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  • October 21, 2008 04:11 PM EDT by Brian Sullivan

    Obama's Tax Cut for the Rich (and Red)

    Barack Obama says he wants to cut taxes for the "middle class" and raise them on "rich" families making more than $250,000 per year.

    The problem is that under his plan, in many instances there will actually be a wealth transfer from the middle class to the "rich." The reason: the definition of "rich" depends in large part on where you live.

    Obama's plan is to provide a tax credit (remember it's not really a cut, it's really a credit that you receive when you file your taxes) for those making less than $250,000 per year. It also helps to own a home. The tax calculator on Obama's website says that a family making $100,000-$150,000 per year with two children and a $300,000 mortgage debt on their home will save $1,800 per year. Those families making more than $250,000 with two kids and an $800,000 balance on their mortgage will "probably not get a tax cut under the Obama-Biden plan."

    You say, fine. Tax the "rich" family making $275,000 per year more. But this begs the question of who in this scenario is actually "rich." Much depends on where you live.

    Let's break it down, using a traditional "red" state, "blue" state comparison of Kansas and Massachusetts.

    Financial planners suggest you should not buy a home that is more than 3x your gross income. Assuming that model, lets say a two-paycheck family making $125,000 in Kansas City, Kansas decides to buy a home for $375,000. What can you get for $375,000 in K.C.? Below is a listing I found on realtor.com of a home outside of Kansas City listed for $390,000. 5 bedrooms, 3.5 baths and new construction. Pretty nice place.

    Then there is the family in the Boston area with two incomes and making $275,000 per year. $275,000 sounds rich to the family making "only" $125,000 in Kansas. But take a look at the home the family in the Boston area can afford that is also roughly 3x their income. Below is what they find listed at $870,000.

    Not a bad house. Nice neighborhood, but its much smaller (3 bedrooms vs. 5 in KC) and more than 1,000 sq ft less in size.

    But let's call it equal anyway. So on a housing basis, the family making $125,000 per year in Kansas City is living about the same as the family in Boston making $275,000. But yet the family in "tax-achusetts" is also paying higher state and property taxes, higher insurance rates and probably just about higher everything else.

    So tell the family living in Boston with those housing and tax costs that they are rich. You might get a few choice words. But that's exactly what the Obama plan is doing; telling families who consider themselves "middle class" in their area that they are "rich" and then giving tax breaks to families with a similar manner elsewhere.

    Under the Obama-Biden tax plan, the family in K.C. will receive $1,800 per year in additional tax credits. They also pay a top level of 28% on their Federal income tax and received a $1,200 stimulus check this summer. So assuming all remains the same, the Kansas family will receive an extra $8,400 over four years (4x $1,800 + $1,200 stimulus).

    The Boston-area family will not only receive no tax credit under the Obama-Biden plan. They also face a much higher tax bill as their already-higher top level goes from 35% to 39%. And, of course, they received no stimulus check.

    So a few things:

    1. If the family in Massachusetts can afford the same size house as the family in Kansas City, why is one "rich" and the other "middle class?"

    2. If the quality of life in both places is the same at different income levels, why does one get a tax break and stimulus check while the other pays more and gets nothing in return?

    3. Giving more to those truly in need is one thing, but the guy in Massachusetts should be livid that some of the money from the tax hikes he faces will be given to those living in a larger home.

    In fact, given that the median income of a Kansas household is around $65,000 per year, it's likely that the Kansas family in the 5 bedroom, new construction home that they can afford will be considered by many in that area to be "rich," or at least well off. I'm not sure the Boston family would be considered wealthy. But yet they are the ones who will be sending more of their tax money into lower-cost and traditionally Republicans states.

    The solution to this contradiction is for politicians to stop defining "rich" by an absolute number and more on a cost-of-living basis. What's "rich" in one area is "middle class" in another.

    A few other takeaways:

    • More strapped families in traditionally "blue" states will recognize they are being hosed under this plan merely because of where they live.
    • The tax increase on them will result in the continued migration to traditionally "red" - and low tax - states such as Kansas, Texas and Tennessee as families in the "blue" - and expensive - coastal states finally give up and move out.
    • The financially failing "blue" states such as California, New Jersey and Massachusetts will face deeper and deeper fiscal crises.

    I'm willing to bet that even the most die-hard Democrat family in these pricey blue states has a limit on how much they are willing to give to the government , especially when it's clear many tax breaks are going to people with a higher quality of life.

    If politicians are going to break people into classes, they should make sure the classes reflect the reality of the situation. There is a big difference between Warren Buffett and the two-worker family making $300,000 in Boston.

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Kathleen

I'm a small business owner who made a little over $250,000 in 2006. I paid income tax (individual, it's an "S" corporation) on that amount. However, I didn't use a penny of that money personally. It all went back into the company to fund additional inventory, payroll, etc. I had to take money from my savings to pay the taxes. The economy started going south in 2007 and crashed this year. I'm considering shutting down the business. My two employees will be looking for another job if that happens, and I'm in a low wage rural area. I'm one of the few businesses that pays a living wage.

October 22, 2008 at 2:17 pm

bill

Reform the tax code? Go to a flat tax? It will never happen, too many accountants, CPA's, bookkeepers, taxprepares, lawyers and IRS employers make their living off the system. Oh forgot to mention lawmakers who get paid to write laws that favor speacial groups, and the social engineering that our "leaders get to do using tax as a whip or a carrot. Bah Humbug!

