[deadwolfbones]

A few days back, Todd Henderson, Professor of Law at the University of Chicago, made this post on his blog:

The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I’m not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.

I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren’t.

I, like the president before me, am a law professor at the University of Chicago Law School, and my wife, like the first lady before her, works at the University of Chicago Hospitals, where she is a doctor who treats children with cancer. Our combined income exceeds the $250,000 threshold for the super rich (but not by that much), and the president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay. The problem is, we can’t afford it. Here is why.

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can’t afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren’t cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

If these cuts don’t work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.

The problem with the president’s plan is that the super rich don’t pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren’t rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president’s plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Hendersons are as rich as he thinks.

It earned him a boatload of criticism, the best example of which was this response from the great blogger/Professor of Economics, Brad Delong: In Which Mr. Deling Responds to Someone Who Might Be Professor Xxxx Xxxxxxxxx - Grasping Reality with Both Hands

I strongly recommend reading Prof. Delong's whole post, though it's quite long, as it's quite enlightening in a number of ways.

* Prof. Henderson subsequently deleted his post, though he says this is only because his wife, who vehemently disagrees with his position, objected to him posting their family's financial details on the wild wild interwebs.

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Last edited by deadwolfbones; 09-23-2010 at 12:47 PM.

[Nesster]

Yes interesting.

Prof. Henderson's portrayal of his situation is a bit strange, i.e. I'm not doing anything extravagant nor am I wealthy... I barely make ends meet. I understand the looking up bit Delong brings up, that's all too familiar. Delong seems to have his own resentments and 'I'm not rich' ideation as well...

[causey]

Yes interesting.

Prof. Henderson's portrayal of his situation is a bit strange, i.e. I'm not doing anything extravagant nor am I wealthy... I barely make ends meet. I understand the looking up bit Delong brings up, that's all too familiar. Delong seems to have his own resentments and 'I'm not rich' ideation as well...

DeLong: "We too have chosen to put our income in places (tax-favored retirement savings vehicles, building equity, housing, private college costs) where we think it is better used than $200 restaurant meals, $1000 a night resort hotel rooms, or $75,000 automobiles. But I don't think that I am not rich."

[GeneV]

Prof. Henderson really does need to spend some money on a tax advisor or talk to one of his colleages in tax law. (A law professor who can't afford or get free tax advice sounds fishy right from the start) I can pretty much guarantee him that he can afford it and he is paying way too much tax right now.

If every single penny of his income were net taxable income, he and his wife would pay $60,000 in FIT. His FICA is between $7,500 and $15,000, depending upon how much of his $250k is earned by him and by his wife. However, no one with a brain or an accountant has 100% taxable income. If his next biggest expense is a mortgage, he is is missing a big deduction. And no one with a brain and $250,000 in income fails to shelter some investments in an IRA or 401k plans. Oh, and those state income and property taxes---more deductions. Three kids--more deductions. If he were to take deductions which invoked the Alternative Minimum Tax, his Taxable income would be $168,000 and his total FIT would be $35,298. http://www.moneychimp.com/features/tax_calculator.htm Unless Illinois has insane state income taxes, his taxes should not be $100,000.

By the way, his taxes will not go up appreciably under the Dem. plan.

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Last edited by GeneV; 09-23-2010 at 01:30 PM.

[Nesster]

...somewhere in the comments a much higher combined income number came out, I don't know where it came from... let's see...
$455,000 a year of income, and he's socking away $185K of that in savings of one form or another.

[deadwolfbones]

In Delong's article he calculates that (based on what Henderson stated in HIS post), the Henderson family makes somewhere around $455,000 a year.

[jeffkrol]

I'd trade places with him in a heart beat AND make his finances work much, much better............. What a whiner... Send you kids to public schools, fix what they break yourself, and get a life.
Nannys, gardners, ect.. you shouldn't have had kids if you have no time to raise them......... I seriously doubt the "legal" immigrants status as well.... but of course this could cause their tax bill increase due to the "nanny tax"..
AND what did we figure the tax increase of$250,000 $700 dollars a year?????
I ,for one, would take him up on his offer to see the "itemization" of his finances........
Besides everyone's cutting back..... some can afford to some can't

The next time you come upon a Chicago law professor in his scuffed Gucci loafers and tattered Armani on the sidewalk, holding up his libertarian down-with-government sign and shaking his tin cup to get his doctor wife and hollow-eyed waifs through another tough week in their million-dollar hovel, please don’t just walk by. Remember, it could be you. Be a mensch: throw a nice shiny 3/8″ washer and couple of nickel slugs in there, with my blessings.

