Monday, April 20, 2009

The New Middle Class

It's basic human nature that, no matter how much money you make, it'll never seem like quite enough. You can always find something more to spend on. Even poor dirt farmers in Africa pine for that little bit of extra dirt needed to tide them over for the year. And it's the rare person who can easily set aside money for a rainy day, and we generally need to trick ourselves into saving, using 401k plans and automatic transfers to savings accounts.

And yet, just because you don't make enough money for the lifestyle you've become accustomed to, doesn't mean that you're just as bad-off financially as everyone else that doesn't make enough money. And so it really upsets me to read stories like this: Wealth-Less Effect: Earning Well, Feeling Otherwise

Ellen Parnell and her husband, Donald Parnell Jr., seem like the kind of well-off couple President Barack Obama has in mind when he suggests raising taxes on families earning more than $250,000 a year. A surgeon at Fort Sanders Sevier Medical Center in Sevierville, Tenn., he drives an Infiniti. They vacation at a beach resort every year.
"I'm not complaining, but the reality is Obama may call me wealthy, but I thought we were just good old middle class," says Ms. Parnell. "Our needs are being met, but we don't have a load of cash to cover wants."
Some of the expenses are self-inflicted -- like private-school costs and conspicuous consumption. Others, though, are unavoidable, like child-care costs, larger health-care deductibles and education expenses, especially college.

But of course, the problem isn't that they don't make enough money. The problem is that they spend it all. And the only reason they're "wealth-less" is because they choose to spend all their money. And sure, all of us share certain necessary expenses. But that's obviously not the problem for these people. A family making $40k is not running $220k in debt every year due to these expenses. The additional spending is all them.

Living Like Rock Stars

And what these "middle class" people don't seem to understand is that most other middle-class folks don't take real vacations, send their kids to private schools, drive Infinitis, or indulge in the vague "conspicuous consumption" that the Parnells do. And of course, many of them also don't have proper healthcare and when they send their kids to college, they have to get loans to pay for it. These are all lifestyle choices that can only be made by folks in the upper-class.

And that's the thing, there's "struggling" and then there's struggling. And while people like the Parnells are struggling to live a good lifestyle, other people are struggling to keep their homes and feed their families. And for as much as societal changes have made it more difficult for folks like the Parnells to retain wealth, those same changes have made things even more difficult for those less fortunate than them.

These people might have to pay a "moderate" weekly rate to relatives for their beach vacation home, but the real middle-class is having trouble with their primary home. Oh, and did I mention that they make payments on land they bought? Yeah, they own land, in addition to their house; and they classify the payments to this as non-discretionary. Forgive me for being less than sympathetic to these upper-class middle-classists.

Reality Check

And one thing this article left out: The couple says they make about $260,000 annually. And that means that their tax bill under Obama's plan will only go up about $400 or so.

Yeah, I'm sure that will just crush them; particularly seeing as how the article says that after paying their bills, charitable contributions, 401k contribution, college fund for their kids, and the loan for the land they bought, they only have $1200 left over each month; which is still more than someone working full-time at minimum wage earns. In fact, combining the $1300 they tithe to their church and their $1200 in extra income leaves them with an amount that is over 88% of the median after-tax income in Tennessee. Poor, poor Parnells. How will they ever survive?

And that's the thing: For as much as the article emphasized how Obama's policy wrongly puts these people in the category of the "wealthy," it never actually states what that policy is. And yet again, a journalist seems to not understand that the tax increase is only on the amount over $250k; not the full amount. And, in fact, the article wrongly suggests that the Parnells are "facing the same tax rates as those making millions." But they're not. Their income will hit the 36% rate, not the top 39% rate. And even then, their marginal rate will be far, far lower. This article is not only laughably out of touch, but it's factually wrong.

But again, we're only talking about them paying $400 or so more a year. And so now, thanks to that jerk Obama who thinks these people are wealthy, they'll only have $1167 left over each month. Ms. Parnell is quoted at the end saying "I'm not after sympathy. We are blessed. What I want is a reality check on what rich means." And I agree completely that a reality check is in order, but don't think we're the ones who need it.

Irony Alert: Only in an article like this would the Wall Street Journal suggest that health insurance and college education are necessities. But when it comes to liberals wanting to guarantee these sort of luxuries for everyone, they become anti-capitalist demands of socialist fools. It's as if only the rich are entitled to these extra perks, while the rest of us schlubs should be lucky to get anything. Some folks are simply more equal than others.


Anonymous said...

You're a hard and callous man, Biobrain. How could you be so insensitive to the plight of these hard-workin' folks scraping by on a mere $260,000?

Is there anyone taking up a collection? I mean, sure I made south of 40 grand last year, but their story touched my heart.

