The on-going Congressional budget negotiations have highlighted a social class divide in the US that nobody likes to talk about. The President has repeatedly called for an end to the Bush era tax cuts, saying the rich need to contribute their fair share to cut the deficit. An article in last Wednesday’s Wall Street Journal highlighted the attitude of most Americans when it quoted a teacher saying, ‘There are so many wealthy at the top, if Washington needs more revenue, it shouldn’t come from people like me.’
But based on research by the Tax Policy Center, in order to reduce the deficit from its current level of 10% of the gross domestic product to 3% by 2015 using only taxes paid by the ‘rich’ (those with incomes over $250,000 a year) the top tax rate would have to be raised to 76.8%. The best way I know to discourage someone from working is to tell them they get to keep less than twenty four cents of every dollar they earn.
And who are these ‘rich people’ anyway? Everyone likes to talk about people who have offshore bank accounts and pay $30,000 for a shower curtain, but those are caricatures, and represent an extreme minority. At the risk of jumping into the political fray, I think my parents are closer to reality.
They were both born in West Virginia. My mother’s father worked as a coal miner and my paternal grandfather was a carpenter. My father almost died as a baby because his family could not afford the medical attention he needed. The youngest in his family, he was the only one to go to college. They both worked multiple jobs to pay for school.
After graduation, my parents worked as teachers, but they never stopped working. We lived on a farm and spent summers raising crops and selling them to groceries and people who stopped at our roadside stand. We used the money they made to buy a rundown house, fixed it up, rented it, and then used the income to buy more houses. When I was in junior high they bought a small monument company whose owners no longer wanted the hassle of running a business. When they retired from teaching they managed the business full-time. They maintained the rental properties, delivered monuments, and continued to run the farm.
While they worked, they never spent. My mom’s favorite stores are still TJ Maxx and the ALDI Grocery. Dad bought only used cars, and mom still saves the wax paper lining from cereal boxes to use to chop vegetables. So they managed to accumulate savings.
They are in their 70’s now, and they continue to manage a few rental properties. They volunteer for Meals-on-Wheels, their church pantry, the Rotary, and provide financial support for these and other not-for-profits. They set up a charitable trust that will benefit their church and two universities when they die. None of this would have happened if they hadn’t worked so hard all their lives and become ‘rich.’ But now my parents are embarrassed about what they accomplished and are afraid people will think they are those ‘bad, rich people’ they are always reading about in the paper.
America was built on a strong work ethic. It’s what has made us different from other countries all these years. I’ve met many people like my parents over my career as a financial advisor, and for every person like them there is someone else who worked long hours to reach the executive ranks, or started their own company; and many others who are employed by companies that someone else made sacrifices to create.
I understand it is an eternal human condition to be jealous of others who have more than we do. But America wouldn’t be the country the world turns to for help if it wasn’t for all the people who worked hard and became ‘rich.’ Before we demonize and demotivate them, we need to think about what it will mean for America’s future and our own.
Jeannette A. Jones, CPA, CFP®