Taxing the 'Not-So-Rich' Rich

Taxing the 'Not-So-Rich' Rich



http://www.businessweek.com/magazine/content/08_24/b4088081624555.htm



Many of America's affluent, squeezed already, worry they will be burdened with higher taxes

by Jane Sasseen



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June 16, 2008



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The Grunskis: He fears his $147,000 salary will be taxed at a higher rate Brad Swonetz/Redux





Obama has pledged to boost taxes only on the wealthy Chip Somodevilla/Getty Images





McCain won't be able to extend Bush cuts without Congress' help Jim Young/Reuters







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By any measure, Dr. Howard Hammer and his wife, Hope, have a comfortable life. Hammer, 40, has built a thriving practice as an ear, nose, and throat specialist, while Hope, 39, has switched to part-time work as a real estate lawyer after years at a big firm in order to spend more time with Arielle, 7, and Matthew, 9. Home is a four-bedroom house in the Philadelphia suburbs, and between them, they bring in over $300,000 a year. "We can't complain," he says. "We're certainly not struggling."



But are they wealthy? That's far more debatable. Hammer, who feels the same pressures squeezing Americans up and down the income ladder, says he's anything but. Ever-rising prices for gas, health insurance, and other expenses are hitting hard, as are the $3,000-a-month mortgage and the $2,000 he still pays monthly to whittle down his $160,000 medical school debt. A six-year residency gave Hammer a delayed start saving for retirement, so he worries if he's stashing enough in his 401(k). By the time the couple contributes to the children's college fund, there's little extra at the end of the month.



The Hammers and their like may have more to worry about come January. As he criss-crossed the U.S. battling Senator Hillary Clinton (D-N.Y.) for the Democratic Party Presidential nomination, the presumptive winner, Senator Barack Obama (D-Ill.), talked up plans to cut taxes for the middle class. To pay for the expansive new programs he's offered voters, Obama has pledged to boost taxes only on the wealthy. Recently in Indianapolis, Obama promised to save the average family $2,500 in annual health-care premiums. "That's real relief, but we can only pay for this if we finally roll back the Bush tax cuts for the wealthiest 2% of Americans, who don't need them and weren't even asking for them," he said.



Such rhetoric leaves Hammer steaming. "I don't mind paying my fair share, but people act like they're just talking about Bill Gates," he says. "We would definitely feel a hit if our taxes went up." Although a year ago he would not have considered voting Republican in November, now he's not so sure: "Do you vote your heart, or do you vote your wallet?"



Just what does it mean to be wealthy these days? When it comes to raising taxes, it's far from clear exactly where the line will be drawn. While Obama has said only couples making more than $250,000 will pay more, many analysts believe that number could change. "Rates at the top end are going up, but what does that mean for those making $200,000, $225,000, or $250,000?" asks Anne Mathias, the head of Washington policy research for the Stanford Group, an investment advisory firm.



Like Hammer, many facing higher taxes don't consider themselves part of the exalted crowd. They have good incomes, to be sure, particularly compared with the median household income of $48,200. Of the 149 million households filing federal income taxes for 2006, some 3% reported income between $200,000 and $500,000; fewer than 1% claimed income above half a million dollars.



But many also live in high-cost areas with expenses to match—and feel burned by talk of "taxing the rich" that doesn't recognize that $250,000 stretches a lot further in the South or the Midwest than in Manhattan or Silicon Valley. "There is a huge difference between what politicians define as rich and what many Americans would call middle class," says Patrick Anderson, CEO of the Anderson Economic Group and co-editor of The State Economic Handbook.



The soaring deficit, along with the fact that the Bush tax cuts expire at the end of 2010, provide much of the impetus for the coming fight over high-end taxes. If Washington doesn't act, tax rates on income, capital gains, dividends, and other areas will return to the higher rates in effect before the cuts were enacted in 2001 and 2003. Senator John McCain (R-Ariz.), the presumptive GOP Presidential nominee, has said he would extend the cuts for everyone, while Obama says he'll maintain them for all but the wealthiest. If Obama wins, some taxes could go up as soon as 2009.