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Feb. 2 2010 - 9:45 am | 987 views | 0 recommendations | 22 comments

Does $200,000 make you rich? Not in New York

Income tax

Image by alancleaver_2000 via Flickr

I remember, many decades ago, hearing Ted Kennedy propose a ban on mergers between large companies. I thought it was a great idea — until I heard his definition of large. It was something like $100 million in revenue. Okay, in today’s dollars, make that, say, $700 million (my guess is, inflation hasn’t been that bad). So much for exit strategies for successful small companies, for economies of scale by combining two medium sized companies, for all those good business moves that help US companies be more competitive without violating the letter or the spirit of antitrust legislation. Kennedy had a great idea (“too big to fail” would not have entered our vocabulary) but the wrong cutoff point. Fortunately, it never passed.

I feel the same way about Obama’s proposal to impose a hefty tax on individuals earning more than $200,000 a year. Maybe in Iowa that’s a lot of money. In New York City it’s barely middle class. Once you’ve paid the rent (or maintenance), you probably couldn’t afford college tuition for your kids.

I’m all for the graduated income tax, for the idea that rich people should bear more of the burden. But look at what happened with the alternate minimum tax — it started out as a good idea, they forgot to index it for inflation, and now it is hitting a huge swath of people who are not rich by anyone’s standards.

So we have to have a better definition of rich. For one thing, we have to change that definition when inflation eats away at disposable income. And here’s a radical thought: How about an income tax that reflects the regional cost of living?

It is nonsensical to talk about CPI or other national gages. If you live in Manhattan, $200,000 will buy what $100,000 buys in rural America. So sure, tax multi-million-dollar bonuses, but don’t pretend that $200,000 is an obscene amount in a high-cost region.

And an alternate plan: If for some reason it is not feasible to let taxes reflect regional costs, how about letting everyone deduct housing costs? Not just mortgage interest, but rents, common charges, etc. That would go a long way toward equalizing the tax burden, no?


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  1. collapse expand

    It is really shocking how little you get for your money in New York City and ‘burbs. What looks like a LOT of income — $200,000, even $100,000 — buys a not-great apartment or small house with tiny lot and insane taxes. Simply crossing any one of the bridges or tunnels into and off of Manhattan costs $3-9 each way.

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      deleted account

      I know. That was one of the nice things about the NYTimes — it paid fairly well for a newspaper, and when it hired people in New York and sent them off to a bureau, they got to keep their salaries. Suddenly you’d have what is usually an oxymoronic description — rich journalists

      In response to another comment. See in context »
  2. collapse expand

    If the cost of living in NYC is really a problem for you, why don’t you move? I also live in an expensive area, but I’m perfectly satisfied with the $200K limit. If you look at a distribution of income across the US, slightly more than 1% of households have an income that high. Out of respect for the other 99%, stop whining.

    • collapse expand

      My, my. I re-read my post, couldn’t spot the whine. Hey, this doesn’t affect me personally at all — I wish it did, I wish my annual income was upwards of $200,000. It’s not — but it is more than ample to support the life style I have chosen. And yes, in the heart of Manhattan.
      But I’m still allowed to have an opinion, no? And you are proving my point, not yours. Maybe 1% of the country has income over $200,000 (I’ll trust you’ve documented that) — but I’ll bet that only 1% of the country pays $3,500 for a studio in a walk up. People who choose to live in Manhattan know they are going to pay more, and assume — usually with justification — that their salaries will reflect the much higher cost of living. I think it’s unconscionable for Washington to ignore that.

      In response to another comment. See in context »
      • collapse expand

        Actually, I misread the table, those below $200k are only 97.5% of the population. That changes everything. Of course those people who get to enjoy all the benefits of NYC or SFO should get extra breaks over the losers who live in Kansas or Indiana.
        I do think I overreacted on the whining – one of my pet peeves (when it comes to peeves, I’m a cat lady) is privileged people begging for more privilege.

        In response to another comment. See in context »
        • collapse expand

          But looked at the other way — the folks who get the benefits of wide open spaces, unlimited hiking and fishing, no rush hour traffic jams — they should pay to support the people who go through the trails and tribulations of living in NYC.
          Of course I don’t believe that — but in the same way you have zero tolerance for rich people who whine (I’m with you on that), I have an allergy to the concept of, because you can walk to the Broadway theater, you should pay high taxes — even if you can’t afford full price tickets. Or the concept of, if you don’t like it, move. Again, none of this affects me personally — I’m on my way to see Fela even as we e-chat — but I feel strongly about it nonetheless

          In response to another comment. See in context »
  3. collapse expand

    I think it would be unconscionable for Washington to base national tax policy on the plight of a relatively small handful of people who *choose* to live in NY/SF/LA etc. in the full knowledge that their incomes won’t stretch as far in those cities as they would in others.

  4. collapse expand

    we’ll agree to disagree. I’m not suggesting it base tax rates on a handful of people. I’m suggesting that tax policy should build in geographic differences. it already builds in differences for married vs unmarried, childless versus parental, mortgage interest vs rent, etc.Years ago we could deduct sales taxes, which helped level out geographic differences. That went away. Maybe it should come back, maybe not — depends on whether we want to encourage consumption or savings. But on income tax, I stand firm — geographic cost of living should be taken into account

  5. collapse expand

    Welcome to the world of “paint it all with one brush.”

    I have the same feeling when the government sets a certain income level for how any legislation is applied and how it is proportionately unfair to those who live in more expensive areas.

    There should be a state by state basis for these things. Although, I find the comparison of “If you live in Manhattan, $200,000 will buy what $100,000 buys in rural America.”

    I think the rural American would fare better. But that also depends on how you live. Do you frequent Broadway shows or take in free jazz at the MOMA? Since a Manhattanite does not need a car, there is one less big-ticket item to eat up income.

