Oct 3, 2011
azillionaire Warren Buffett is in the news again, this time for declining to endorse the rule bearing his name — a rule central to Obama’s taxation / job creation plan. Backing up a bit: Buffett is on the record saying that he (and others like him, who earn tens of millions of dollars each year simply by manipulating vast sums of money) pay a far smaller effective tax rate than people in the middle or even lowest income brackets. In fact, Buffett claims he pays less on his millions in income than his secretary does on her salary. Nobody (well, almost nobody) thinks this is fair.
Obama’s controversial plan is to raise taxes on households earning in the 99th percentile, calling this the Buffett Rule in honour of Buffett’s candor, I guess. As a result of this plan (and not to mention Occupy Wall Street) the “1 Percenters” are also in the news — these being the people in the top 1%, or 99th percentile, of household incomes. The question is, if Buffett knows that the rich pay less taxes than their poor secretaries, why doesn’t he support this eponymous plan?
The short answer is: a million dollars doesn’t go very far anymore. For people making a fraction of that, it’s hard to feel bad for millionaires, but Buffett’s point is this: people who earn a million dollars a year are still in the middle class, and are not the people he’s talking about — so raising taxes on the top 1% is raising taxes on the middle class. The tax-dodging people who are making these reams of money with a tiny effective tax rate don’t make it a million at a time — they make it tens of millions at a time.
To see the difference between various incomes (based on 2005 data), I’ve thrown together this handy graph, with demarcations for popular percentiles, including the 98th, 99th, and — best of all — the 99.999733rd, an exclusive cohort of just 400 households, the truly mind-bogglingly super-rich. Unfortunately, the thing was so skewed it wouldn’t even fit on the screen. I had to truncate it at the 99th percentile. And also, to turn it sideways, so dollars of annual income are at left, and percentile is at right:
American Household Income Distribution, 2005
If you’re viewing this image at 1:1 scale, it should be about 212cm or 83⅓ inches from the $0 line to the 99th percentile, representing families bringing in $1.6 million a year. That’s pretty out there. But the aforementioned top 400 households are nowhere near this mark. Take a guess where they are. Just take a wild guess. Come on, you don’t even have to tell anybody.
You want to know where this graph would end? It would be at the $90 million dollar mark, for starters. And if you’ve got this graph at a 1:1 scale, these 400 households would be 59.6 meters away from the $0 mark. That’s almost exactly 65 yards. If you’re reading this sitting in an average apartment on the 26th floor, this group would be in the grass.
For fun, lets convert dollars to distance: if the 2005 median income (about $46,000) was the distance from New York City to Paterson, New Jersey (a nice, middle-class family holiday!), then $90,000,000 would put you on the moon. For reference, here’s what the distance from New York, NY to Paterson, NJ looks like from the moon:
Take from this what you will. The solution to this incredible discrepancy (if indeed you see this as a problem) is, unfortunately, even harder to see than these numbers are. But hey, at least we’re talking about it, right?