Why Americans Defend Higher Income Individuals

Why Americans Defend Higher Income Individuals

 

I was discussing President Obama’s campaign promises (shut down Gitmo, get out of the 2 wars we were in, and lower unemployment lol) the other week with my in-laws and I came up with a theory why Americans, generally, defend higher income individuals.  I am sure the theory is not original or even all that mind-blowing, but when I said it aloud during a conversation it really made a lot of sense.  Americans defend higher income individuals because we believe that we can achieve a high income one day.

The stats vary depending on the article you are reading, but if you take a look at the most recent statistics released by the IRS.gov, in 2008 only about 3% of the 142,000,000 returns in the country have an income greater than $200,000, however, ‘it’ hit the proverbial fan when Obama attempted to penalize those who made over $250,000.  By pure numbers, those against it can’t all be making more than that amount.  Similarly, it isn’t hard to find people against the Death Tax (a/k/a Federal Estate Tax), however, the federal estate tax affects only about 1 – 2% of the Country.

While class warfare seems to be picking up steam in the past 5 or so years it is nothing like in other Countries.

Why Do we Defend the Wealthy and Income Rich in America?

I believe we (I lump myself in since I am not in the aforementioned income/wealth groups YET) defend high earners because there is an optimism found in America.  That optimism is based in the belief that, one day, I can be in those top percentages. And you know what? There is nothing stopping you!  There is no predetermined caste system.

So we put ourselves into their shoes just for a moment and say, when (not if) I am making that much do I want to get taxed like they are proposing?  No, because I will have known how hard it was to get there.

Since we are putting ourselves in their situation we can only empathize so much.  Which is why you feel for the small business owner bringing in $200,000/yr and employing 3 people and not the sports star who makes eight digits a year, or a CEO of a fortune 100 company who gets a golden parachute after 9 months of working.

Notwithstanding the top of the top, Americans generally want to be Wealthy/Rich (the difference being that Wealth is accumulated and Rich is just income)
and thus don’t want to set themselves up for higher taxes when they get there.

Do you defend higher income people? Is the theory sound?

31 Responses to Why Americans Defend Higher Income Individuals

  1. I am having the opposite experience where I live. Many around here think the ‘rich’ should be taxed more and people resent the higher income wage earners. They feel the ‘rich’ should be paying even more and it is almost like a prejudice against those with money. Maybe it is because my area has been hit harder economically than much of the country, I don’t know.

    • Where you from Kris? Your response theory kind of fits into my theory though…except they don’t believe they can “make” it to that level, so they resent them.

      I hope you aren’t one of ‘those’ people lol

      • I live in metro Detroit…

        The only rich people I resent are those that expect me to hold open the door for them without saying thank you!

        I don’t think the rich should pay more, unless they are evading taxes. I think the tax code needs to be fixed so everyone pays what they should.

        Personally I think it is crazy how the rich are portrayed in this country. Why so many seem to resent the rich is beyond me.

  2. Three percent of Americans are making over $200,000 a year. That’s incredible! Next time you are eating out for lunch or something, look around you. If it’s a busy restaurant, there are probably 50 people there. That means one or two of those people is making over 200 grand a year! It’s not like this “rich” is unattainable if 3 out of every 100 people has reached it!

    • Completely agree…why can’t you and I plus one more person BE THOSE GUYS!

      Probably also matters what restaurant you are at lol

  3. I do not defend high income earners at all! When I earned a higher income I took advantage of the tax system to keep my taxes low. Most high earners pay a lower effective tax rate than you do. Are surprised? They have access to tax professionals and have the ability to take advantage of the system. All of us can do it, very few do. It is legal after all!

    • Don’t hate the player hate the game! The rules are there for everyone to take advantage of…maybe people should slow down using turbo tax and hire a CPA for a couple hundred bucks more if it will save you a couple thousand in the end.

  4. I think the rich should pay more tax, but the poor should also pay some tax. It’s ridiculous that almost 50% of us pay no tax.
    Like Krantcents said, the rich pay less tax than most of us middle class because they can take advantage of the tax code. I feel like it’s the middle class that is holding most of the tax burden.

    • Not agreeing or disagreeing with you about paying taxes…but I think most ambitious people aren’t so quick to attack the rich

  5. I used to agree in the optimist or lottery idea, especially after the death tax arguments a few years ago. But now I think some people just like to believe what they are told. The “birthers” are a good example of people that make irrational conclusions by believing in what the media and or extremist are telling them. Anti high income tax hike movements are likely orchestrated by the individuals that are most at risk, but they do a great job making everyone else believe they will suffer as well.

    I say we should strip all deductions and go to the three tax rate “zero plan” which seems to me to be a more fair solution.

    • Not sure what you mean by the Zero plan…but increasing your income or believing it will increase is absolutely not equivilent to lottery optimism.

      Take this site for instance…this is done at night and outside of my 8 – 6 job and brings in a pretty ok amount of money.

      You can make more money you just have to work hard and stop blaming others.

