Five myths about millionaires
By John Steele Gordon, Published: September 23Washington Post EXCERPT:
This past week, President Obama tried to sell his new millionaires tax to the Rust Belt. Whats great about this country is our belief that anyone can make it, he said in Cincinnati on Thursday, praising the idea that any one of us can open a business or have an idea that could make us millionaires. But who are the millionaires Obama is talking about? And will a tax on them help the economy? Lets examine a few presumptions about the man with the monocle on the Monopoly board.
1. Millionaires are rich.
Being rich has gotten more expensive. A $1 million fortune was unusual in the early 19th century. The word millionaire wasnt even coined until 1827 by novelist (and future British prime minister) Benjamin Disraeli. In 1845, Moses Y. Beach, editor of the New York Sun, published a small pamphlet called Wealth and Biography of the Wealthy Citizens of New York City. The price of admission to Beachs list, which was wildly popular, was a mere $100,000.
By the time the first Forbes 400 list of the richest people in America was published in 1982, the smallest fortune featured was $75 million. There has been so much wealth creation in the past 30 years much of it thanks to the microprocessor behind modern-day fortunes such as Dell, Microsoft and Bloomberg that only billionaires are on the list. Today, $1 million in the bank generates only about $50,000 per year in interest. That isnt chump change, but its roughly equal to the 2010 median household income.
2. Millionaires think theyre rich.
Rich, like poor, is a relative term. A family living on the American median income of $50,000 a year might think that one living on $500,000 is rich. But that second family, which probably knows families far better off than they are, thinks that you need $5 million a year to be truly rich, and so on.
On Thursday, 44 percent of people voting in an online survey as part of the GOP debate coverage said that a $1 million annual income made a person rich. In a 2008 survey of affluent Chicago households, only 22 percent thought a nest egg of $1 million was rich. In March, four out of 10 millionaires surveyed by Fidelity Investments said they do not feel rich. That same month, a majority of investment advisers surveyed in a Scottrade poll said that $1 million isnt enough for retirement.
<<<SNIP>>>
5. Obamas millionaires tax wont seriously limit investment.
Thats the line of reasoning that the administration is using. On Monday, Treasury Secretary Timothy Geithner told reporters that the presidents plan wouldnt hurt growth. I am very confident that the modest changes were suggesting in terms of revenues . . . would make the economy stronger in the long term, not weaker in the long term, he said.
Geithners confidence is somewhat misplaced. According to a 2001 congressional study that confirmed a basic tenet of macroeconomics, each $1 of marginal tax rate cuts would save the private economy at least $1.25 as deadweight losses fall and economic efficiency increases. Taxes distort investment decisions. Why throw money into productive assets corporate securities, a rental property or new employees for a small business if the income they generate will be taxed away?
Taxes on the rich are taxes on people who create jobs. And jobs are an unalloyed good thing for an economy. Excessively taxing the capital that makes the economy go is poor public policy. And we have a recent example of how the opposite works well: Unemployment declined by a third in the four years after the Bush tax cuts were fully implemented in 2003, dropping to 4.2 percent from 6.2 percent. Meanwhile, federal revenue increased 44 percent in those years. If these tax cuts put people to work and generated money for the government, shouldnt Obama consider the possibility that tax increases should be avoided?
By John Steele Gordon, Published: September 23Washington Post EXCERPT:
This past week, President Obama tried to sell his new millionaires tax to the Rust Belt. Whats great about this country is our belief that anyone can make it, he said in Cincinnati on Thursday, praising the idea that any one of us can open a business or have an idea that could make us millionaires. But who are the millionaires Obama is talking about? And will a tax on them help the economy? Lets examine a few presumptions about the man with the monocle on the Monopoly board.
1. Millionaires are rich.
Being rich has gotten more expensive. A $1 million fortune was unusual in the early 19th century. The word millionaire wasnt even coined until 1827 by novelist (and future British prime minister) Benjamin Disraeli. In 1845, Moses Y. Beach, editor of the New York Sun, published a small pamphlet called Wealth and Biography of the Wealthy Citizens of New York City. The price of admission to Beachs list, which was wildly popular, was a mere $100,000.
By the time the first Forbes 400 list of the richest people in America was published in 1982, the smallest fortune featured was $75 million. There has been so much wealth creation in the past 30 years much of it thanks to the microprocessor behind modern-day fortunes such as Dell, Microsoft and Bloomberg that only billionaires are on the list. Today, $1 million in the bank generates only about $50,000 per year in interest. That isnt chump change, but its roughly equal to the 2010 median household income.
2. Millionaires think theyre rich.
Rich, like poor, is a relative term. A family living on the American median income of $50,000 a year might think that one living on $500,000 is rich. But that second family, which probably knows families far better off than they are, thinks that you need $5 million a year to be truly rich, and so on.
On Thursday, 44 percent of people voting in an online survey as part of the GOP debate coverage said that a $1 million annual income made a person rich. In a 2008 survey of affluent Chicago households, only 22 percent thought a nest egg of $1 million was rich. In March, four out of 10 millionaires surveyed by Fidelity Investments said they do not feel rich. That same month, a majority of investment advisers surveyed in a Scottrade poll said that $1 million isnt enough for retirement.
<<<SNIP>>>
5. Obamas millionaires tax wont seriously limit investment.
Thats the line of reasoning that the administration is using. On Monday, Treasury Secretary Timothy Geithner told reporters that the presidents plan wouldnt hurt growth. I am very confident that the modest changes were suggesting in terms of revenues . . . would make the economy stronger in the long term, not weaker in the long term, he said.
Geithners confidence is somewhat misplaced. According to a 2001 congressional study that confirmed a basic tenet of macroeconomics, each $1 of marginal tax rate cuts would save the private economy at least $1.25 as deadweight losses fall and economic efficiency increases. Taxes distort investment decisions. Why throw money into productive assets corporate securities, a rental property or new employees for a small business if the income they generate will be taxed away?
Taxes on the rich are taxes on people who create jobs. And jobs are an unalloyed good thing for an economy. Excessively taxing the capital that makes the economy go is poor public policy. And we have a recent example of how the opposite works well: Unemployment declined by a third in the four years after the Bush tax cuts were fully implemented in 2003, dropping to 4.2 percent from 6.2 percent. Meanwhile, federal revenue increased 44 percent in those years. If these tax cuts put people to work and generated money for the government, shouldnt Obama consider the possibility that tax increases should be avoided?
