In What Crazy World Is $250,000 Not Enough But $50,000 Too Much?

There’s a concept that I’m having a bit of trouble wrapping my brain around. Maybe someone can help me understand.

Back in November and December when Congress was contemplating the expiration of the Bush tax cuts, the focus of attention was on the tax cuts for those making more than $250,000 per year. Some argued that the tax cut should expire; others suggested raising the cutoff to a higher income level; and still others held firm that the tax cuts should be extended for all Americans. If I recall, one argument in favor of extending the tax cut for the top earners was that without that tax cut (or, to be more accurate, continued tax reduction), small businesses wouldn’t be able to hire more workers. Without the jobs created by those high income people, the economy would continue to stagnate. In other words, the effect of the tax cut for the wealthiest Americans would trickle down to the wage earners who, in turn, would help propel economic growth by, for example, buying goods and services.

OK. I’m not sure that I agree with that basic concept; I think that trickle down economics has proven to be a failure, but maybe I’m wrong. But I do understand the theory.

However, here’s where I get confused. During that discussion on tax policy, we repeatedly heard that someone earning $250,000 wasn’t rich. I for one don’t disagree with that. I’ve seen rich and it isn’t $250,000. But if someone earning $250,000 needed to keep the level of reduced taxes because they weren’t rich and, instead, needed that money to help create jobs and grow the economy, why are we now viewing working Americans — and especially teachers — as if their salaries are excessive? How many teachers do you know who make more than $250,000? And yet in states all across the country, it is teachers, government workers, and others who earn far less than $250,000, who are being asked to take pay cuts (or simply told that their pay is being cut if not fired outright).

In Wisconsin, by way of example, the government passed tax cuts for businesses and to pay for those tax cuts Wisconsin is reducing the salaries paid to teachers and government workers (and note that teachers and government workers agreed to those pay cuts; it’s the elimination of collective bargaining to which they object). But I thought that part of the justification for tax cuts for the wealthiest was so that the “wealth” would trickle down to the workers. Apparently, so much of this wealth must be trickling down that our economy can handle a decrease in the wages paid to working families. Does that make any sense at all?

Use these examples to help you think about the issue. First, let’s consider a doctor earning $300,000 per year. If the tax rate for those earning more than $250,000 was raised by 5% (and remember, we’re talking about a graduated income tax, so the tax “increase” [actually, a termination of a temporary tax cut] would only apply to the portion of the income above $250,000), then that doctor would pay an additional $2,500 in taxes (5% of $300,000 - $250,000). Realistically speaking, how will the loss of that $2,500 impact the doctor’s family? Remember, the doctor made $300,000. I suspect that the doctor’s family will still be able to afford food and shelter, a nice car or two, and a family vacation. For purposes of comparison, let’s consider a teacher earning $50,000 (which seems high…) who is asked to take a 5% pay cut (which I believe I heard is the amount by which the salaries of teachers in Wisconsin and Nevada are being reduced). That teacher would see his or her salary cut by $2,500. Now, again being realistic, who do you think can better absorb the loss of $2,500, the teacher earning $50,000 or the doctor earning $300,000?

I understand that tax policies and public employee compensation are very, very complicated matters and that the example that I’ve provided may be overly simplistic.

But I also know that refusing to tax those earning more than $250,000 at the same time that we’re cutting the salaries of those making substantially less precisely because we don’t have enough tax revenue certainly seems to be a case of putting all of the burden onto the wrong set of shoulders. I’d love it if we didn’t need to raise taxes (trust me, I’m not real fond of paying taxes myself); but if we’re so desperately in need of cutting expenses that we have to target those least able to absorb such a cut, without even contemplating raising the taxes of those who can absorb an increase, then it seems to me that our priorities are at least a bit out of sync. And what will it cost us as a society when that teacher loses her house because she can no longer afford the mortgage, or can no longer pay her medical bills, or simply buys fewer consumer goods for her family, or decides to leave the teaching profession because it just doesn’t pay well enough?

There is also one other extremely important issue that I never heard discussed during the debates over extension of the tax cuts. Again, I understand the argument that small business owners need to be able to reinvest more money into their businesses to hire people. I get that. Of course, if the people who buy the goods and services produced by that small business have less spending money, then it would seem that there won’t be a reason for that small business to hire. But what I really want to know is this: For those earning $250,000 or more (or whatever higher income level you want to use; maybe even just raising taxes on those earning more than $1,000,000), what percentage of the money that is not paid in additional taxes is neither saved nor invested in the market? Said another way, of the money that high-income Americans don’t pay in taxes, what part of it is put back into the US economy and not put away for either a rainy day or the next generation? What part of that money is spent here in America and not overseas? What part of that money is actually boosting the American economy?

It seems to me that we, as a society and country, never really had a full discussion about the ramifications on tax policy decisions. And, as a result, it looks like the old story of the “rich getting richer; the poor getting poorer” may be precisely where we are.

Please don’t take this post as me simply advocating for new, higher taxes on the wealthy. Rather, think of this as my plea that we at least include discussion of tax increases, especially on those most able to absorb a tax increase, as a part of our larger budgetary and tax policy discussion. We simply can’t afford to ignore an entire category of ways to address our budgetary crisis simply because that category is unpopular (at least it’s unpopular with a segment of society). We need an honest debate and discussion in which all options are addressed and all ramifications are understood. And before you cry “socialism” and “wealth redistribution” let me just suggest that cutting a teacher’s salary in order to give tax breaks to businesses is also a form of wealth redistribution, only in that case it appears that the wealth is being redistributed upward (in the hopes that some of it will trickle back down).

But with that caveat out of the way, let me return to my earlier point: I still don’t understand why those making more than $250,000 weren’t wealthy enough to weather a tax increase but those making as little as $50,000 or less are expected to absorb salary reductions. In what kind of crazy world is $250,000 not enough, but $50,000 too much?