5 Myths about Millionaires
This past week, President Obama tried to sell his new “millionaires’ tax” to the Rust Belt. “What’s great about this country is our belief that anyone can make it,” he said in Cincinnati on Thursday, praising “the idea that any one of us can open a business or have an idea that could make us millionaires.” But who are the millionaires Obama is talking about? And will a tax on them help the economy? Let’s examine a few presumptions about the man with the monocle on the Monopoly board.
Being rich has gotten more expensive. A $1 million fortune was unusual in the early 19th century. The word “millionaire” wasn’t even coined until 1827by novelist (and future British prime minister) Benjamin Disraeli. In 1845, Moses Y. Beach, editor of the New York Sun, published a small pamphlet called “Wealth and Biography of the Wealthy Citizens of New York City.” The price of admission to Beach’s list, which was wildly popular, was a mere $100,000.
By the time the first Forbes 400 list of the richest people in America was published in 1982, the smallest fortune featured was $75 million. There has been so much wealth creation in the past 30 years — much of it thanks to the microprocessor behind modern-day fortunes such as Dell, Microsoft and Bloomberg — that only billionaires are on the list. Today, $1 million in the bank generates only about $50,000 per year in interest. That isn’t chump change, but it’s roughly equal to the 2010 median household income.
2. Millionaires think they’re rich.
“Rich,” like “poor,” is a relative term. A family living on the American median income of $50,000 a year might think that one living on $500,000 is rich. But that second family, which probably knows families far better off than they are, thinks that you need $5 million a year to be truly rich, and so on.
On Thursday, 44 percent of people voting in an online survey as part of the GOP debate coverage said that a $1 million annual income made a person “rich.” In a 2008 survey of affluent Chicago households, only 22 percent thought a nest egg of $1 million was rich. In March, four out of 10 millionaires surveyed by Fidelity Investments said they do not feel rich. That same month, a majority of investment advisers surveyed in a Scottrade poll said that $1 million isn’t enough for retirement.
Though the average American family is rich beyond the wildest dreams of the average family in Bangladesh, where per capita income recently rose above $700, it’s not much compared with those who summer on beachfront properties in the Hamptons. When John D. Rockefeller learned in 1913 that the late J.P. Morgan had left an estate of $60 million, including a fabulous art collection, he reportedly said: “And to think — he wasn’t even rich.”
3. Millionaires pay proportionately less income tax than poorer people.
In a speech on Monday, Obama said raising taxes on millionaires isn’t class warfare, but “math.” His math may be off: According to the IRS, those with adjusted gross incomes of more than $1 million paid an average of 23.3 percent in federal income taxes in 2008; those earning between $100,000 and $200,000 paid 12.7 percent; and those earning between $50,000 and $100,000 paid 8.9 percent. Half of American families don’t make enough money to pay income taxes at all.
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