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Harris Sherline: Putting ‘The Rich’ in Perspective

Obama needs to understand businesses and those who run them before deciding who won't receive tax cuts

We hear a lot about “the wealthy” or “the rich,” but rarely what these words actually mean. Of course, there’s the usual standard of income, which President Barack Obama has made the central theme of his policies by stipulating that the dividing line is $200,000 of annual income for a single person or $250,000 for a married couple. Apparently, those whose income exceeds those numbers are presumed to be “rich” or “wealthy.”

Harris Sherline
Harris Sherline

In his Sept. 10 news conference, Obama repeatedly stressed the point that the wealthy should not receive any tax cuts, saying that the Republicans “want to spend an additional $700 billion to give an average of $100,000 to millionaires,” and, “Why hold the middle class hostage in order to do something that most economists don’t think make sense?” He further stated that Republicans are too eager to give tax cuts to rich people.

OK, I get it. Obama doesn’t want the “rich” to benefit from any tax cuts that might be included in his effort to further “stimulate” the economy and encourage businesses to hire more workers. But that doesn’t really tell us much. For one thing, the meaning of “rich” or “wealthy” is in the eye of the beholder.

A little research goes a long way in attempting to cut through Obama’s usual smoke and mirrors. For example, a June 2009 Wall Street Journal article pointed out that the millionaire population in the United States declined about 16.67 percent, to 2.5 million in 2008 from 3 million in 2007.

That sounds like a lot of people, but viewed another way, it’s only a tiny fraction (0.008 percent) of the nation’s total population of 300 million, which is really not nearly as big a number as it may seem.

Just who are these 2.5 million millionaires who are so rich that they shouldn’t benefit from any of the tax cuts that Obama proposes? And how does he plan to accomplish his goal of getting small businesses to add more employees to their payrolls without allowing their owners to participate in tax cuts?

A 1997 Washington Post article by Thomas Stanley and William Danko, both Ph.D.s, offered a “Portrait of a Millionaire,” which provided some interesting information about the lifestyles of millionaires.

The characteristics that they generally have in common include (among others):

» On average, the total annual realized income of millionaires is less than 7 percent of their wealth — that is, they live on less than 7 percent of their wealth.

» Most — 97 percent — are homeowners, and about half have occupied the same home for more than 20 years.

» About 80 percent are first-generation affluent. In other words, they’ve earned it.

» In general, they live well below their means. They wear inexpensive suits and drive American-made cars. Only a small percentage drive the current-model-year automobile, and they almost never lease their cars.

» Overall, they save at least 15 percent of their earned income.

» As a group, they are fairly well-educated. Only about 20 percent are not college graduates, and many have earned advanced degrees.

» They are hard workers. About two-thirds work 45 to 55 hours per week.

» They are careful investors and generally invest nearly 20 percent of their annual household income.

So, if these are the “wealthy” who Obama says should not benefit from any tax cuts that may be forthcoming, who should? It certainly can’t be the nearly 50 percent of American workers who don’t pay any income tax at all.

Finally, it’s worth noting that Obama himself is a millionaire four or five times over. However, he didn’t make it by living the lifestyle described by Drs. Stanley and Danko; he made it the new way — by writing a couple of books about himself and knowing the right people.

So, who is Obama to talk about the “rich” not getting any benefit from tax cuts? Can we assume he won’t claim any of the tax cuts he himself might otherwise be entitled to receive?

In his generally lackluster news conference, Obama made the point a number of times that the “rich” wouldn’t benefit from any of the President George W. Bush tax cuts that may continue to be available, but he failed to demonstrate that he understands just what sort of policies would actually encourage the people who operate businesses to risk hiring more workers, which are inducements that are stable and can be relied upon over the long term.

Temporary tax cuts, such as accelerated depreciation, immediate one-year write-offs of research and development costs, and short-term reductions in capital gains taxes, will not provide an incentive to business owners and managers to absorb the long-term costs of hiring more people and keeping them on their payrolls.

If Obama persists in pursuing his economic policies without properly understanding how businesses and the people who run them actually function, he might just as well fuggedaboutit. They won’t work.

— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.

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