Say a family earns $300,000 a year, and pays $50,000 a year in mortgage interest; the family also contributes $5,000 to Boy Scouts, Red Cross and other charities. Under the AMT's top effective tax rate of 35%, they benefit from savings of $19,250 on those deductions. But under Obama's new plan, the share of that $55,000 that HENRYs can deduct is no longer 35%. It's capped at 28%. Hence, their tax bill rises by almost $4,000.Oh heavens! Where on earth will these people who make 1/3 of a million days per year and have a McMansion big enough that it's generating $50k a year in interest (and who donate a paltry 1.6% of income to charity) ever come up with an extra $4k to pay in taxes?
This article laments the plight of these poor individuals whose
chance of accumulating the couple of million dollars needed to qualify as rich were virtually nil even before Obama took the stage.Chance of accumulating a couple million dollars was virtually nil? Are you kidding me?
Let's see. According to one website, the average American's income is roughly $42,000. Assuming that is a family, they would be in the 15% tax bracket so in their after tax income is $36,500. Now, if Henry is making $300,000 per year he would be in the 33% marginal tax bracket and his after tax income would be about $222,300.
If Henry lives at the same standard of living as the average American (as a shortcut, I'll use $36,500 in annual expenses) he would be able to save $185,800 a year. Even if he just puts it into a CD earning 2.5% interest a year, at the end of 5 years he would have $998,675 and thus would basically be a millionaire. His chances of accumulating a couple million dollars are "virtually nil" only if he lives an extravagantly opulent lifestyle well above the average American, who is already grossly rich by most of the world's standard.
Tall about being out of touch with the worries and concerns of the average American.
2 comments:
First - read the initial Henry article.
On this one, I think you're missing a small detail - a cap on how much one can deduct from donations - I would posit that unless you're Joe Biden, your donations will far exceed 1.6%.
(Yes, $50k in mortgage interest is insane, but it depends on what city we're talking about- that could very well be a closet in NYC).
Granted, there are a number of people who would donate no matter what, and a number who would max out for tax reasons alone. Forget motivations for donating for a moment. Capping doesn't harm the HENRY, it harms the charity.
Charity is the means by which a society takes care of it's own without government intervention, and often charities are better stewards of what they have than the government. I've seen government grant recipients that squander all they have at the end of a year so they can re-apply for the same amount they didn't use next year, so their program doesn't get cut.
But, who is HENRY, really?
Is HENRY a small business owner? How many people does HENRY employ? Is HENRY still paying his student loans? Is HENRY paying for his car? Is HENRY paying or saving for a child's college tuition? Does HENRY care for his elderly parents, or in-laws? Is HENRY paying a 6-10% sales tax? Is HENRY's buying power tiny because they live in NYC or LA, or just killed by property taxes and state taxes that under AMT they can't deduct any more like normal people?
As whiny as the article makes HENRY out to be, my hope is that HENRY is you or me, just at a different point in our lives, on the apex of our earning years somewhere in middle age. Most of these guys put 10-20 extra hours in at their jobs - I know that sounds familiar to you.
The cute acronym without a face and only statistics makes it far easier to demonize, categorize, and de-humanize a group, but you shouldn't fall for it, and I know you don't when it comes to the other end of the spectrum.
Envy and the resentment that spring forth from it, are always poor drivers for sound decision making, but great generators of votes.
I would rather you and I, and everyone we know become HENRYs instead of making every HENRY like us because we feel nothing for them, or the sacrifices they made to get there.
It's interesting how the system is set up. The more money one makes, the more that person can deduct because one can give more away or secure more loans. The end result is that the more one makes, the more one can give without it impacting their standard of living. If you're really wealthy you can place your wealth in a LLC or corporation to reduce your taxable income. But I like thinking about the sub-Henry folks first...
For example, if a family is wealthy enough to afford a decent size house and they give 10% to charity, they can easily itemize more than the standard deduction. Which means that family can lower their mortgage by roughly a third because the other tax payers (govt) will pay for part of their interest. So that $2100 per month mortgage becomes roughly $1400 once they get their tax return.
Take a middle class family that has been struggling and sometimes misses their monthly rent and credit card payments because they live a thrifty life paycheck to paycheck. They can't secure a mortgage, so they rent. They give money to charity even though it hurts, but at the end of the day they don't give more than the standard deduction. They pay their taxes and their taxes pay for the wealthier family's deduction. Including the Henry's.
So in the end the system ends up offering many ways for the wealthy to save and deduct, while those struggling have an uphill battle. I really admire those who give to charity even though they'll never make enough to itemize.
It's interesting that people say that Obama is a socialist for reducing the Henry's deduction. Has he really gone that far into "red communism?" Or is forcing the middle & lower class to pay for wealthy tax home interest deductions truly the socialism everyone fears, but don't see.
Please excuse any grammar mistakes, but I have to run!
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