a household.
In 2007 before tax income in the United States as reported per filed tax returns was:
Bottom 20% Zero - $20,032 (On average no working adult)
Up to 40% $20,032 - $37,771 (On average one working adult)
Up to 60% $37,771 - $60,000 (On average one working adult)
Up to 80% $60,000 - $97,030 (On average two working adults)
Up to 100% $97,030+ (On average two working adults)
So if you look at your pre tax income you can put yourself into one of the above quintiles. The bottom quintile is often considered poor. The top quintile is often considered wealthy. The middle quintile is often considered middle classed. The quintile in between poor and middle classed and the quintile between wealthy and middle classed are harder to define.
I decided to look at my income back to my eighteenth birthday. For the first ten years I was single with no kids so I compared myself to other households of one. When I got married I then compared our combined income to other families of two. As we had kids I added additional members to my household and made the appropriate comparisons.
I think my wife and I represent a very typical middle class family in the US.
I went to college for one year and dropped out. I spent the next three years working minimum wage jobs including at a gas station, as a uniformed security guard, and selling vacuum cleaners. I next spent six years as an enlisted man in the USN; I left the USN as an E-5. I spent two years as a mechanical equipment operator in a nuclear power plant, three years as a union electrician in a steel mill where I became a journeyman electrician, and four years as the Maintenance Manager of a small factory. During the four years I was a Maintenance Manager I went back to college, the first three years I went back to college part time and the last year full time. The last four years I have worked in a public accounting firm that my wife started and we own. I became a CPA in 2007 when I was 40 years old.
My wife went to college for three and a half years after high school. She graduated one semester early with a four year degree in International Business. She spent the next two years as a nanny in Hawaii for a friend of her mothers. She went back to college and took 24 hours of accounting classes. She then spent a couple of years as the Assistant Controller of a small Construction Consulting firm in Hawaii. Next she spent two years as a staff accountant at a private firm. Then she spent a year working at an auditing firm. She next spent five years as a staff accountant in two small public accounting firms and she became a CPA early in this five year period. She started her own public accounting firm seven years ago and has been working for herself since 2001.
We got married when I was almost 28 and she was 26. We have two kids who are 5 and 7. I am 41 and my lovely wife is 39.
As far as I am concerned we are the very definition of middle classed.
I analyzed my income from 1985 until 1995 and from 1995 on I analyzed our family income and compared it to the median income for each of those years. I compared my self to families of the same size and in the same state each year.
From 1985 – 1989 I made 10% (Ranging from 3% - 16% of the minimum wage) of the median wage. By any definition I was considered very poor.
I was in the USN from 1989 – 1995 I made 60% (Ranging from 37% - 77%) of the median wage. I was a single enlisted person in the USN and I had enough money to do what I wanted to do.
From 1995 – 2000 we were married and had no kids. From a median income standpoint these were our best earning years so far. We both worked full time and we averaged 95 hours worked per week (90 – 100 hours per week) over that time span. We made 223% (Ranging from 152% to 303%) of the median wage. We worked a lot of overtime since we did not have kids and we were saving money in order to buy a house and have children.
From 2001 – 2008 we were married and had either one or two kids. We both worked either part time or full time; however, we worked a lot less hours then we did the previous six years. We made on average 121% (Ranging from 79% - 155%) of the median wage over that time span.
If you average each years comparison to the median then I (And my family) have on average made 113% of the median wage since I turned 18.
I have years as low as 3% of that years median wage and I have a year at 303% of the median wage. I feel this is normal for most Americans.
So when you listen to the rhetoric from both sides please realize that personal incomes fluctuate greatly over your life! Consider my personal example:
I spent 4 years in the bottom quintile, 0% - 20%.
I spent 6 years in the quintile second from the bottom, 21% - 40%
I spent 5 years in the middle quintile, 41% - 60%
I spent 2 years in the quintile second from the top, 61% - 80%
I spent 7 years in the top quintile, 81% - 100%
Interestingly enough six of the seven years I was in the top quintile for income my wife and I worked an average of 95 hours per week in order to be in the top quintile and six of these seven years were from 1995 – 2000.
Do you consider me rich, poor, or middle classed when you consider my income?
Mike Sylvester
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14 Responses to “Class Envy”
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Since you brought the issue of rich, middle class (whoever they are), and the poor I would like to offer the following.
Barrack Obama has said he was going to cut the taxes of 95% of us, 4% of the taxpayers’ taxes would remain the same, and 1% would be taxed to cover the cuts for the 95%. Well, I am not the sharpest tack in the tack box so I tried to figure out what the means, in terms I understand.
I looked up the Allen County Coliseum seating map and learned that there are 80 sections and 14 skyboxes. For a hockey game that is sold out the building would hold 10,495 people. On an average, a private skybox will hold 26 people.
So here goes:
Everyone in the building, minus two people per section and not setting in the skyboxes would be getting a tax rebate. Which means 9,970 of the 10495 would be getting a “check in the mail!” Sounds good to me!
Then those two people in each section and all the people in 10 of the 14 skyboxes would not be paying anything extra. Their taxes would remain flat. I bet those people are happy!
But the 105 people setting in just four skyboxes would be opening their checkbooks to pay higher taxes. Each one of them would be writing nearly 95 checks to hand to 9,970 people as they left the building!
