On Economix at the NYT, Bruce Bartlett writes that it’s difficult to count who’s ‘rich’.
The first thing to know is that there is no formal definition of who is rich, middle class or poor. Of course, there is an official definition for the poverty rate, but that figure is just a back of the envelope calculation that has simply been increased by the inflation rate since the 1960s. There are many other ways of calculating the poverty rate that could either raise the poverty threshold or reduce it.
Another problem is that one’s social class is a function of both income and wealth. There are many among the elderly who have little income but may have fairly substantial wealth by, for example, owning a home free and clear. At the other end, there are those with high incomes who are, nevertheless, deeply in debt, perhaps even having a negative net worth.
It is certainly possible to calculate who is ‘rich’. The goal of every individual is to exit the market. Whether that individual studies hard to get a good (protected) job in big company, or works for the government which by definition is extra-market (and protected), or seeks a (protected) union job, or whether that person does none of that rent-seeking, and instead, exits the market through saving or investment.
“Rich” means ‘exiting the market’. To exit the market one needs roughly on hundred times the median income, or about 4.5-5M today. It used to be that a million dollars meant something meaningful, but it doesn’t. You can easily burn through it if you’re the kind of person that can make it in the first place.
Rich is a balance sheet calculation, not an income calculation. If a person’s balance sheet exceeds about one hundred times the median income (which is by definition, the 1%) then realistically, it doesn’t matter how much of their income you tax.
I suspect that the various means of calculating maximum utility taxation is closer to 60 or 65% based upon what I can find.
But if you tax the income of a small business person who is trying to exit the market, then we certainly have the right to wipe out social security, wipe out pension programs, fire federal workers and wipe out their savings. Because unless those assets are counted, the definition of ‘rich’ is asymmetrically used to punish people who participate in the market.