  6. I think there are 2 main reasons: optimism and easily influenced by marketing/propaganda. Many people are optimistic though really this is a small part of the reason. Most people earning median or below salaries do not think they will rich – some do, not many. I think a much larger reason is the same reason we pay lots of money for sugar water or clothes that some cool looking person wore… Rather than think, we far too often, just adopt whatever someone that markets to us tells us to think.

    • John,

      You are the second person that relied on this propaganda idea…and I just don’t believe it! I don’t defend the high income earners because FoxNews told me – I defend them because I KNOW I will be there one day. I am positive of it.

      You have a fantastic blog, but why do you go so deep into investing? Because you want to make money…what if those investments were taxed at 40% instead of 15 to 20?

      • Lots of people “know” that. Some are right. Lots are wrong. You may well be right – your blog gives much more evidence of that than your conviction.

        The issue of what effort people will put into work depending on tax rates is very questionable. There is a fair amount of evidence (based on my talks with economics professors when I was studying economics) that a significant number of people will work harder if tax rates go up. Essentially they have goals – a mansion, a boat, vacation to the French Rivera every year. And they work so they get that. If they have to work harder to get it (for whatever reason – gas prices rise [increasing many prices...], raising taxes, the competition for French Rivera rentals drives prices up) they do so. None of this is completely straight forward. A portion of those wanting to go to the French Rivera will switch to Spain if they can have more Champaign or whatever. And some people might say oh well since now I am taxed at a 40% rate what I will do is just give up 2 of my goals and work less because if I worked more the government is talking too much of my money.

        I am highly skeptical people will work less if taxes are increased even 50% above current rates (so if someone’s effective rate is 24% today it went to 36% – or even to 40% from 24%). I can believe they would decrease work if the tax rate were up to 95%.

        Of course, most likely, once you are making over say $20,000,000 almost none of that is due to your effort – it is due to investing gains. I doubt many people would move to investments that have lower returns just so the government made less (even if that means they made less too).

        I believe the main reason for people to work harder and smarter is to meet their goals (buying new stuff, feeling safe – having investments they think will server them well, having insurance…)… I do not believe people weigh the tax rate in a macro-economically significant manner.

        They may well complain about high taxes, but that is very different from giving up goals and working less.

        I do believe tax policy can switch things around. So rich people will seek to classify revenue for whatver has a lower rate (others would rich do it because they can afford to and it has a return on investment). And high tax rates with lots of loopholes encourages people to avoid paying what they owe to society by paying lawyers and accountants to get out of paying their share.

        I found it very funny that the country has much higher taxes on “earned income” than investment or speculative income. I was much better off making $1,000 on an investment than “earning” the money and having to pay social security tax which I don’t have to pay on investment gains. This happens to work out well for me – I am not sure it is so great a policy though.

        Today people have a huge incentive to have investing gains and a huge disincentive to have earned income. You don’t see people refusing to work and just relying on investing. Yes, because they can’t (they don’t have enough to live off investing earnings). But it shows avoiding taxes isn’t the priority. Other things are – but low taxes are desired also.

        Basically I think the tax rates in the USA the last 20 years are very low. I doubt they will be that low in the next 20 years but we will see. I also believe the government is spending far too much money but we have elected the same people to pursuing the credit card spending for the last 40 years (neither party has shown any interest in restraining spending).

        • I share your common disbelief that inching up marginal income tax rates will really cause the masses to stop wanting to work. I agree with you, but there is absolutely a tipping point. Would you really work as hard if your last dollar is being taxed at 75%? I know I wouldn’t. That being said if I ever got to that rate I guess I would be able to afford all that cool stuff you mentioned.

          The investing vs. earning situation you brought up is really interesting. I have a theory I literally just pulled out of my ass – is it possible that the reason it is lower is because most Americans do not see the cash derived from investments? They see a capital gains statement from their mutual fund company but don’t actually have the cash to pay all those taxes…

          OR

          Do you think it is more cynical that the rich garner more of their money from investments? But I don’t know if that is all that true. Most 10mil – 20mil high net worth people that I encounter receive most of their income from their business

  7. I think most high income individuals earned their money the hard way – yes of course there are many that inherited and struck gold, but most took risk and were entrepreneurs.

  8. “Americans defend higher income individuals because we believe that we can achieve a high income one day.”

    BINGO!

    I hope to be making that money one day and when/if I get there, it will be because of a ton of hard work and sacrifice. I am not throwing stones at those 3% making good money and neither should the rest of us.

    Even if I never attain the 3%, what I have now in my early 30’s, BILLIONS across this world would kill for! How fortunate most Americans are.

  9. Well, “defend” is not the operative word in my precincts. I don’t resent the Richistani, but I do think they should be paying their fair share of tax…and I become pretty annoyed when I hear of wealthy individuals who use the tax loopholes for exactly the reason they were created: to help the wealthy evade taxation.

    Ah, yes, upward mobility. We have as our role model Donald Trump, a man who demonstrates that in America even a moron can get very, very rich. LOL! There’s hope for all of us! ;-)

    • Not resenting is a start!

