Yes, Virginia, $250,000 IS Rich

There’s this fun little debate going on in Washington about tax rates for households earning over $250,000.

Some would have you believe that those earning over $250,000 are not rich, but those people would be lying to you.

I’ll start with the conclusion to save you some time. $250,000 per year in household income makes you rich. Period.

Welcome to the 2%

If your income is in the top 2.9% of American households, sheer math tells you that you are rich. For every one person that earns more than you, there are 49 who earn less. In world income, you’re in the top .1% of earners*. You say you’re not elite? That’s rich.

I understand that everything is relative and that you may not feel rich, but that doesn’t change the facts. If you’re so envious of those living in undesirable areas, change places with them.

How much is it really?

There are a few ways to look at it:
– $250,000 is five times the national household average.
– $250,000 is over $120 per hour.
– $250,000 is $20,833 per month.
– $250,000 is what 16½ minimum wage employees earn combined.

But I can’t live off $250k!

Whenever a debate as to whether or not a quarter-million are a lot of dollars for one to have, invariably some dull jackass shows up to complain about the high cost of living in some extremely specific, exclusive place.

Here’s an example from Reddit. The point was made that $250,000 is in fact quite rich, to which came the following response.

AlmaWade: No, no it isn’t. That $250k a year paycheck sounds amazing, until you find out your job is in a dense city…

– You’re paying $100k a year in various forms of federal, state, county, and city taxes.
– Your mortgage payment for a comfortably sized condo is around $75k a year, god forbid you want a house.
– The rest of your money gets spent on high priced goods and services, transportation, insurance, unexpected medical costs, and saving for your retirement and your kids education.

Meanwhile, some guy in the rural Midwest is earning $50k a year and having a higher standard of living than you.

Oh boo hoo, your pile of gold is too heavy. First, realize that people living in those same markets are surviving off the national average of $50,000 per year, and many more are living off of minimum wage. If you imagine they have no sympathy for you, you’re right. Is it time to raise minimum wage so they can afford to eat more than saltines from their job serving you at the diner?

To the points, though:
You’re paying $100,000 in taxes… No you’re not. Not unless you include gas tax, and guess what brother, we’re all paying that. A two-income household at minimum wage is likely spending $400-600 a month just on gas, and they’re only making $2,500/month. That’s 16-24% of their income just on transportation fuel, to say nothing of the cost of cars and the repairs that come with cheap, used cars.

Mortgage payment for a condo is $75,000/year… No it isn’t. That’s a monthly payment of $6,250. Even assuming a 95% loan with mortgage insurance, taxes, fire insurance and $7,200 a year in homeowners dues, that would still be a $910,000 condo. That’s not “comfortable”, that’s fan-friggen-tastic.

The rest… spent on high priced goods and services… Right, but only maybe about double what it costs in impoverished places. That against your income with is 5-16 fold greater than the people living elsewhere.

(high priced) transportation… which is bullshit. The whole reason for living in a high-priced, high density place is because it’s close to your job. Many of the most expensive markets have easy, affordable mass transit. If you buy a million dollar property that’s also inconveniently far from your work, it’s a choice you made.

(high priced) insurance… Right, right, right. This must add, what, a good $100 a month? That will take you a whole 50-minues a month to earn.

(high priced) unexpected medical costs… You’re telling me you earn $20,833 a month and you don’t have medical insurance? This claim is preposterous on its face. If you think that’s a legit concern then you need to take a deep breath, swallow your balls for a minute, and consider how the family earning $50,000 will handle it. Unlike the minimum-wage family, they don’t get discounts from the hospital unless they want to default on the debt and ruin their credit for 7-10 years. In which case, no car loans, no home loans and limited future financial prospects.

and saving for your retirement… Rich people problems! I agree that saving for retirement is of extremely high importance, and you’re right to want to do it… but saying you’re not rich when one of your biggest concerns is having enough money left over to capably save for your retirement… well, I’m sorry, but that means you’re rich.