October 22, 2008 at 2:57 pm

Sean

That is exactly why I left the southwest for Ohio! I love it here! Now, just keep everyone's taxes low...PLEASE!

October 22, 2008 at 3:21 pm

Maria

Absolutely correct! About time someone wrote this - I've been saying it to anyone who will listen for months. We live in California as that is where I am required to be for my job. Together we earn around $180 000. Our house is currently worth at least 150K less than what we paid, so we can't just 'sell and move somewhere cheaper' as someone suggested in an earlier response. Its also no mansion - a 2 bedroom 1200 sq ft house - which is all we could afford in the CA environment. We also pay over $7500 property tax every year. Fuel is the most expensive in the nation. We have taxes to save frogs, trees, water and the town we live in (which will prbly be bankrupt in the next 2 years). Within the next 4 years we hope to earn over the 250K that Obama is touting. So as a reward for our determination and hard work, we will AGAIN pay more tax. That is if his corporate tax hikes don't see us become unemployed before then. As McCain says - raising taxes in a recessionary environment is a recipe for disaster. Bring on the flat tax!

October 22, 2008 at 3:22 pm

Maria

oops.. I mean fair tax.

October 22, 2008 at 3:23 pm

Steve

If America elects Barry H. O. ... we will, unfortunately, get what we deserve.. a collapse of our economy, the "rich" will stop hiring and start firing.. it will be "The Great Depression"..but it will still be Bush's fault! The "intelligent" world is afraid that Obama will be elected and that is the main reason for the world economy troubles. It happened right before Jimbo and Billy got elected in 1976.. anyone remember the Carter years..??? When the poor have no one to turn to for everything Obama promised (that re-distribution of wealth) what will happen then??... by the time the total collapse happens, the new, larger class of poor will have manifested itself into a group too large for whats left of our government to care for! Who is going to feed them? Who is going to provide housing?..sure won't be the Democrats...they will be living in their gated communities, guarded day and night, and not worrying about US. The fairness doctrine will have eliminated all other opposing view points.. where will the rest of turn? Maybe I'll win the lottery before January!

October 22, 2008 at 3:32 pm

Robert

OOOOBAAAAMAAAAAA Yes, I am on the OBAMA DRUG, FAct do not matter, What my parent said "Judge a man by his actions do not matter, He just soundsssss sooooooo wonderfulllll, Change, Hope, Peace you can believe in.... Trying to talk to these drug addicts with the FACTS is impossible.. We had to have jimmy carter to get RR.

October 22, 2008 at 3:51 pm

1776

"3. Giving more to those truly in need is one thing, but the guy in Massachusetts should be livid that some of the money from the tax hikes he faces will be given to those living in a larger home." Well, the guy "living in the larger home" is also "doing without the things in Boston". So the person who decided to be "wise" with their money and invest in a "larger home" at the expense of living near a huge city like Boston trades off the advantages of living near Boston (w/e those could be... i don't see any) and get's the advantage of owning a bigger home. Awwwweee... that's not fair. Although I agree with the direction of this post, the post is crap. Why get mad at the person who decided to live in the middle of the country, where the cost of living is lower due to demand, instead of getting mad at the POLITICIANS who keep raising taxes in those "HIGH DEMAND" populated area's? (i'm speaking to this post itself and not the Obama plan) If the cost of living in the middle of the country is lower... there might be a reason for it... like NO OCEAN.

October 22, 2008 at 4:12 pm

Twyla

Mr. Obama should "lead by example"- "charity begins at home" - Maybe he should "redistribute" his own campaign funds to those already in the "entitlement" food chain. What is doing with the monies he is charging the News media for the "good" spots in Chicago on Election night?

October 22, 2008 at 5:15 pm

MZ

First off, let me say I am not an Obama supporter, so this comment doesn't come from that perspective. That being said, I think an important detail has been left out of this argument. There is a reason that the cost of living is higher in some areas than others. Many of these cities/states enjoy excellent weather, easy access to cultural activities and other entertainment, fine dining, public transportation, and better job opportunities. You are paying for the access and enjoyment these places have to offer. In a way, it is apart of your "lifestyle" spending. You are choosing to live there and accept the higher cost of living in return for a better quality. We live in Texas. Yes it's cheaper. However, we're sweating our butts off 11 months out of the year, I don't live on the ocean or any body of water, there is no "change of seasons" to enjoy, and limited entertainment. Yes I'd love to live in Northern California (where I grew up) or the East Coast, but I can't afford it. I don't complain about it, I just live where my budget allows. By giving up the "ideal" climate and lifestyle conditions I can provide more for my family. I don't feel this makes one family "richer" than the other, they just choose to spend there money somewhere else.

October 23, 2008 at 3:47 pm

Jeff

Well said. I agree 100% and I live in Kansas. I recently moved from the East Coast (VA) to KS and got a great deal on a house. However I also agree with MZ, I live in Kansas, there is not much to do. If you visit KC you will find a lot of nice restaurants, because there isn't much to do besides nice eats. You will find a lot of golf courses (some with nice hills). I miss the coast but don't miss the traffic and high-cost of living. I think we have a much bigger problem than a $1,800 credit will cover. Nice subject and great view point.

October 28, 2008 at 2:35 am

Lynne

It's time for a real man to step up and turn this country around. That man is not Barack Obama, but John McCain. I can't believe some people would vote for Obama with a clear consious. Change is coming, and his name is John McCain!

October 29, 2008 at 12:27 pm

about this blog

  • Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.

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