Who Are the Rich and How Do We Know?

It's often a little difficult for rational economists and policy analysts to understand President Obama's near-obsession with certain arbitrary and self-imposed standards-like his definition of the "rich."

The president has consistently defined the rich as individuals making more than $200,000 a year, and families making more than $250,000. Good incomes, to be sure, but the president completely ignores the issue of assets, which tells us a lot more than incomes about who the rich are.

Under the president's approach, an individual making $200,000 a year with zero assets is rich. But a person with $10 million in savings and living off, say, 1.5 percent interest ($150,000) isn't.

That $200k worker may live in New York City or San Francisco and spend a third of that income, pre-tax, on rent, while the other person with millions in savings may have a multi-million-dollar house that's paid for.

And yet the first person's taxes would rise under the president's schemes while the second person gets a pass.

More recently, Democrats have begun to focus on those making in the range of a half million to a million dollars a year in the hope of finding an unobjectionable target to help pay for their spending spree.

But is there an economic basis for choosing that income level, or is it just political?

The U.S. Census Bureau looks at income in quintiles. In 2010, the average pre-tax income in the lowest quintile (20 percent) was $9,906-clearly poor. But if everyone agrees that the lowest quintile is poor, then why isn't everyone in the highest quintile, with an average income of $157,369, considered rich?

And yet apparently no member of Congress does-especially since they make nearly $20,000 above that level.

While we all may agree that certain people are rich, determining where to draw the line-and what should be included in the calculation-is both difficult and arbitrary.

While economists and policy wonks like to debate these intricacies, that's not an issue for the politicians. Rather, they should be focused on finding a way to keep taxes low and simple for all Americans. And if they do that, they will discover that they will have solved some of their revenue problems as well.