(and saving for) your kids education… More rich people problems. You need to realize that very few Americans can afford to pay their childrens’ tuitions, especially now that tuition is so unprecedentedly high. If you can afford to pay your childrens’ tuitions, then you’re rich.

So that’s the end of my Reddit jag. Now let’s hit up Google and see what kind of opinions we find.

Hey Google, is $250,000 rich?

I asked Google, and the number one result was CNBC. They said “no it isn’t”, and my god was their logic flawed.

The CNBC story makes a number of assumptions about what it costs to live in certain places, say for instance, seven of the nicest neighborhoods in the country (all with “top notch schools”.)

They point out that if you buy a home, hire a housekeeper for $5,000 a year, spend $4,000 on your kids’ sports and activities, take a full, real, one-week vacation, spend $1,200 on dry cleaning, and fully invest in your IRAs and 401ks, then there would be very little, if any, leftover.

This assumption is fundamentally flawed because it starts by assuming a rich people’s lifestyle and works backwards. If you own a home in one of the 7 nicest neighborhoods in the country and incur expenses like those, you are living a rich person’s life. You are rich. Not as rich as you could be, or might like to be, but you are still most definitely rich.

$5,000 a year for a maid is exactly a rich person’s expense. That expense would be impossible if you lived in a median income household, and you’d still need your house cleaned. In fact, at $50,000, you’d be more likely to be a two-career household than you would at $250,000, where the air is rarefied.

I’ve been $80,000 rich before

From 1998 to 2002 I made a lot of money. No wife, no kids, just me and my toys and a maximum income of about $80,000, and that made me rich.

I ate out frequently, never brought my lunch, wore only expensive suits, dated lavishly, and eventually traded in my Lexus for a showroom new Viper RT/10. I maxed out my retirement investments, bought over a dozen rental properties, and never worked more than 3-hours on any given weekend.

I had few deductions, paid mad (Clinton-era) taxes, and still had money for pretty much anything I wanted. I had no wife and kids to pay for, but I was a household, I made $80,000 or less, and I felt rich.

Fast-forward to 2008, when I got back to $80,000 (in combined household) income. This time with a significant other and three kids to provide for. In 2008 I had no want for food or clothes, bought a new (gently used) van, moved to a nice, big-ish house and had enough money leftover to pay off my last $15,000 of debt.

I didn’t have enough to buy a house (height of the real estate bubble) or buy a brand new car, but even with a total of 5-mouths to feed, I felt pretty rich. I could do anything. I took my kids on two separate three-week vacations.

Maybe I wasn’t rich, but my perspective was that, even with paying off $15,000 in debt, I was doing pretty well.

And now you want to tell me that if I had earned THREE TIMES as much money, I still would not have been rich? That’s just not a credible argument. I live in Seattle. This is a fairly pricey market.

How much tax are we really talking about?

This is the part that really kills me. When people say that $250,000 a year isn’t rich, they’re failing to understand that this isn’t even the question. If you earn $250k and congress raises taxes on those earning more than $250k, the change will not impact you.

So how much money are we really talking about?

If marginal rates go up 3% on income earned over $250,000:

– $260,000, you’ll pay an extra $300/year. That’s $0.14-cents out of your $125 bucks/hour.
– $300,000, you’ll pay an extra $1,500/year. That’s only $0.72-cents of your $144.23 big ones.
– $500,000, you’ll pay an extra $7,500/year. That’s only $3.61-cents out of you $240.38 hourly smackeroos.

So really, we’re talking about pennies on the dollar, or at worst, dollars on the hundreds of dollars.

In light of all this, I do not think that rich people are too good to be paying their taxes. I think it’s high time. More than that, I think this whole debate is ridiculous.

* If you run the numbers using the chart linked, the number comes out mathematically impossibly small. It is my belief that they are mistaking .001 with .001%, creating an error of 2-decimal places. Feel free to double-check the math, find additional sources, and cite them in the comments below. I’ll post a correction as needed.