I feel like I can't avoid the elephant in the blogosphere, which is Todd Henderson's writeup about how he's "super rich" yet really doesn't feel that way.
"We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.
Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.
If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout."
Now, there are a few very important things to note here. First of all, Henderson isn't "whining," as some commentators have described him. He's not claiming that he has some entitlement to his big fat house, his two cars, his dining out, his housekeeper, or his landscaper. He's not asking anyone to feel sorry for him, or saying that he "deserves" these things. What he's saying is simply that he spends most of the money he makes, and thus, if he has to pay more in taxes, he'll have to cut expenses, which will make every merchant who currently receives a share of his spending worse off.
Basically, I take him to be saying that trickle down economics is very real for him, even though he's considered "rich." For me, the point isn't about how "rich" someone is, it's about how much money that person spends relative to what they make. Trickle down economics works only if the people with the money SPEND the money, thus allowing it to trickle down. (And I think lots of people would say that trickle down economics in general doesn't work well at all - that's not really an argument I'm interested in having)
In other words, if someone makes $10mm a year and spends $1mm, then the claim "If you raise my taxes, I'll spend less, and everyone will be worse off," isn't nearly as credible as if Todd Henderson, making somewhere in the neighborhood of, let's say $350k, and spending most of his post-tax dollars makes the same claim. That's what I took Henderson's point to be - that even though he's considered "rich," he doesn't have surplus funds to pay higher taxes with - and that higher taxes will impair his spending.
It should also be noted that this same argument can translate to someone who makes much more than Henderson. Richie Rich could earn $10mm a year, and spend all that money, and still have to cut back if his taxes are raised. I think my readers are smart enough to understand that my argument is not that Richie Rich needs to build his $10mm house, or drive a $100k car - my point is merely that if you take more of Richie Rich's money (which he's spending almost all of) via taxes, then he will have to change his spending patterns, and the guy who sells him the $100k car will suffer, as will the guys that are building his $10mm house, and the companies that make the fixtures in his $10mm house, and the restaurants where he no longer spends so much money every week, etc etc etc.
-KD
24 comments:
How much of his income does he spend, and how much does he save, do you think?
I have to say I think the likes of Brad DeLong are winning this argument by a mile. (And I generally consider DeLong to be an idiot.)
I predict that following the tax increases, Todd Henderson will still not mow his own lawn, that he will still live in his million-dollar home
, and that his kids will still never need interact with the great unwashed masses in the public school system.
The point is, except for probably a relatively small % of the "Rich" and up that save a significant portion of their income, trickle-down economics is very real. Even for those who DO save a significant chunk, for them to maintain their current level of savings under higher taxes, they'll have to reduce spending, and the effect is the same.
I strongly recommend watching the best explanation of all this I've ever seen, from perhaps an unlikely source: Southpark. Namely, Season 13, episode 3: Margaritaville. You can watch the full episode here http://www.southparkstudios.com/episodes/220760/, or read the script (not quite the same) here: http://www.southparkstuff.com/season_13/episode_1303/epi1303script/
The point is that The Economy exists purely because we spend and save, and without people spending, other people won't be able to spend or save, etc, etc ad nauseum. This is not rocket science...
Nemo, I actually was surprised that DeLong seemed to totally miss the point.
he wrote "Professor Henderson's problem is that he thinks that he ought to be able to pay off student loans, contribute to retirement savings vehicles, build equity, drive new cars, live in a big expensive house, send his children to private school, and still have plenty of cash at the end of the month for the $200 restaurant meals, the $1000 a night resort hotel rooms, and the $75,000 automobiles."
which is exactly NOT Henderson's beef at all. As i tried to explain Henderson's point was merely that if he has less money, he won't be able to buy $200 meals, and thus the restaurant won't make the sales. He wont' buy the $75k car, and thus the dealer won't make the sale. He won't hire the landscaper, and thus the landscaper won't get the revenue. etc.
Now, you can argue that Henderson is lying - that he will still have plenty of money to pay his gardener - I have no idea - but my point is that there's CERTAINLY a point where even "rich" people can be spending the majority of their disposable income and will have to cut expenses when taxed more
Right. Deling/Delong is couching this in terms of "being better off than x% of people" which is completely off the mark.
In fact, he himself says that there is no point to argue about the redistributive issue. That argument cuts both ways.
So really the point is: will it help or harm the economy to extend the existing tax rate for "rich" families. Obviously if redistribution is meaningless (I certainly agree it is absurdly inefficient) then the answer is obviously harm in the Hendersen case. He isn't saving enough so it will come out of spending.