I am not rich, so I do not have to worry about paying more under Obama’s plan In fact, I would maybe get some back! But let us be honest and stop the crap! The rich income earners do pay more percentage wise (which means real dollars) then those of us at the lower end of the income bracket.
What Obama is proposing is trying to start social war within our country, all for the vote. He knows damn well people with the money will call in their favors in his very White House and Congress to provide loopholes in federal taxes so the rich can walk right around the tax increases by providing them more deductions or higher ones.
If any of you do not believe this then I urge you to think about what has happened in Congress in the last two weeks. Blame either the Democrats or Republicans all you want but we found out just how they operate when forced to in a very open matter. Just think what they will do when we all are not watching them like a hawk?
Nice information.
Interesting!! One always pays more at the middle of the spectrum. The more honest one is; the more one earns and it appears one shares with those that truly need a kind Hand Up.
Then again, the more one pays in taxes in every category; there are unforturnates that will not work, or pay taxes, and just feed off of their hosts, in to many cases.
Who can pass laws to ensure… Value, Moriality, and doing good for the People, by the People everyday?
Sure as Hell is not any Nation’s Government Body.
Step aside U.S.A. Government…
Get the heck out of our business!
To answer your question, no I do not believe anyone that earns $100,000 to $500,00 as being rich. This is so early 1970’s.
The top quintile, 81% - 100%; especially as being an income producing Private Business Owner pays huge taxes and provides jobs with little or no money to provide for the family after other families are paid for first.
I guess most folks do not understand the value of what money is.
$700 thousand million dollars = $700 billion dollars. Now do they understand how to compute and pay for $11 Trillion dollars?
Love your blog. If you are rich, then the Kelley’s are too.
Deleted by editor
Jeff Pruitt: As I’ve requested before, please stay on topic. You cannot turn every thread into an anti-Obama piece.
This is based on total household income and not just individual income, right? So if I shack up with some who makes as much as me, I can go up two quintiles?
“Rich” and “poor” are subjective terms. Today, you can be poor with cable TV, a computer, a car, and central heating. A century ago, not even the richest people could have all those things. I’d rather be poor today than rich 100 years ago.
Theoretically, you can become rich in one of three ways:
1. Earn more money.
2. Get a spouse or domestic partner.
3. Everyone else but you earns less money.
Jeff….. sorry… I did screw up and “APPROVE YOUR REMOVAL OF THE POST!”
Bobett Kelley:
“To answer your question, no I do not believe anyone that earns $100,000 to $500,000 as being rich. This is so early 1970’s.”
Then by all means…. Give me the ’70s.
If I were making, or had ever made that kind of money I sure as hell would have thought I was rich. I’d have no debt and wouldn’t give a damn about the economy.
Guess the folks with 7 figure incomes feel poor next to the folks with the 8 figure ones huh!
Mr. Colgate:
Sorry but I believe you misunderstood. Can you run a Private Business on $100,000- $500,000 and
meet payroll, taxes, ect. and get the job done?
Obviously, Government thinks so and will suffocate
“Free Enterprise” today as they did in the 70’s.
Looks like some folks will be needing to look for innovative ways to make money. Guess What? America is broke and we can not afford to pay for
non-productive people.
We sure as heck can not tax our way out of this debacle.
Mr. Colgate,
A 6 figure amount is $100,000 to $ 900,000… can you see the six digits?
Seven digits are in the Millions and Eight digits are in the Trillions.
How many 6,7, or 8 digit producing people exist?
I simply do not know. Very few is my guess.
And how many 6 digit people can employ people
and place food & water on people’s tables?
Now, multiply it by the World Markets. Hmmmm.
Looks like we each better pay as we go and not spend money we do not have…eh?
Opps 8 digits are for Billionaires not Trillionairs my bad.
Finance Folks, is it 10 digits for a Billion dollars and 13 digits for a Trillion dollars?
If it is, isn’t exponets to these numbers fasinating?
Ms. Kelley:
Please remember there are folks out here that are not the “movers and shakers of society”. Just the poor, used to be middle class that WORK for someone else.
My point was….. it seems the folks that make one million dollars a year, want to make two and so on!
All some of us aspire to be is, safe in or hovels with a little food on the table and heat in the house. Many of us, although we read, speak and write the english language and have access to computers, are not in the six figure, seven figure or, yes, the 8 figure class. I know the difference between $100,000 and $1,000,000. I’m still trying to get to $50,000!
“Looks like we each better pay as we go and not spend money we do not have…eh?”
Right as rain! That’s been my plan all along. It simply becomes more difficult when the gas it takes just to get me to work now costs three times what it did 8 years ago, heating oil is 5 times more, getting water into many homes has doubled in cost and getting sewage out is 3Xs more.
Now, think about this. Since I don’t own/run a business, I can’t pass my costs on to anyone else. I simply cut back or get another job. I don’t get a bailout/rescue. I have to “pay to play”. Simple economics of the working man!
I hope your business does well and my job does not go away!
Oh, by the way, Ms. Kelley. I also have to worry that my 8 year old car (I bought used), doesn’t crap out on me. I won’t be able to get a new Lexus or Lincoln!
Thank you Mr. Colgate, I am so with you on this
pay as you go. I do not personally own a company, but I believe in free enterprise.
And I hope my paided for 95′ Buick lasts me for awhile too.