WASHINGTON, DC, November 28, 2012 - On Monday, billionaire businessman Warren Buffett chimed in on the looming fiscal cliff crisis, where the United States will face steep domestic and military spending cuts to lessen the nation’s deficit unless Congress steps in with a plan. In a New York Times piece, Buffett tackles the suggestion that increasing tax rates among the wealthiest Americans would defer investment by stating categorically that it does not. In a departure from the policy of his good friend and ally President Barack Obama, Buffett also suggested the President and Congress raise the threshold on household income that will be exempt from tax increases.
If Congress fails to come to a budget compromise, in addition to automatic domestic and military spending cuts, the so-called “Bush era tax cuts” will also expire for all Americans. Obama wants to continue the Bush cuts for all except those earning $250, 00 or higher.
“I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers,” Buffett wrote.“ However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.”
Buffett may be on to something. Given that the national median household income is $50,054, many find it hard to empathize with those households earning $250,000. However, in certain parts of the country, a family of four in that bracket is not necessarily wealthy.
The after tax take-home pay for a family of four with two children earning $250,000 would be approximately 5800.00 net monthly before deductions. A family living in an area with high real estate prices such as
More than likely, high earners have graduate and post graduate degrees and may be saddled with student loan payments. If both parents in the household are managing a college or grad school student loan balance of $400 a month each, that equals about $800 monthly. In many households with two working adults, it is not uncommon for there to be two automobiles, possibly leased for a total of about $800 per month. These may not be high end luxury vehicles but perhaps a reasonable mid-level sedan and a family minivan. Depending on the level of schooling or if the children are in private schools, they may have childcare or school expenses of approximately, $800. That would leave $400 to go towards health and life insurance, credit cards bills, monthly utilities, phone and other monthly expenses, and that is hardly enough to cover those costs. Certainly, that is not enough and which means any income above the $250,000 to meet these other expenses will be subject to additional taxation come January 1, 2013.
Based on such a hypothetical scenario, slightly over $250,000 earners should not be categorized as “wealthy” as they too could be detrimentally harmed by having their tax rates go up. It would have nothing to do with less investment or job creation, but basic human living standards and expenses.
While there are some who will believe that Americans earning in the range slightly above $250,000 are living above their means and not deserving of continuing tax relief, they too could face challenges if their tax rates go up in January 2013. They may be homeowners, with the privilege of having health insurance benefits, but their standard of living may not be ostentatious as compared to other lower income families. Yet because of some arbitrary figure, they could be subject to higher rates.
They will be punished for choosing to invest in education and homeownership.
Buffett is on to something. Raising the income level tax relief would spare the millions of middle income Americans that have household income between $250,000 and $500,000.
That is the least that can be done considering that these households contribute between $75,000 to $100,000 in taxes to the government which then uses some of that money to subsidize living standards for others earning substantially less.