Kid:
He may not be whining, but it sure sounds like it. The problem is when he says things like:
"...we are just getting by," and
"despite seeming to be rich. We aren’t..." and,
"The problem is, we can’t afford it."
And then proceeds to break down his budget which includes tens of thousands of dollars private ed, entertainment, outsourced household chores, retirement investing, and the like. He makes it real easy for people to say "So, it is more important for Suzy to learn french at her private elementary than it is for poor kids/ seniors / vets to have Head Start / Medicare / VA Hospitals."
My wife and I make wayyyy less than he does, but still are comfortably double the median hh income. Feelings and sensitivites aside, to say "Don't tax me more or Juan the mower loses his job" is a pretty jackassy thing to say, and really just serves to show how ridiculous our economy and society is. That our economy depends on Brazilian steakhouse meals, Iphones, and luxury car sales is a pretty damning indictment on 21st century living in the developed world.
And he really could have done without the Marie Antoinette "And because we care about our children's education" garbage. Yes, because poor people in Chicago don't care about their kids. Nope, not at all -- because if they did, they would just send their kids to a $12,000 per year private school.
well said, Blue Moon
Wait, so if I have an income well in excess of the national average and I don't spend it all, I'm the asshole who deserves to get his taxes raised? Just because I prefer to save or invest my money vs. spending it on a fancy house/cars/vacation? You know, whatever I don't spend still goes into the economy - if I buy stock, that enriches the seller, who can go out and spend the money, and if I keep it in the bank, the bank can lend it out. Why should being a spendthrift morally shield my tax rate?
yes Anon - if you're rich, you have to foot the bill. Welcome to the new world order. NO SAVING FOR YOU! (shouted like Seinfeld's Soup Nazi)
To me this all just skirts the *real* issue with the tax increases on the "rich" -- the Obama plan uses 250k per year as the median family income where someone is considered "really rich" and thus must have taxes raised to help pay for all the redistribution going on. I am in favor of the truly rich taking on a greater obligation through tax increases / evaporation of tax cuts / etc., but any standard that attempts to pick one number (250k in this case) and then apply that all across the country in one fell swoop just totally shows how clueless people in the government are about how our country works.
My cousin makes 250k a year as a high-up lawyer for a company you've never heard of in Omaha, Nebraska. He is pretty much rich, although he would I am sure argue much like this guy that he still spends all his money. Frankly I don't mind telling him he will need to take more of a hit than others to help pay for all the pay-it-forward spending being done in this country today. But to compare my cousin and his 250k annual compensation to my friends living in NYC and making that same 250k is a total joke that as I said only someone with a complete and total lack of understanding of the country would ever support.
In Omaha my cousin's house (a mansion, by pretty much anyone's standards) costs a total of just over 300k, the public schools are great and everyone goes there, and groceries for a family of four are like $75 per week. In NYC metro, meanwhile, the average house / apartment in a community with decent public schools (forget even thinking about affording private schools for multiple children on 250k a year) is probably around 550-600k, the public school system in the city is not an option for most parents who care about their kids' education (and Manhattan private schools all cost in the neighborhood of $30,000 per year -- after-tax money of course), and those same groceries for a family of four probably cost closer to $125 a week than $75.
All this is to say that I believe it is more this amount of 250k -- applied uniformly everywhere, all around the country -- that is the problem with Obama's scheme rather than the idea of redistributing wealth from the very rich in the first place.
My sense is that if Obama's plan were to only remove the Bush tax cuts for households making at least $5 million a year or more, there would be very little resistance to this outside of the group of people lucky enough to be included in this new category of "rich".
Raising taxes on people making 250k in NYC metro is just about the most senseless, stupid thing I could conceive of on short notice. These same people are eligible for financial aid in Manhattan private schools, and continue to be eligible up to at least 375k per year -- because the simple fact is, at that level of income in this city, many people still need it.
Is there any research anywhere out there about wealth inflows/outflows of Americans earning +$200k? For instance, what is the distribution of net savers versus net debtors? Obviously, with a growing wealth inequality, the net position of the top income tier is increasing, but I wonder if that is because of that whole tier saving large portions of their income or because there is a wide distribution with the outliers concentrated towards saving? Under the former scenario, increasing taxes will be appropriating savings, rather than consumption. Under the latter, it is more likely to be appropriating consumption, which as much as it irks my left-wing ideology to say, is the last thing we need right now.
DeLong does address the argument about government vs private spending, but he simply argues that the time to make that argument was in 2000 when we had a fiscal surplus and before Medicare Part D, 2 new wars, and a financial crisis dumped us into the red. We'd still need to increase taxes even without any of Obama's spending increases. Who else should pay for it?
Also, Todd posted some more detailed numbers and he's saving about 90k a year. He isn't maxed out on spending by any means.
