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‘Rich’ Is a Difficult Definition to Pin Down

Why the American Jobs Act is at a standstill


We all knew that President Barack Obama would have trouble passing the American Jobs Act. But the political drama has taken an interesting turn. Apparently some Senate Democrats have balked at Obama’s strategy to pay for the legislation by raising taxes on households making more than $250,000 per year.

Senate Majority Leader Harry Reid, D-Nev., apparently is drumming up a plan to pay for the jobs bill with a 5% surtax on incomes of more than $1 million per year. Democratic senators from high-income states (i.e. New York, New Jersey and California) have privately objected that the $250,000 income threshold is much too low and would affect too many households in their states. While Reid’s plan has no chance of being written into law, it does underscore the increased salience of class politics. (“Class warfare” just seems a little to extreme to me.)

Do these senators have a point? Yes and no. Of course, the cost of living varies widely among different regions and cities. For example, a $250,000-per-year salary in Birmingham, Ala., translates to $595,814 per year in Manhattan.

If you move from Birmingham, Ala., to Manhattan …

  • Transportation will cost 29% more.
  • Health care will cost 48% more.
  • Utilities will cost 61% more.
  • Groceries will cost 65% more.
  • Housing will cost 428% more.

However, 250,000 per year still is a lot of money, even in these high-income areas. It is five times the median income for New Yorkers ($63,957) and three times the median income of those in the affluent Washington, D.C., metro area ($85,236).

Determining who is rich, though, involves much more than numbers about median income. Whether you “feel” rich also depends on what type of household is making the $250,000 and whether you live in a high-tax state. (Note that there is no state income tax in Texas, while California’s is close to 10% for high earners.) A single person without kids at the $250,000 level is probably flush anywhere he or she lives, while a couple with two kids and a mortgage in Westchester County, N.Y., probably are feeling strapped.

In the end, these stubborn senators might be doing Obama a favor. He has to win back the wealthy suburbs in 2012, whose voters chose Republicans by a small margin in 2010. It is in exactly those areas where $250,000 does not feel like a lot of money.

What is clear is that the drama over this jobs bill has assured all of us that nothing — and I mean nothing — is going to be accomplished in an election year.

Article printed from InvestorPlace Media,

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