By: Roshawn Watson
My wife and I make $400,000 annually and I'm "barely getting by" bemoans James Duran, an owner of a human resource company Silicon Valley.
In a recent WSJ article, high income earners suggest that they are not rich and should not be subject to a 3% tax rate increase proposed in the Obama budget. They argue that although they may be in the top 2% of Americans with respect to income, they are not rich. In fact, the wife of one surgeon, Mrs. Ellen Parnell claims their family is "good old middle class" despite their $260,000 annual income.
We're Just Middle-Class
Although few claimed that they were struggling, it was clear that these high income earners felt they were in the same financial boat as most Americans. For example, Mr. Parnell works 7 days a week and drives a 10 year old Infiniti. Although the family vacations at a beach resort every year, it is owned by Mrs. Parnell extended family. Her five member family would like more space than the 2500 square-foot home, but she is hesitant to do the renovations during an economic downturn. She laments
We're Just Middle-Class
Although few claimed that they were struggling, it was clear that these high income earners felt they were in the same financial boat as most Americans. For example, Mr. Parnell works 7 days a week and drives a 10 year old Infiniti. Although the family vacations at a beach resort every year, it is owned by Mrs. Parnell extended family. Her five member family would like more space than the 2500 square-foot home, but she is hesitant to do the renovations during an economic downturn. She laments
our needs are met, but we don't have a load of cash to cover wants... the reality is Obama may call me wealthy, but I thought we were just good old middle class
Under President Obama's budget proposal, two of the highest tax brackets would see rates rise from 33% to 36%, and deductions would be reduced for households earning more than $250,000 annually. Many members of Congress are seeking to scale back some of the proposed tax increases.
Threats to Cash Flow
Several factors can impact someone's location, his or her life choices, and some expenses are generally unavoidable. As mentioned in the article, location is important because changes to the tax code don't reflect the immense disparity between living in Gary, Indiana vs. Manhattan. Life choices such as sending kids to private school, having conspicuous consumption (including car payments and McMansions) can also tremendously dwindle down someone's cash flow. Additionally, there are expenses that are just unavoidable in most cases, including health-care costs and childcare.
We're Just Sloppy With Our Finances
Although the Parnells are doing well on the income side of the equation, they are pretty crappy at controlling their cash flow. In the article, the Parnells attempt to justify their position that they are just middle class; however, this only serves to weaken their claims.
The value of their house is down $60,000. Ms. Parnell says the couple's gross income last year was about $260,000. Taxes, premiums for medical care and deductions for Social Security and their 401(k) contributions cut the gross to about $12,000 per month. The family tithes $1,300 a month at their church. Their mortgage, second mortgage and payment on land they bought is nearly $4,000 a month. Other expenses, including their family car payment, insurance and college funds, as well as basics like food, utilities and donations to charities, leave them with about $1,200 left over each month.
First, with a $260,000 salary, there is really little excuse to have a family car payment or a second mortgage. Like others, they are living on more than they make and using debt to finance a lifestyle they feel entitled to. Second, donations to charities are great for the recipients and the givers and provide tax deductions; giving reasonable contributions to charities should not be a real stretch for a family earning $260,000 per year. However, due to sloppy financial management, they may not yet be in a position to do a high level of giving. The truth is whether you make $40,000 per year or $400,000, you can still be broke. If you make more and spend accordingly, you just end up with more toys but can suffer from the same financial insolvency experienced by low income earners.
Some people could take the Parnells income over time and create tens of millions of dollars. The Parnells chose differently, which is their right, but to argue that America needs a "reality check of what being rich really means" is them missing the point. Their income makes them the financially elite, and they have an opportunity to build wealth like very few can. Consider that they make more than 5 times the median American income. Indeed, you can make millions and not be rich. Pro athletes do it all the time. Similarly, it is their choice that with over a $21,000 monthly income they only retain $1200 (plus 401K contributions). It's their lack of personal responsibility with regards to their finances that I find particularly troublesome not their opposition to the tax hike.
Notably, the article doesn't state the couple's 401K contributions, investments, or net worth, so it is impossible to really get an accurate financial snapshot. That said, I do believe the Parnells when they say that they are not rich. It is very plausible that they are not, but in their case, it is not the taxman's fault.
What are your thoughts???
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Notably, the article doesn't state the couple's 401K contributions, investments, or net worth, so it is impossible to really get an accurate financial snapshot. That said, I do believe the Parnells when they say that they are not rich. It is very plausible that they are not, but in their case, it is not the taxman's fault.
What are your thoughts???
Lastly, if you like this post, please subscribe (upper left-hand corner), click here to get my eBook FREE, and Propel it, Stumble it, and tag it on Delicious.
Related Posts
Creating Phenomenal Wealth Over Time
Forget Looking Rich... Be Rich!
Budgeting: Your Foundation To Wealth
5 Ways of Protecting Your Cash Flow Like The Rich