Actually I'd probably throw in a quarter........ least he has health insurance. or get off your but and move (isn't that what everyones expecting to "poor" to do?) to an area w/ a lower cost of living......
As to the loans.. MOST professionals have ways of seiously decreasing their loan debt by doing "charity" work.

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Last edited by jeffkrol; 09-23-2010 at 02:49 PM.

[mikemike]

If anyone wants to find out exactly what his and his wife's salary are you can look it up because he does work for a public university in the state of Illinois. Its not worth $2 to me though.

http://www.suntimes.com/data/1075021,salarydata.article

[jeffkrol]

Felix Salmon concurs, adding some gentlemanly defense of Henderson:

There's no doubt that people earning $250,000 or more are rich. The simple ability to dismiss a whole class of expenses as "only a few hundred dollars per month in total" makes you rich.


But by the same token, many rich people don't feel rich, and so describing them that way gets their backs up. And in fact it's good that the rich don't feel rich: it means they have more incentive to keep on earning and producing and adding value.


So maybe we shouldn't be so rude about the likes of Todd Henderson: without rich people constantly striving for extra dollars, America would be in an even worse position than it is. But equally, we shouldn't take their pleas seriously.

And Paul Krugman points to the culture that has produced Henderson's attitude, which seems to be largely shared by Ben Stein:

But 30 years ago people with high but not super-high incomes generally felt ashamed of themselves for griping -- or at least, felt that they would be ridiculed if they gave voice to their gripes. Today, all restraints are off. The fuss over Messrs. Henderson and Stein is the exception that proves the rule: they wouldn't be providing this spectacle if they didn't normally swim in social circles where complaining that you only have 9 or 10 times median family income is considered totally acceptable.


Pretty soon, we'll be having serious, completely un-self-conscious discussions in major magazines about the servant problem.

Law Professor's Blog Post Sparks Controversy Over Why The Rich Don't Feel 'Rich'

UPDATE: Citing a "firestorm" of "lies and misinformation," Henderson vowed on his blog this morning to quit blogging. "I misunderstood the technology, and the consequences are devastating for me personally," he writes. "I am sad to leave, but my family has to come first, and my blogging has caused them incalculable damage." Henderson told Business Insider that his family is "on the verge of disintegrating."

http://www.law.uchicago.edu/faculty/henderson
WSJ knows where I was coming from........
http://online.wsj.com/article/SB10001424052748704129204575506051919012596.html

Everybody hates Todd Henderson.

In case you haven't heard, he's the University of Chicago law professor who unwisely blogged last week about his financial woes in a post headlined "We Are the Super Rich."

Mr. Henderson and his wife, an oncologist, make more than $250,000 a year, and apparently they're struggling to get by. If President Barack Obama gets his wicked way, and tax rates rise for those earning more than $250,000 a year, Mr. Henderson says it will mean real sacrifice in his family.

It's too easy to pelt Mr. Henderson with rotten eggs, as so many have now done. (He yanked the post, but way too late–and on the Internet, one's blunders never die.) But can we, instead, give him some useful advice?

Sure.

Adjust your expectations. "I can show you a client of mine right now who lives in a suburb of Chicago, he's a doctor, makes $350,000 a year, and he routinely racks up $25,000 on his credit cards," says Michael Kalscheur, a financial planner at Castle Wealth Advisors in Indianapolis. The reason? Too many people have "unrealistic expectations," says Mr. Kalscheur. They figure they should be vacationing in Italy, driving expensive cars, the whole deal. "We need to knock him upside the head. He's got to stop spending money." Every financial planner will tell you the same thing: The real challenge is tackling the psychology.
Refinance your mortgage. I have no idea how big and expensive your home is, but you can now get a 30 year jumbo mortgage at around 5.3%. Even on a $1 million loan that comes to $5,500 a month, and it's tax deductible. If your home is so expensive that you can't even afford it at these rates, you can't afford it. Sell it and move somewhere more affordable. If you're underwater on the mortgage, talk to the bank. Forget about "equity," which may not exist, and look at the cashflow.
Get a grip on your discretionary spending. Carry a pocket notebook with you for a month, and write down everything you spend. Get your wife and children to do the same. It will help you understand where your money is going. Almost every financial planner will tell you that this is invariably a huge eye-opener. As Jonathan Sard, a financial advisor in Atlanta, says, you may find you spend $100 in Target every time you go in for lightbulbs, or spend $300 taking your kids to a White Sox game. With everyone it's different, but you need to know where the losses are. If writing everything down is too much of a challenge: Junk the plastic, and just carry cash. This is instant budgeting. If you carry $500 a month, that's all you can spend.
Stop blaming the government. According to the Congressional Budget Office, $265,000 is the average income of a household in the top 20% of the country, and $395,000 is the average for those in the top 10%. (The thresholds, of course, will be much lower). So you're near the top of the tree in the richest country in history. At the same time, contrary to what you seem to think, federal taxes are not extortionate by modern historical standards. According to the CBO, families in the top 20% pay average federal taxes of 25.1%. The figure in President Reagan's final year in office: 25.6%.