    Overall, I do not feel too sorry for those making 200Gs in the city, since there are alternatives to living in Manhattan with available mass transit. A sliding scale should probably be looked into, or at least a way of pleading hardship. Just beware of the chuckles as you show up with your tax forms showing how much you are hurt by the new tax.

  6. collapse expand

    perhaps there needs to be more deductions for living in expensive areas…a write off for using the subway and taxis…a much bigger renters deduction…a deduction for tips…an aggravation deduction or maybe like Alaska, New yorkers can get portion of profits from its natural resource…the insanely greedy wall streeters.

    • collapse expand

      Well, the insanely greedy Wall Streeters do, in fact, pay a lot of taxes in our fair city (although I do wish the commuter tax were higher), and they certainly support the local economy re: restaurants, etc. I hate the system that lets them “earn” — ha! talk about corrupting what was once a perfectly good English verb — millions upon millions for risk-free bets. But in some ways, they’ve been a necessary evil around here.

      In response to another comment. See in context »
  7. collapse expand

    I think $200K is just as good a line as any and I live in what is probably the 2nd costliest place to live–the SF Bay area. Honestly, I don’t think any of us pay enough taxes when you weight it against the services we all demand, though I’ll admit I’d rather see my money go toward better public education and infrastructure than another who knows how many years in Afghanistan.

    • collapse expand

      But I’m not weighing in on how much taxation is too much taxation, just on whether the burden is falling disproportionately on people who really aren’t that wealthy. Again, this has nothing to do with me — I make way below $200,000. But I don’t think it’s right to suddenly tell a couple that already lives in New York or San Francisco, is already trying to educate two kids, that they are “rich” and thus must fork over more.

      In response to another comment. See in context »
  8. collapse expand

    Hi, Claudia. While I understand the gist of your position, I think it’s a stretch to say that $200K is “barely middle class.” In 2004, the median household income for Manhattan was $47,030. Granted, that includes many students and young people packed into apartments for the NYC experience. But even the 10021 zip code on the upper east side had a per capita income of only $90,000. Those numbers are very healthy compared with the rest of the country … but $200K “barely middle class” is a serious reach, unless your definition of middle class includes far fewer than half of the public.

    • collapse expand

      Okay, this I’ll back down on. $200,000 is solidly middle class. But in Manhattan it is far from rich. And i don’t think Obama is talking per capita, I think he’s talking per tax return. And a $200,000 combined income for a family of four in 10021 ain’t gonna buy yachts and private planes or $6,000 shower curtains. I just don’t believe these are the people we should be taxing to pay for the excesses caused by the Wall Street megabuck guys.

      In response to another comment. See in context »
  9. collapse expand

    Our federal income tax approach is a disaster and a crime committed against the workers of the country by permanently elected representatives in Washington.

    Two things are key here. One, your observation of geographical disparity or difference is typical of what can happen to any responsibility given to Washington when it need not be there. Many of our political disagreements on federal programs result from this same mistake of assuming a single approach or solution formulated in Washington will be effective for all people in our country. Two, the income tax is a bad idea to start with. A service and goods consumption tax for federal programs will accomplish what you are suggesting. Of course, it would work much better if Washington would limit their involvement to those matters that absolutely must be carried out at the federal level. Then the states and localities could establish their own approach to provide and pay for the needs of their citizens.

    • collapse expand

      Well, you have less faith in Washington than I have — and one heck of a lot more faith in state governors and legislators. Their re=election is even more linked to the popularity of bills and actions than that of their national reps and senators, who at least can say they didn’t vote for a bill, or who can introduce an amendment that favors their constituents (Ben Nelson, anyone?) I don’t trust state politicians to have the guts to raise taxes, consumption or income, no matter how badly the revenues are needed.

      In response to another comment. See in context »
      • collapse expand

        I really have little faith in either. That is why I would like to see their power and influence reduced and distributed at different levels so that we, the people, will have a better chance to be in control.

        I’m utterly baffled at peoples’ willingness to turn greater power over to government while thinking this will improve outcomes.

        In response to another comment. See in context »
        • collapse expand

          Any ideas about how that could bbe accomplished? Because truth? I don’t.

          In response to another comment. See in context »
          • collapse expand

            I don’t know what it will take to change it. Your mention of state governors and legislators and your lack of faith is telling. I agree that for a long time their performance has been weak and frequently corrupt. My view is that this stems, in part, from their ability and willingness to shift their responsibilities to Washington in return for Washington doling out the money. The state officials then can avoid blame for tax issues as well as spending. Ever notice how they only complain when the mandates are unfunded? If taxation comes under too much scrutiny, then the FRB can just monetize the debt created by excessive federal spending. But this option will catch up to them.

            Why do you think the pols in Washington have better qualities than those who could be chosen for state offices?

            In response to another comment. See in context »
  10. collapse expand

    But I don’t think the Washington pols have better qualities — I’m just saying I don’t assume the local folks do. I’m pretty cynical when it comes to politicians. I’ll stop short of saying they’re all narcissistic self-servers — but I sure don’t believe that very many of them chose these fields because of a need to do public service.

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    About Me

    I graduated from Cornell with a degree in child psychology, enough years ago so that all you needed to break into journalism was willingness to starve. I went into business journalism because, in the 60s, the business press was the crusading press, the ones that wrote about environment, race relations, etc. Since then I have worked for Business Week, Chemical Week and, from 1984 through May 2008, BizDay at the New York Times. I remain bored by and ignorant of esoteric financial instruments; I remain fascinated and pretty knowledgeable about management, marketing, environment, all the non-financial aspects of business. But my true passions? Tennis, both playing and watching, and food, both cooking and eating.

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