Wikipedia (http://en.wikipedia.org/wiki/Millionaire ) defines a millionaire as one whose net worth is at least 1 million units of currency. A billionaire has about 1,000 times that much. Net worth is a concept that is calculated by subtracting what you owe from what you own. Furthermore, statistics tend to net out a family’s primary residence. In that sense net worth is essentially examining your ability to spend beyond your primary house. For example, if I borrowed $1 million from the Dumbhead Bank of Bloomington and I bought $1 million dollars of gold (or a second home or a Rolls Royce, etc) – that would not improve my net worth. I would have more stuff but I would also have a big liability to go with it. I would not be wealthier. If, on the other hand, I now own bonds, stocks, second homes and numerous cars and but I have no debt, then I would have substantial net worth that increases my ability to spend.
Millionaire has a special and specific meaning. According to Wikipedia’s further analysis approximately 3 million persons or 1% of the US population is a millionaire in the sense of net worth. Wikipedia says that about 95,000 US families have more than about $30 million in net worth. Of course, there is some disagreement about the exact number of millionaires but I won't get into that here.
So what does all that mean? Let’s suppose your net worth is $1 million. At today’s interest rates you might be able to invest that money with little risk at about 3-4%. That means that your net worth could produce an annual income stream of about $30,000 to $40,000 per year. That’s a lot less than a plumber earns in most cities of the USA.
Which Americans have all that net worth? The answer is that half of them are retirees. That is, these are people who spent much of their lives squirreling away money here and there to take care of them in retirement. For those who acquired millionaire status as a result – they can live on a little more than $30,000 to $40,000 per year assuming they eat into the capital to live.
We hear some politicians saying they want millionaires and billionaires to pay more in taxes. So notice a couple of things. First, many of these folks are old people who spent their lives saving and probably live on less than $50,000 per year. It hardly seems fair to penalize these people. Second, let’s see what we can get from them. If there are 3 million people whose average net worth is $3 million, then by confiscating all of it we would net a one-time amount of $9 trillion dollars. That sounds like a lot of money. But think further. The US government will spend about $3.8 trillion in 2012. So that doesn’t make a lot of sense. We take away all their wealth and blow it in less than three years! What do you do in 2016? They have no more wealth left to take! The estimate for the Gross Federal Debt for 2012 is a little more than $16 trillion. So a 100% net worth tax on all millionaires would still leave us with a debt of $7 trillion and no real means to keep it from rising thereafter by about $1 trillion a year.
No one has suggested taking away all the assets of millionaires but this illustration shows that if you took a more “reasonable” 20 - 30% of millionaire’s wealth -- it isn’t going to go very far to solve our problems. You cannot just increase the taxes on millionaires and billionaires and hope to avoid major changes in taxes paid by the middle class or reductions in the growth path for spending.
No one has seriously mentioned raising the necessary funds by taxing the net worth of millionaires. In fact, while the rhetoric focuses on millionaires and billionaires, tax policies are aimed at annual incomes. Much of what I read today defines policy in terms of adjusted gross incomes and mostly for families well below the million dollar income mark. I keep seeing numbers like $200,000 to $250,000. Since when is someone who earns in that range a millionaire? I agree that these people are doing pretty well. But do they really fit the vivid picture of a millionaire? Are they really people who are the envy of the rest of us? Are they people who somehow lied or cheated their way through society and now fail to pay their fair share?
I won’t sufficiently answer those questions because many people simply want to take from these folks regardless of the real situation. But maybe Joe made that much because he worked 16 hours a day for forty years at a tough job. He is now really good at his job and earns both respect and high income because few people have the skill or knowledge he brings to his job. Maybe Tom is a retiree who saved for 50 years and now enjoys a decent retirement income. He made a decision that it was better to spend less in his younger years so he could enjoy some income security in his retirement. Maybe Ann worked her way through college, borrowed money for an advance degree, and is now a prominent scientist engaged in the development of new cancer drugs. Given our tax laws in the US – many of these people are entrepreneurs who forsake normal working and social lives and risk everything to start and run new businesses.
The point is that it is both rude and careless to stereotype. Stereotyping the poor is always frowned upon. But somehow making baseless conclusions and insinuations is perfectly okay when talking about people who hold $1 million in a saving account or who earn $200,000 per year.
Rather than stereotyping anyone, one wonders why our politicians do not spend more time telling us why despite a long-term running war on poverty the number of poor people continually rises. When are they going to be honest and admit they lost the war and need to find out what went wrong. Why despite almost a century of social security have they failed to make it financially sound? Was the retirement of the baby boom generation starting in 2011 a big surprise? Did they not have 65 years to get ready for their retirements? It is sickening to stand by and watch politicians totally ignore their responsibilities to society while they insult us with meaningless demagoguery. It is okay to discuss raising taxes. It is okay to ask wealthier people to pay more. But all this should be part of an earnest and respectful attempt to solve our national problems.