Oh, and one more thing. Never, ever, ever again blog about how hard it is to live on $300,000 or $350,000 a year at a time when one middle-aged man in four can't find a full-time job, and one in five can't find any job at all.

Maybe he can now get on FOX as a "talking head".........

[GeneV]

In Delong's article he calculates that (based on what Henderson stated in HIS post), the Henderson family makes somewhere around $455,000 a year.

In his article above, he states "Our combined income exceeds the $250,000 threshold for the super rich (but not by that much)"

If almost double the $250,000 is not exceeding it by "that much" then the good professor is somewhat disengenuous.

[deadwolfbones]

In his article above, he states "Our combined income exceeds the $250,000 threshold for the super rich (but not by that much)"

If almost double the $250,000 is not exceeding it by "that much" then the good professor is somewhat disengenuous.

He's probably thinking of himself relative to the "millionaires" of Obama et al's rhetoric.

[GeneV]

I just ran the numbers, To pay $100,000 in income taxes, you would need to make about $455,000.

[Nesster]

The crap about 'giving back' - patriotically investing in (loosing) stocks, supporting the university community by buying a $1mill fixer-upper... Perhaps the good prof should read his own party policy wonks who believe that the single best thing the govt can do is to eliminate the deficit and start to pay down debt. So, his patriotic contribution to this, as most of us don't volunteer the treasury our money, is to pay more tax. Then, as this helps pay down the deficit, his stock investments and house price may start to recover... and he'll actually make money by for once not being so immediately self-centered.

[jeffkrol]

I suppose his studies give him "dollar envy"......
A defense of corporate perks..... really is interesting (for some)
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=401289
SSRN-Corporate Heroin: A Defense of Perks, Executive Loans, and Conspicuous Consumption by M. Todd Henderson, James Spindler

Corporate Heroin: A Defense of Perks, Executive Loans, and Conspicuous Consumption

The more I read his "bs" the more I realize he's blaming everyone else for his poor mistakes... and as much as I can empathize with many (losing stocks, poor real estate investments) THEY at least can recover in a short period of time, unlike some (many) who were basically wiped out and will never recover in their lifetime...
Bet his wife is PO'd to attract this much attention. I know mine would be.

As to his research.. there is some mildly scary stuff.. especially for free people.....

In this way, corporate regulations
banning certain individual behaviors, such as smoking, are simply a response to a
demand from firm stakeholders, such as employees and investors, to reduce firm
costs...............For a social policy with broad support—like reducing smoking incidence in
the population—the relevant question should be which provider of paternalism is
better on the margin at deterring the behavior. While government and firm
nannyism are not necessarily substitutes and can work together, policy makers
should be attune to how best to allocate the burden of nannying. At present, firms
are inhibited from charging smokers the full cost they impose on the firm and its
stakeholders by federal and state law. These barriers should be removed and
allow the cost of smoking, overeating, skydiving, and so on to be set by the
market.
There will inevitably be line-drawing problems, since society can be
thought of as one big subsidy of everyone’s bad behaviors. This recharacterization
of corporate nannyism elides this objection by focusing only on those behaviors
where third-party payors inevitably are involved in trying to reduce the behavior
in question. When comparing corporate nannyism with state nannyism on these
issues—say, reducing smoking or obesity—it is clear that the former may often be
superior. This conclusion is relevant not only for the federal and state law
described above, but also for the ongoing debate about who pays for health care
in this country and how much we all pay. For example, the proposal to move
away from the employer-based health insurance model has many virtues, but this
paper points to a strong counter argument: if paternalism is inevitable for solving
some health care cost problems, firms may be the preferred and more efficient
provider.
Readers with comments should address them to:
Professor M. Todd Henderson
University of Chicago Law School
1111 East 60th Street
Chicago, IL 60637
toddh@uchicago.edu

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1348235
I'm starting to believe Clinton was right and the corps DO want to be our government..........