There are several problems with the focus on income. The first is that income is only one measure of wealth — assets are of at least equal importance. Contrast, for example, 1) an individual who earns $300,000 tax free from a $10 million portfolio of municipal bonds, with 2) a dual income family earning $300,000 in taxable income, the expenses associated with 2 commuters, child care required with both parents working out of the house, etc. Both households report the same level of pre-tax income, but are in decidedly different financial positions. Studies which adjust for taxes still fail to adjust for assets.
The other issue of importance is the recognition that costs of living vary widely in the United States. The Administration has picked the $250,000 household income level as defining wealth. Just what does that mean in terms of quality of life? I played around with the “salary wizard” feature of salary.com, which allows you to find typical salary levels for jobs in different parts of the country. I coupled that with some home searches on Realtor.com and some knowledge of New York City neighborhoods to produce a hypothetical household income/house scenario:
1) Consider a married couple, each employed as principals in the New York City school system. If one assumes that seniority, education and competence are above average, it is not hard to imagine them each making $125,000 — this would be slightly above the bottom of the 1st quartile pay ($121K) for these jobs.
2) I assumed our pair of principals wanted a decent neighborhood with good public schools within the city — I chose Bayside, a neighborhood in Queens. I would think of Bayside as a nice neighborhood, but middle class, not deluxe. It tends to be somewhat more expensive than comparable neighborhoods, largely becuase the public schools are among the City’s best, which I assumed would be of importance to our principals. Looking at their income, I looked at 4 bedroom, 2-bath homes in the $600-$650K range. Here’s what they could buy for $639,000: a 1925, 4-bedroom, 2-bath home with 1,536 square feet on 0.06 acres:
On top of the mortgage payment for this home (Realtor.com estimates the monthly payment at $3,344), our principals would be paying some of the highest local taxes in the country, high commuting costs, and generally high living expenses found in major metropolitan areas. People in positions that provide household earnings over $250,000 typically have advanced degrees which may have been financed through loans which need to be repaid.
Most people buy into the concept that, “everyone should pay their fair share.” Unfortunately, income alone is a poor measure for determining what’s fair, and in many, many cases, it’s a decidedly unfair way to approach this issue.