Link is now dead. Prof. Henderson has deleted the post.
I noticed then when I tried to go back and see if I could figure out his "point". I am still not convinced he had one other than whining.
KD, you seem to think his point was: "If you take my money away from me, I won't be able to spend it." But that is (a) trivial; (b) irrelevant to questions of tax policy; and (c) could have been stated in 10-20 words rather than hundreds.
There have been 'Manhattan and Marin on $250k don't feel rich' articles, but they were evenhanded and reasonable and accompanied by the requisite handwringing, and they sank without a ripple. This guy may be just another Rand cultist, but his whining skills leave even me breathless.
A whine connoisseur, I see the whine as unique among art forms: the artist is also the audience. A truly great whine can transcend that structure. This.. this was more than merely great. It was sublime. Complete strangers are posting their household incomes. University professors are breaching copyright laws. Dogs and cats are laying together in the streets. It is madness.
I am in awe.
Full disclosure: wcw stands for 'west-coast whiner'
The final word on wealth in North America was delivered by Ogden Mills. When someone suggested you could live comfortably on $50,000 a year – a huge sum back [in the 1930s] – he replied:
'On $50,000 a year you can't even keep clean.'
(ht Andrew Tobias)
It seems to me that Henderson, if cutting such a fine edge on incomings/outgoings each month is simply living beyond his means. America has been doing this for years thus the subprime blow up but now that the ramifications are trickling up the income ladder he's unhappy.
Nemo - yes, that's exactly what I thought his point was - "if you take my money away from me I won't be able to spend it." I disagree that this is irrelevant to tax policy, but anyway...
did you notice in his "removal" post that he coined the terrific term "blogocane"? love it.
Nemo: good to have a Whine Expert in the midst. The good Prof clearly wasn't prepared for the backlash, and had to get out of the virtual kitchen by removing his post.
I certainly don't think he was trying to make any sort of Randian arguments though. he wasn't saying that he worked harder and deserved to keep that money and the looters didn't deserve it - only, as nemo said, "if you take it, i can't spend it."
I read a few comments on his original post, where he responded, and he is also clearly in the "i can spend my money better than the government can" camp. That's a debate I didn't want to get into.
Well, leaving the morality of the complaint aside, I think this is a good explanation of the budget conundrum. There has to be more money created every year for the system to work, and right now the big money creator is the government. If the federal government (or its lackey the FRB) stops creating a trillion and a half dollars per year there won't be enough to go around. If you tax people more, there simply will be less money in the real economy--absent any increase in private lending.
Extending the tax cuts seems like the obvious thing to do, but if we have a hung election it might not happen.
I'm with Nemo here, KD: the trickle-down economics is your point not Henderson's. His spin was that he's living hand to mouth, like any poor person, and deserves the same sympathy. He just happens to have full hands and a big mouth.
And if his point had been about economic multipliers, he would be wrong. We cannot devise tax policy for 300mm Americans based on the personal spending habits of professor Henderson. Sure, there exist high-income people who spend everything they make, just like there exist low-income immigrants who send home remittances instead of spending. And there are women who become CEOs of large companies, black guys who become president, and probably the Bills will win a game at some point this year. But if you consistently put even money on long odds, you'll be a consistent loser.
Late to the party. I've been saying for a number of years now that middle class is now $150k + h/h income. Too bad he removed his post.
Maintaining a two-professional h/h incurs the costs of what stay-at-home moms used to do "back in the day" and probably what a handy dad used to do, as well, since lawyers work weekends. So there's your nanny, gardener, maid, etc. I hope this guy's life isn't conjuring up images of a chauffeur in a black suit and cap polishing the Bentley with a white handkerchief while waiting for Himself and Her Ladyship to descend to the carport.
This is what used to pass for "upper middle class" in this country! I can't comment on the whining part because he pulled his original post. I didn't much appreciate the kinda-smug bit about caring about his kids' education either.
TZ - fyi, i'm sure you can still find the post somewhere. I was told that Delong pulled it from Google Cache
Thanks. Heh heh, just read it and DeLong's posts. Henderson sounds like a total tool. How to teach Randian values to kids before they're old enough to read her. Wow. Maybe he should shift his reading focus to how not to piss off your wife.
He's quit blogging now: http://truthonthemarket.com/2010/09/21/time-to-go/
In a non-partisan way, If I were the democrats I would run with this ball, they can bury the GOP on tax policy now. Right or wrong KD, public opinion seems to be very against this guy at the moment.
right - i have no doubt that public opinion is against this guy...
The last comment is priceless:
http://www.theonion.com/articles/poverty-rate-jumps,18121/?utm_source=morenews
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