      Why hate the player who is using the tools and rules provided by the IRS? Hate your elected officials who made those rules…

      • LOL! I didn’t say I resent the man. I just said he was stupid. I don’t resent stupid people — it’s not their fault they were born short a few IQ points. You’ll have to admit, he has shown himself to be pretty stupid.

        The whole “birther” fad is akin to a UFO craze. IMHO, a person who buys into that is silly at best, but probably “stupid” is le mot juste.

        • Also as an investor you can appreciate stupid behavior and make money by taking advantage of the opportunities they provide you. If they sell off a good stock for some minor short term fluctuation (for example) you can buy it and make money when it goes back up.

  10. Eeeeeh, what planet are you from E-dog?! Have you not heard Obama and the Democrats ATTACK and ATTACK and ATTACK any single person making over $200,000 and couple making over $250,000??

    You never hear the Republicans attack ANY income group. Yet, the rhetoric from Obama is so sad that people who pay 100% of the income tax in America, should pay even more, which is odd.

    I will tell you straight up as of 2008, I pretend to be very poor. I drive by 12 year old Moose, and where nothing flashy.

    Sam

    • Sam, what is taking away medical care from the disabled indigent other than an attack on the poor? Three people here in Arizona have died because the tea-partying legislature voted to deny specific life-saving procedures provided by the state’s answer to Medicaid.

      Come to think of it, who coined the term “welfare queen”? I don’t know, actually; but I sure do remember who used it the most here in the Southwest.

  11. I do think your theory is spot on. Despite most not making it, there is a hope among the middle class that upward mobility is alive and well in America. The American Dream still exists and you are living proof.

  12. It’s a combination of optimism and those who are vocal enough to allow themselves to be heard. People who have strong convictions will voice their opinions more frequently and loudly; those that aren’t sure or not as affected, will sit back quietly and watch.

  13. I think rich people also create jobs in the community and often times the very rich are quite philanthropic. I know my little community wouldn’t be as nice as it is if there weren’t a few very rich families who give a ton of money to community projects every year. They are also a decent sized employer too.

  14. I love “rich” people. I have no heartburn at anyone’s networth, checking account balance, blah blah blah…. as long as it was obtained ethically and within the confines of the law.

    My aunt and I get into these disagreements all the time – as you can imagine, we are on complete opposite sides of the political spectrum. She believes “rich” people should pay for everything because “they can”. My question is always, “Who determines what ‘rich’ is?”

    Who is anyone to say what is enough? $200,000 in one part of the country goes a lot further than in other parts. You can’t just pick an amount out of the sky and say “THATS TOO MUCH! GIVE IT UP!”

    As a side note, although I realize that reality might be that I may never be a millionaire or anywhere close to it – I am STRIVING to change my financial habits to move in that direction. I don’t want to penalized for being fiscally responsible and hardworking for my future. If that’s what is going to happen, what’s the point in even trying? I might as well just let all you “rich” folks take care of me. :)

  15. I’m tired of this guy trying to refute every single post that doesn’t agree with him like if he has all the answers.

    Look,we are all the same. We are all human, and just like every human not everything that we say has to be solid truth for everyone else.

    I know it’s your blog and I agree with you original post, but not with most of your replies.

    I personally don’t believe you should be taxed more if you earn more, I just believe they should close all those gaps in the law to avoid people taking advantage of.

    However, I don’t believe in idealizing the rich as “enlightened” individuals who are better than any of us and that’s why they made it there.

    Where you started (your parents situation), your surroundings, who you know, luck, etc also counts a lot in many of these cases. Yes, you still have to be smart to take advantage when the opportunity comes, but not everyone has the luck to be at that place at that time like the person who has the opportunity.

    Yes there are those that are struck with luck and still lose it because they don’t work hard or are not smart enough, but as much as you are passionate about not hating rich, I don’t hate the rich – I am as passionate about not idolizing them.

    And yes, I know it’s your blog, and you can delete my post. I just wanted to share my 2 cents.

    I don’t dislike the rich, I just dislike when they are put on a pedestal assuming the rest of the people don’t work hard enough or aren’t smart enough.

    You tell that to an orphan whose parents died at a young age and has had to survive since young.
    You tell that to someone that has a relative that has a terminal disease, which they never asked for, but has drained the family’s finances.

    • Ethan,

      I would never delete a comment because the author didn’t agree with me. I am not sure I really even understand what you are talking about though lol so I can’t really respond.

      So you think a flat tax is the way to go with less loopholes? I can get behind that. I don’t think I idolize anyone, but rather, I think Americans want to believe they can be on top one day so that is the reason half the population argues for lower tax rates when they are in the lower marginal rates.

  16. It’s not about defending the rich,it’s about live and let live.You have a generation of people that have been taught that life is fair,life is anything but fair.All of these limosine liberals bitch about the rich while being rich themselves.Why should anyone apply themselves and get rich if the government is going to take their money away and give it to some loser? Some people wern’t meant to have money,they can’t handle it,after hurricane katrina,the government passed out debit cards to a lot of the so called victims,they spent the money on liquor and electronics,all courtesy of the U.S. taxpayers.If our taxes were spent on things that matter,people would probably not have such a problem with having to pay taxes.

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