Taxing the rich - what is the cutoff?

Schneed- thanks, this gives a practical point for discussion.

One problem, though is that your childcare costs are off. It's around $1200/kid in NoVa (it goes down as they get older and the teacher/student ratios decrease, and, obviously, goes away once they hit grade school). We have 2 kids in daycare, so that puts a big hurt on the budget. I realize it's temporary, but who's to say a 3rd isn't in the picture? That gets into a separate issue, though - having kids you can't afford.

Also, it looks like you added AMT as income - wouldn't that reduce income?

First, on childcare, I'm assuming that if you're making $250K as a couple, you're typically not a young couple. I imagined two 40-year old parents with accomplished careers, with one high schooler, one middle schooler, and one 5 year old. Jack up the childcare cost if you feel necessary, I can see that.

As for the bolded part, I added it as income because it's a tax return, money they get back from the government every year. If not for AMT, this couple would get back more than $35K each year in tax returns. With AMT, they only get back $21K.

In reality, nobody gets a tax return this big because people claim more than 0 on their W-2 at work, hence less tax is taken out from their paycheck. But that's a zero-sum affect in this example. If this couple were doing that, their 61K income tax liability would be reduced by the same amount in which their tax return went down.

Yes you are correct the 250,000 number picked was for a good reason. The lower the income Obama wants to increase tax on the great % of Americans it affects and the more people it affects the more people less likely to vote for him. If I'm correct the % of people in the US making over 250 is 2% drop that to $150,000 and the percentage of Americans affected jumps much higher.
I agree. However, changing it by $25k in either direction would have nominal (http://en.wikipedia.org/wiki/Household_income_in_the_United_States)impact. It's not random, but it is arbitrary.

As for the bolded part, I added it as income because it's a tax return, money they get back from the government every year. If not for AMT, this couple would get back more than $35K each year in tax returns. With AMT, they only get back $21K.

In reality, nobody gets a tax return this big because people claim more than 0 on their W-2 at work, hence less tax is taken out from their paycheck. But that's a zero-sum affect in this example. If this couple were doing that, their 61K income tax liability would be reduced by the same amount in which their tax return went down.
I'll be the first to admit that I am awful with taxes, but I'm trying to understand the chart, because I think it's a useful framework for this discussion. Are you saying that the total federal income tax liability for a couple making $250k is about $40k? I'm seeing a $61k federal tax expense and a $21k federal tax return.

I'll be the first to admit that I am awful with taxes, but I'm trying to understand the chart, because I think it's a useful framework for this discussion. Are you saying that the total federal income tax liability for a couple making $250k is about $40k? I'm seeing a $61k federal tax expense and a $21k federal tax return.

Yes that's exactly right, you've got it.

If you take the federal tax bracket tables, if you make $250,000 in TAXABLE income, your liability comes out to $61K.

But not all of your $250K income is taxable. On your tax return, you'd deduct mortgage interest, healthcare premiums if they weren't already reflected on your W-2 (as is the case here), take the deductions for your dependents, and retirement savings (assuming you're ineligible for Roth benefits because you make too much).

In the end, the $250K in pretax income comes down to about $138K in Taxable income, so their tax return would be $35K. But then the AMT kicks in, because the government says this couple needs to pay their fair share, so they reduce the tax return down by about $14K in this example, to help balance things out. So the tax return comes out to $21K.

So the $61K liability, minus the $21K tax return, means they pay $40K in federal taxes.

Being a financial analyst by trade, I put together a quick budget for a couple, with 3 kids, living in Maryland around the DC area, making $250,000 per year. I calculated their Federal Income Tax liability, their tax return assuming they're susceptible to the Alternative Minimum Tax, their Maryland State Income tax liability, and made a bunch of other assumptions shown in the table below.

As you can see, this couple can afford to put away 10% of their income towards retirement, save $300 per month per child for each of their 3 kids' college education, take a $5000 vacation each year, spend $5000 on Christmases and Birthdays, spend $400 per month on fun stuff, pay someone to take care of their yard, make $5000 in annual upgrades to their home, drive two very nice cars without worrying about gas, and spend $200 per month eating out. It even assumes that the youngest of the 3 kids needs daycare.

Even after all that, this couple saves money. You're going to tell me they can't cut out some of that lavish spending to give 3% more to the US Government? I tell you one thing, I wouldn't feel sorry for them at all, they can cry me a river.
It not a point if they can afford the addtional 3% its more of a question of "is it fair". They are allready working 3 1/2 months to pay taxes how much should they pay.

It not a point if they can afford the addtional 3% its more of a question of "is it fair". They are allready working 3 1/2 months to pay taxes how much should they pay.

According to Schneed's calculations, they are only working 2 months ($250k/12 = $21k/month). Not sure it changes your opinion, just pointing out the math (which I still am not 100% on).

It not a point if they can afford the addtional 3% its more of a question of "is it fair". They are allready working 3 1/2 months to pay taxes how much should they pay.

Yeah now there's the philosophical discussion which I am totally inclined to agree with (see my earlier posts).

I was just coming at it from the angle of "if you have to set a cutoff for higher taxes, should it be $250K or higher?" I'd say $250K is a good cutoff.

But you're asking whether there should be higher taxes for anybody. And I'd tend to agree from a philosophical standpoint.

schneed, im not sure how long it took, but we agree on this subject :)

And may I add that the $250K budget I drew up was for a family living in the DC area, one of the highest cost of living locations in the US.

If you live here in Philly, $250K takes you further. In places like Charlotte NC and other cities all across the land, it takes you much much further.

And may I add that the $250K budget I drew up was for a family living in the DC area, one of the highest cost of living locations in the US.

If you live here in Philly, $250K takes you further. In places like Charlotte NC and other cities all across the land, it takes you much much further.
True, but it also doesn't account for student loans, which can exceed $100k easily for law/medical school. That can add an extra $15k-20k/year.

If you have at most one kid in daycare and no student loans, I agree.

If you have young kids requiring daycare and student loans, this budget goes out the window, and the 3% is going to be felt.

Your budget is a useful discussion point, but you haven't proved the $250k cutoff is optimal.

I still agree that it is affordable, though. The point of the article (and one that I agree with and I think you agree with) is that Obama has labeled this income bracket as "wealthy", which is not likely true for most of the demographic. That's fine to increase it 3% now, but it's not a well you can keep going back to.