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The whining of the rich

by Michael O'Hare - September 18th, 2010

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Through Glenn Reynolds, whither I wandered because of Mark’s post about something else entirely, I came upon this truly amazing pasticcio of mendacity, ignorance, and small-minded cupidity. It’s worth a close look because the author is a law professor, not some high-school dropout Limbaugh lemming, and because the tone of entitlement and whining is typical of a fair number of the comments I got on my post about intergenerational equity (and by extension, equity).

Because Obama proposes to let the Bush tax cuts expire only on “incomes above $250K”, I was surprised that Prof. Henderson expected to be importantly worse off under the president’s plan, so I went here and plugged in what seemed to be reasonable numbers. He says his family’s “combined income exceeds the $250,000 threshhold for the super rich (but not by that much)” . I tried $140,000 each for him and his wife, $5000 in charitable deductions, and a 5% mortgage on a million-dollar house, which is what would cost about $15K in property tax per year in Chicago, with 80% 20% down [thanks JHA]: $40,000 per year in mortgage interest.

Under Obama’s plan, his federal tax would be $48,333, and his Illinois tax about $8400 (3% of AGI). Under current law (Bush tax cuts), $55,600 + $8400. Oops; what happened? Obama will greatly ease his AMT hit, and his taxable income is less than the $250,000 cutoff. If all the Bush tax cuts expire, his income taxes will be the same as now, $55,600, again because of AMT changes.

But wait a minute: he says he’s paying “nearly $100,000? in state and federal taxes, not including sales tax; let’s say $95,000. Leaving out his property tax, that’s $80,000 in income tax. How much income would lead to this kind of tax hit? I had to experiment with the calculator a little, but it’s a little less than $170,000 apiece. So his pretax family income exceeds $250,000 by at least $90,000. But this doesn’t include tax-free contributions to their 401Ks: anything they are socking away for retirement adds to his actual income; unless they’re at the $33,000 limit they must just like to pay taxes, or are too stupid to be walking around professing and treating sick kids. So we’re pretty close to $400K gross income, and on top of that their employers are surely putting money into their retirement funds. I guess $150,000 is “not that much” in some circles.

He is also whining about his and his wife’s education loans, $500,000, which are costing them about $50K per year in interest. Let’s just sketch out the family budget here:

Taxes $100,000

Housing* $65,000 mortgage + 15,000 insurance & maintenance = $80,000

Two really nice cars $.70/mile x 15,000** miles = $10,500

Student loan payments (20 year amortization at 10%) = $60,000

*Why a couple with a half-million dollars of debts decides it needs a million-dollar house in Chicago, where the Hyde Park average price ” near their work” is a third of that, is not entirely clear. Also note that $25,000 of this is going into their own pockets, building equity in their house.

**They live near their work, so this is probably generous.

This leaves about $90,000, a lousy $245 a day, for food, clothes, vacations, cable TV, and like that. You can walk into Nordstrom’s on Upper Michigan and spend that in a minute, and for stuff you really need. Really, I don’t know how these people get by; their adaptive skills, economical habits, and modest living style is an inspiration to all of us. Perhaps they are careful to tip no more than 15% at the Sizzler when they splurge.

So how does our third-of-a-million-a-year law prof/doctor couple and their three kids, barely scraping by already and falling before our eyes to the very bottom of the top 1% of US families by income, make out under Obama’s rapacious soak-the-rich commie attack on all that is holy and American and fine? Wait for it; take a guess

His taxes will go down $3700; he can buy one of those ties every two weeks! And this guy is threatening to fire the gardener and the house cleaner, take the kid out of art class, turn off his cell phones, and try to raise competent adults with only basic cable. Prof. Henderson, I’m ashamed to share my profession with you.

Henderson’s lying isn’t limited to misrepresenting his income and what the Obama tax plan really means for rich people like him (though I wonder if he actually knows what any of the numbers in his family finances really are). He also blithely says ” The biggest expense for us is financing government.” No it isn’t: their biggest expense, and it’s three times larger, is financing their private consumption. Any budget can be sliced up so the piece you want to look big is the biggest; Henderson is obviously dividing his private expenses up like the budget I constructed above, but choosing not to divide his public expenses into, say: education, policing, national defense, fire protection, keeping his street paved, subsidies to corn farmers and oil companies, etc. etc. If he did that to “financing government”, his largest expense would certainly be his housing. This is a familiar trick, but no less disreputable for that.

The next time you come upon a Chicago law professor in his scuffed Gucci loafers and tattered Armani on the sidewalk, holding up his libertarian down-with-government sign and shaking his tin cup to get his doctor wife and hollow-eyed waifs through another tough week in their million-dollar hovel, please don’t just walk by. Remember, it could be you. Be a mensch: throw a nice shiny 3/8? washer and couple of nickel slugs in there, with my blessings.

UPDATE 18/IX: my original calculations of the Obama tax plan effect ignored the deductibility of state income tax.

http://www.samefacts.com/2010/09/economics/the-whining-of-the-rich/#more-13707