By Elizabeth Anne Hull

Elizabeth Anne Hull. Photo by Barb Knoff.

Anne Hull

Tax season is a good time to assess your net worth.

Recently, I read that over half of the members of Congress of both houses are millionaires, which implies that they’re rich and so cannot possibly understand the problems of the average person, much less those living below the poverty line.

Perhaps. I’m not quite ready to believe that of all of them, because it depends on how you define millionaire. High net worth is not the same thing as high annual income.

According to the traditional definition, you’re a millionaire if you have a net worth of $1,000,000 or more — not including the value of your home. More recently, however, that term has been used to describe $1 million in annual income, which makes more sense today.

Annual income often is a great deal less than $1 million for “millionaires” whose net worth is above that figure. A net worth of $1 million isn’t far out of reach of upper middle-income Americans (as shrinking as that group is). Those who are lucky enough to hang on to a good job, who save regularly, invest wisely, live frugally, don’t run up their credit, live in a house that’s much less valuable than they could afford, drive a car for as long as they can, and teach their children to have modest tastes as well, may amass at least $1 million, maybe even several millions in net worth, while having an income under $100,000 annually.

Taxes on that income are divided in two different ways: Taxes as a percentage of overall income, and types of tax per types of income.

For example, FICA taxes — the ones that fund Social Security for the elderly and disabled — are paid by every wage earner (unless they’re covered by a state pension system that usually costs those individuals more than the tax would). Minimum-wage earners pay the highest percentage of their earnings for FICA. Those making over $113,000 per year don’t pay FICA on any amount above that, and they pay it only on earned income, not on capital gains or interest income, which for people in those brackets may be considerable. Thus, while everyone who earns any wages at all pays FICA, those taxes are definitely not flat; they are regressive: the percentage paid by people who earn $1 million a year is definitely less than the percentage paid by minimum-wage earners.

The next most common type of tax is income taxes, which are progressive, to an extent. That is, if all or most of your income comes from wages or salaries, you’ll pay a gradually higher tax the higher your tax bracket is, up to a current cap of 36 percent for the highest earners. But of course, there are loopholes and tax shelters and other ways that the rich can pay less.

It’s likely that you’ll pay other taxes as well, a few at a considerably higher rate, more at a lower rate, such as capital gains. And if you are lucky enough to be a property owner, you will also pay real-estate taxes (although landlords pass along these costs to tenants), which can vary widely across the country.

Most states also have a state income tax. Only a few states don’t have sales taxes, another regressive tax (and no tax at all to companies, which can deduct them as a cost of doing business).

Hence, the aphorism that nothing is inevitable except death and taxes.

Trying to agree on a fair assessment of taxes would be difficult enough if we only had to deal with humans, but in the 2010 Citizens United vs. Federal Election Commission case, the U.S. Supreme Court, in a 5/4 split decision along party lines, ruled that corporations are people, and that money is equivalent to speech. Thus under the first amendment to the U.S. Constitution, corporations have the right to donate — in secret through 501(c)(4) PACs — to lobbying efforts and not pay taxes on that income.

(The Supreme Court has been silent about the death penalty or even prison for corporate officers when the corporations commit crimes, including causing the deaths of people. They can be sued, but the corporations — or their insurance companies — can reach a monetary “settlement” out of court when they believe they’ll lose or, as they claim, just to avoid the time and cost of defending their innocence or nonculpability.)

Thus we have some very large, mega-billion-dollar corporations paying virtually no taxes, while humans in this country, even the poorest, all pay taxes, one way or another.

Somehow, being a simple millionaire (by the old definition) doesn’t seem to be much of a big deal these days, does it?


  1. Stefan Jones says:

    Common wisdom: A million dollars in investments is what a couple needs to have by age 65 to have a classic middle-class-American-dream retirement (no need to work, own home, chance to do some travel and other liesure activities).

    A million given to a couple just starting out means they have a lot of security, but they’ll still have to work and live within a budget to live out the American dream lifestyle (house, good car, college for the kids, vacations).

    I can’t picture “needing” a million dollars a year in personal income. Ten average families could live quite comfortably on that.

  2. Tom Galloway says:

    It really isn’t. A basic definition of “rich” is a sort of combination of net worth and yearly “income”, namely, could you quit your job and not have to work for pay again for the rest of your life. To play it really safe, that means taking a fairly advanced age you could live to, such as 90 or 100, and subtracting your current age. So let’s say you’re 50. Using 100, that means your net worth would have to last 50 years, meaning you’d need to get back at least an after-tax return equal to inflation. Assuming you get that and no more, it means you’d be spending 2% of your net worth each year.

    2% of $1,000,000 is a whopping $20,000. Admittedly that $20,000 is the equivalent of take-home pay, not pre-taxes salary, but I don’t think most people would call someone living on $20,000 a year “rich”. You’d need $5 million net worth just to get up to $100,000 take home a year, certainly comfortable but not what most people, especially in California and larger cities would call rich.

    These days, I’d say $10,000,000 is borderline rich, $50,000,000, where you could spend $500K-$1 million a year depending on age is definitely rich. $1,000,000 is just definitely not living paycheck to paycheck, better off than a lot of folk, but by any real long-term living standard doesn’t count as rich any more.

  3. Ken says:

    As Tom points out, in today’s environment of abnormally low interest rates you’ll only make $20K on 1 million in annual interest – that’s poverty level. Only way to make more is to take very real risk, possible, but hardly set for life secure.

    In order to reach escape velocity rich, the point where you’d have to be a complete idiot not to keep getting richer, or at least maintain your capital while living a “rich” lifestyle, I’d say you need a minimum 10-15 million.

    No middle class anymore, the one percent rocket higher and higher while the 99 percent are stuck in decaying orbits one or two paychecks removed from a flaming crash and burn. A sad and very likely unsustainable imbalance that will no doubt end badly – think deep recession/depression, or possibly riots in the streets.