Armadillo Hussein Joe said...

I feel little sympathy for that family. Truly. You are correct that they are living well beyond their means.

As I see it, though, the real problem lies with regional differences in incomes that are not reflected in the federal tax code. My wife's and my combined incomes amount to about what that family makes -- we have no kids as of yet -- but we do live in Manhattan and as such are solidly middle-class in a city increasingly balkanized at the extreme ends of the income gap.

We are unionized, blue-collar entertainment professionals (actress and stagehand) and so we both enjoy health care through our unions, but we rent and, month to month, are able to save a few hundred toward eventually attaining the ultimate symbol of middle-class status: a home. Yet we have watched the housing market in the city, as well as the overall cost-of-living here, continually outpace our income and savings. Unlike many of our fellow theater folk, we are not moving to the far-flung suburbs and driving in, because we like to live where we work.

Thus, because we won't leave the city, some would argue that we are living beyond our means. The fact that we keep getting hit with the AMT puts us in the same tax classification as a successful day-trader in Indianapolis or an attorney in Phoenix -- who are wealthy by local standards, but also the "right kind of people." We don't consider ourselves wealthy and, as the union cards in our wallets attest, many of our neighbors consider us to be the wrong kind of people, to boot.

The tax code needs to address regional differences in income and cost-of-living.

Doctor Biobrain said...

Armadillo - While I see what you mean and definitely think that should be looked into, the argument for the other side is that you make so much because it costs so much to live there; and that includes the extra amount you pay in federal taxes from your extra income. Salaries are ultimately based upon what you've got left over, not gross pay; and even the extra amount you pay in federal taxes is built into your salaries. And so if your after-tax income went up due to such changes in the tax code, then your pre-tax income should go down. And in the end, you'd be in the same boat you started in. That's the nature of supply and demand. Salaries are ultimately based upon what you net; not on what you gross. Though that's certainly an imperfect system and perhaps something could be done about it.

One odd thing about that article is that I automatically assumed that the Parnells were in California, and that these regional differences were part of the problem. The article even mentioned such things and I even based one of my calculations on California median income, assuming that that's where they lived. And then I double-checked and saw that they're in a small town in Tennessee. So these people don't even have that sort of excuse. They just spend too much.

According to CNN's cost of living calculator, their $260k income is comparable to someone making over $600k in Manhattan (based upon numbers in Knoxville). And that makes it all the more pathetic. And the saddest part is how many journalists are quite happy to write these stories, probably because it reflects their own situations. Reporters used to be poorly paid scumbags. Nowadays, even the low level nobodies expect to be treated like minor celebrities, while the big guys ARE celebrities. Yet all the same, they consider themselves to be normal people with normal problems. Seriously out of touch.

You should move to Austin. I might even buy your first beer; thus saving you $2-$5, depending on your taste.

Armadillo Hussein Joe said...

I'm from Texas originally (Dallas, though) and actually used to live in Austin, on Lakeshore near the Jack-In-The-Box. I miss it terribly. If we could make a living there doing what we do here, I could easily talk my New Englander wife into re-locating to the heart of Texas. I love the lifestyle and the general vibe of the place. We both do. And my best friend still lives there. Next time I visit, I'd love to take you up on that beer.

Your point about tax code versus income is well-taken. Sadly, we're being hit with the AMT specifically, which this year took about a month of after-tax income to settle, despite the fact that we never claim any deductions and so are taxed at the highest possible rate. Somehow, even this is not enough money paid in. I understand the philosophical and practical reasons for the AMT, but we don't live extravagantly, we hardly ever take vacation, we don't own any property anywhere, we don't have any off-shore tax shelters, we don't use any tax loopholes. We don't feel rich, but the government treats us like we are.

We are normal, working-class people able to live a middle class lifestyle, to save a little and otherwise live somewhat comfortably, but we are financially lightyears away from being able to own a home where we live. I wrote that check to the IRS for thousands and thousands of dollars the same week the AIG bonus story broke and couldn't help but connect the dots to the 20-something twerps in suits and ties I have watched move into my neighborhood for the last several years, driving market prices for apartments into the stratosphere.

I just feel like I am financing the extravagant lifestyle of the very people who have kept home prices out of reach for me and people like me. The irrational exuberance that created the housing bubble elsewhere in the country made already-expensive Manhattan real estate simply unattainable to anyone but the wealthiest 1%. As I said, I would move to Austin (or somewhere with a lower cost of living) but my particular skills set isn't very useful outside of the NYC metro area, but I'm still making my peace with being somewhat trapped by my chosen profession.

As for the reporters, your take on them is correct. I know a few and they are largely pompous bozos with no self-awareness or any sense of proportion or scale.