This is a collection of responses / comments on a portion of a note posted by of one of my friends. His note states:
``I asked a friend today, I said hey, if I have a family member who makes 50 something thousand a year, and his household lives comfortably, although with not too much room to just spend, then why is somebody with $250,000 not able to give up an extra thousand or so, so that somebody who works just as hard, if not harder, but was not given as great of an opportunity, able to live more comfortably?
The response: Well his family has an income, and after what they pay, barely have any money left over to spend on what they want. Apparently they pay 10,000 dollars a month in bills. $10,000. On what, I ask? Well, they own 3 houses.''
This struck me, and I decided that I would try to figure out why a family earning $250,000 per year would be more apt to vote for a McCain plan than an Obama plan that would barely affect them (increasing their tax by an average of $12 per year). It turns out that American fiscal responsibility is complete shit. This family cannot possibly afford 3 houses on that income. Perhaps if they lived in Kansas -- but this seems to be in the Newport News, VA area.
The crux is, our socioeconomic model of the past 20 years has been one pushing towards lending and spending. So it appears this family can afford the houses and their lifestyle... but they really can't. Let me break this down for you; here is my spliced together series of comments on Shane's note (edited to fix a couple of consistency errors I amended and noted in later notes -- those amendment notices are also removed):
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Hey, Shane. I decided to look up some of this stuff on income tax levels. Your friend whose family has a $250,000 income -- assuming they filed a married joint income tax return, their monthly income would be $15,691.66.
That isn't quite right, because we don't figure in state taxes. For Virginia, it seems that number is $15,095/year. This brings monthly income down to $14433.75. I'm assuming they also have a family insurance policy. The monthly rate for a family insurance policy from my provider is $949. That takes the monthly income to $13,484.75. Factor in Social Security and Medicare taxes, which end up being $1,593.75 a month, and this number is down to $11,891. Now we're not factoring in ANY savings yet, so say we want to put away $500/mo into a company matched 401(k) for retirement (this is a ridiculously small number for someone with that income and is less than the amount I will be contributing monthly on $80,000.) Down to $11,391. There's not enough to contribute 10% monthly income to any other form of savings, but I think a family with 3 houses would know that savings other than a 401(k) are vital (the current economic situation proves that). Say we put away $300/mo into a high yield savings account. We're at $11,091. This number is probably about accurate because, while they may have more deductions, they also likely have more taxable assets. We'll assume for their sake that the number is low, and give them $11,591 a month, for $500 in credits -- that's $6,000/yr in tax credit.
Well, now we know they have $10,000 in bills on the three houses they own (for fairness' sake, I'm going to assume this includes gas / electric / water / garbage / other household-related bills). This brings their family monthly income down to $1,591. Assuming a 3-person family, that apportions $530/mo per individual for everything else. This includes food, transportation, and fun.
Assuming they own their cars and have no other payments, and assuming they have reasonably fuel-efficient vehicles, and assuming they have an average commute to work each day -- average commute is about 25 minutes. We'll equate that to 25 miles, since it's about the same given standard gas mileages for city/highway use. That's 50 miles a day -- we'll assume a tank a week with additional driving adding an additional 100 miles or so. Say they can do that on a 10 gallon tank. Currently, that's costing about $26/week, for about $104/mo per vehicle. Down to $1,383/mo.
Food is expensive. For myself, I can go through about $100 in food a week. A family of three gets to consolidate a bit better because they're going to be planning their meals, so say they spend 3/4 as much as I do on food -- that's going to be about $300 a month. Down to $1,083/mo.
Leisure costs add up. You don't realize it, but impulse buys really, really add up. Spending $1.50 on the candy bar, going out to the movies a couple times a month, going out to eat every 2 weeks, buying the new bestseller... these costs add up. I give myself about $400/mo for this; let's be conservative and say they spend $200/mo per person on leisure costs. Down to $483/mo.
I'll be nice and say their credit cards are only costing them about $200/mo. $283 left over.
Stuff comes up. School field trip for the kid (or books or mom send money if the kid's in college), you end up with a little money for last minute stuff that comes up here and there. Honestly, for me, that can end up being anywhere from $100 to $600 in a given month (car needs fixing, oil changes, that kind of stuff). We'll hope theirs averages $100/mo, and they put the rest in an accessible savings fund for the months that this last minute expense adds up to more.
And that, my friend, is how a family living on $250,000 per year can live paycheck to paycheck. They can't really afford what they have (I realized before I even finished the costs that I had to give them a $6,000 tax credit for them to afford it). We yell at these people (or their lenders) who got loans on $300,000 homes that they couldn't afford.
This is the same principle. This family has loans they're paying off on these houses, and if the shit hits the fan for 6 months in a row in those last-minute expenses that you need to take care of so you can continue to get to work and continue to earn money and live healthily (hell, I forgot insurance copays on any medications, while we're on that note), you can be pretty easily (to put it bluntly) fucked.
So it's not just these lower income people with houses they can't afford who are foreclosing. It's people, across the board, who are living beyond their means. This $250,000 family would be able to decrease their monthly expenditure and live MUCH more healthily getting rid of just one house costing them $3,000/mo in bills and taxes. I can see them owning two houses and living comfortably.
To put things in perspective: I have an $80,000/year salary. Because I don't want to calculate everything a second time, let's just say that after insurance, 401(k), taxes, and whatnot, I bring in $48,000 a year. That's $4,000 per month that I have for rent, bills, transportation, and the like. After all that is done, I can easily have significantly more than $1,591 left over.
I haven't clearly illustrated the political point, yet. From the tax code changes proposed by both candidates that I posted yesterday:
If you make 227-603K a year:
Obama: +12.00
McCain: -$7,871
Well, if you look at the numbers as an outsider, you might think, ``Shmeh, $12.00, that's not much of an increase. Go Obama!'' But as a person (or family) who is unable to afford your lifestyle and falling into this income tax bracket, you already can't afford the tax you're already paying to maintain the lifestyle you're living. A McCain administration promises you about $656/mo more available income per month, while Obama is costing you $1/mo.
This is a very scary thing, conceptually, because it means that people voting selfishly (for a candidate who fixes the problems THEY are facing -- in this case due to their own irresponsibility) are more likely to vote McCain than Obama. Not because Obama's plan is bad -- Obama's plan isn't bad, and responsible families in this bracket will easily afford $12/year in tax increases. They're more likely to vote because McCain's plan will help them maintain their lifestyle of living beyond their means.
Unfortunately, from a sociological standpoint, we are living in a society that encourages spending, so I find it highly unlikely that this extra $656 per month will actually become helpful to such an irresponsible household.
This socioeconomic point has the side-effect of causing them to continue borrowing, which will end up screwing our economy more, since our lenders are already broke. Thus, looked at in a macro scale, McCain's plan will end up keeping us in a rut as a country economically, while Obama's plan forces those with more money to become more responsible with that money: they have to give some of it to the government. That's not a bill that one can easily avoid.
While both tax plans alleviate stress for the lower incomes, Obama's does more help. McCain's alleviates stress across the board, but can't cope with the socioeconomic desire of the country to spend more and more. Obama's plan encourages increased fiscal responsibility amongst the people paying most of our country's taxes -- that's why you levy the tax against them, it has a higher yield and lower overall socioeconomic impact as far as their economic class and lifestyle -- and because it actually brings in more money, it provides a means out of this economic crisis we find ourselves in where our lenders are broke and so are we.
