A couple of items that remind me of the discussions last year about tax cuts.  The major bone of contention in last December’s tax cut deal was over whether the Bush era tax rate cut for the top income bracket should be extended. You may remember that it the Bush tax cuts were originally scheduled to expire January 1, 2011. But Republicans in Congress refused to renew extended unemployment benefits for the unemployed unless the tax cuts for the upper income bracket was extended.  The top bracket starts taxing income above $209,000 (married, file jointly) at 33% and 35% for income above $373,000. ( source). Note only income above these limits gets taxed at these rates.  Income up to this limit pays lower rates like everybody else.  The debate was partly framed as a question about whether “the rich” should pay higher taxes.

At the time there was a lot of complaints from people who were in these brackets, making this kind of money. They complained that they were “not rich”, they certainly didn’t “feel rich”, and that they too had a “hard time making ends meet.”  What they didn’t understand is that “rich” is a relative term. It’s how much money you make (or wealth you possess) relative to everybody else.  It is not a question of whether you “have everything you want” or whether you can manage your budget to make sure expenses are less than your income.  Everybody has that problem with the possible exception of those religious types that have managed to totally transcend their human material wants.  Others claimed that somehow “living in New York/Beverly Hills/Washington means that a high income isn’t rich.  I even had a lobbyist for the insurance industry try to tell me in a televised debate that people making $250,000 in Beverly Hills were not rich.  But it is.

The plain truth is that very few people make that kind of money.   Yes, $250,000 isn’t much if you compare yourself to Wall St. execs that pay themselves more than $20 million per year. But you’re still rich compared to the entire population.

The confusion still exists. Ezra Klein of the Washington Post points out:

Even in New York City, $250,000 is rich

Arguments over income taxes tend to get bogged down in arguments about who is really “rich.” And what you hear then is that rich in Ohio and rich in New York City are different. But how different?

According to the Census Bureau, only 6.3 percent of New York City’s households pulled in more than $200,000. So if you’re a household making $250,000 or more, you’re easily in the top 5 percent — even in New York City.

Now, it’s true that those people might not “feel” rich. There’s lots of stuff to buy in New York City. It’s pretty easy to construct a lifestyle where you spend $250,000 a year. In Columbus, Ohio, only 1.3 percent of households make more than $200,000, so there’s less stuff for them to buy and fewer rich people for them to try to keep up with. But what you buy and whether you try to keep up with the people in the penthouse is a personal decision, not an objective economic necessity. The fact of the matter is that a household making $250,000 in New York City is making more than pretty much anyone else in the city. Being rich is more than just a feeling.