So, who is "rich"

So, who is rich? Do you know?

In this debate about taxing the rich, so, who are the rich that politicians claim to want to tax. And a majority of the country agrees.

Instinctively, most people think of Rockerfellers and Vanderbilts. Those are historic figures, none that exist in our current midst. And the one we can think of then would be Warren Buffet. But he is the one advocating higher taxes on the rich. Clearly something else is going on.

Let's engage in a thought experiment. How do you know which of your neighbors is rich? Most of us do not know how much someone makes. Let's be honest - we all guess someone must be making based solely on their lifestyle. If someone is spending a lot, then by extension, they must be making a lot of money and hence 'rich'. US personal bankruptcy rate tells us a different story.

So, how is taxing your 'spending' neighbor going to make it better? Lack of any empirical evidence, let's say that you and your neighbor make the same amount of money. And let's also say that your needs are about the same. The net difference is that your neighbor is spending on his 'wants', and you are saving it. Now, taxes are levied on known 'income'. We have established that you and your neighbor have the same income. When you advocate higher taxes on him, you are also going to be taxed the same. Since he is spending his surplus, he is not going to be taxed any further (ignoring sales tax in this exercise). Your savings will generate a tiny sum of income that the government then proceeds to tax. So, who did your tax the rich proposal really affect - because you based it on your perception and jealousy of the other persons spending habit? And when your neighbor has a little less disposable income, if he spends less, the economy is going to suffer. And you get to save less.

This happens at work too. Most employees think that their managers make more money. This isn't always the case. In private companies, what you make is based on what you contribute and your special skills. Managers are dime a dozen, skilled technicians are hard to come by. So, most managers reward their talented resources generously than their own paycheck. When Jack Welch was CEO at GE, he wasn't the most paid - Katie Curic was.

Jealousy should not substitute for a sound tax policy. Or being a good neighbor. What your neighbor makes and keeps is none of your business. Let's worry about our income, how to improve it and how to preserve it from the eyes of the taxman.