[FoRK] I really should quit reading WSJ

HK Pang hkpang at gmail.com
Thu Apr 16 17:20:20 PDT 2009


from today's WSJ.

Wealth-Less Effect: Earning Well, Feeling Otherwise

By GARY FIELDS
Ellen Parnell and her husband, Donald Parnell Jr., seem like the kind
of well-off couple President Barack Obama has in mind when he suggests
raising taxes on families earning more than $250,000 a year. A surgeon
at Fort Sanders Sevier Medical Center in Sevierville, Tenn., he drives
an Infiniti. They vacation at a beach resort every year.

Yet, right now he is working seven days a week. The car is more than a
decade old, the vacation home in Sandestin, Fla., comes at a moderate
weekly rate because members of Ms. Parnell's extended family own it.
Her family of five would like more room than they have in their
2,500-square-foot home, yet they can't afford anything larger. The
downturn has them skittish about paying for renovations.

"I'm not complaining, but the reality is Obama may call me wealthy,
but I thought we were just good old middle class," says Ms. Parnell.
"Our needs are being met, but we don't have a load of cash to cover
wants."

It is a tricky situation in which some Americans find themselves after
a long boom: They are by no means struggling, compared with the 98% of
Americans who make far less, but depending on where they live and the
lifestyle choices they have made, they don't necessarily feel rich,
either. Worse, in their view, they are facing the same tax rates as
those making millions. Some of the expenses are self-inflicted -- like
private-school costs and conspicuous consumption. Others, though, are
unavoidable, like child-care costs, larger health-care deductibles and
education expenses, especially college.

Under Mr. Obama's budget proposal, two of the highest tax brackets
would see rates rise, and deductions would be reduced for households
earning more than $250,000 annually. President Obama said Wednesday,
"We've made a clear promise that families that earn less than $250,000
will not see their taxes increase by a single dime."

By any statistical measure, that income level is at the top of the
bracket. But for those closest to the line, the money might be less a
sign of affluence than it is of the industry of dual-income couples.
It is possible, say observers, that veteran civil servants could fall
into the higher tax bracket.

The political calculation is dicey. The White House needs the
additional revenue to cover some of its ambitious policy agenda,
especially a health-care revamp. But some polling data suggest
households that earn above $200,000 went heavily for Mr. Obama in
November.

Until more details of the tax changes are disclosed, it is unclear
whether people making big six-figure sums will be affected at all.
They may, for example, be able to avoid tax increases if any number of
deductions pull them below the threshold. But that isn't stopping
those who earn near the threshold from worrying about it.

Already, many members of Congress are seeking to scale back some of
the proposed tax increases, which call for raising the top federal tax
rates to 36% from 33% on households earning $250,000 or above.

Wealth and comfort "depends on where you're coming from," said Lois
Avitt, a sociologist and founding director of the Institute for
Socio-Financial Studies in Charlottesville, Va. To a family earning
$50,000, $250,000 is well off, but for the family earning $250,000,
rising college and medical costs and dropping home values make the
perception debatable.

The reasons for the insecurity are that net worth is declining at the
same time that expenses like education and health care, two of the
biggest concerns cited by members of that income group, are going up
faster than wages and income, says Heidi Shierholz, an economist at
the Economic Policy Institute in Washington. "Those are the biggies.
They are huge parts of the set of middle-class aspirations, and the
prices of those have increased way faster than income." The bursting
of the housing bubble makes that more stark.

Mark Zandi, chief economist at Moody's Economy.com, says data show
that over the last 10 years, education costs have risen 5.91%
annually, and health- care expenses have gone up 4.16% annually, while
wages and income have risen only 3.7% over the same time span. That
means many families are seeing a greater percentage of their income
going toward those two areas.

Education costs, which are far outstripping wages and income, are
especially worrisome for this income bracket because upper-income
earners are much less likely to receive the kind of financial aid that
lower income levels can expect.

The drop in net worth has been staggering. The Federal Reserve, in a
recent report, found that U.S. households' net worth dropped by $11
trillion, a decline of nearly 18%, during 2008. That wealth includes
everything from home values to mutual funds and life insurance,
college and pension funds. The decline equaled the combined output of
Germany, Japan and the U.K.

Changes to the tax code don't generally make adjustments for high
costs of living in particular areas of the country.

San Jose, Calif., Mayor Chuck Reed calls a family living in Silicon
Valley earning $250,000 "upper working class." That is about what two
engineers working at a technology firm can expect to make, but "a
family earning $250,000 a year can't buy a home in Silicon Valley," he
said.

James Duran owns a human-resources company in Silicon Valley and is
president of the Hispanic Chamber of Commerce in California. He
supported Mr. Obama, but is worried about the tax proposals. He has
laid off some employees in recent months and has been wondering how he
can fund an extension of those workers' health-care benefits.

Mr. Duran said he and his wife earn about $400,000 annually, but "I'm
barely getting by." They have high property and state taxes, as well
as college tuition and savings to cover. "I'm an Obama man, but this
side of him is a difficult pill for me," he said.

Van Moore, an optometrist in Sevierville, makes just enough in his
practice that he worries he might qualify for the tax increase. Mr.
Moore said he was contemplating adding two staff workers and another
doctor to his practice, but then the economy went soft. In the years
after he finished optometry school, his first job brought in less than
$20,000 a year. Then he made $50,000 for several years, all the while
dealing with his $150,000 student-loan debt, which he still has. Now
he is making just above $250,000.

"I'm not in a mobile home with no utilities or running water and holes
in the floor," he said. "I'm not poor, but I'm not rich."

For the Parnells, their perception of themselves is based on the math.
The value of their house is down $60,000. Ms. Parnell says the
couple's gross income last year was about $260,000. Taxes, premiums
for medical care and deductions for Social Security and their 401(k)
contributions cut the gross to about $12,000 per month. The family
tithes $1,300 a month at their church. Their mortgage, second mortgage
and payment on land they bought is nearly $4,000 a month. Other
expenses, including their family car payment, insurance and college
funds, as well as basics like food, utilities and donations to
charities, leave them with about $1,200 left over each month.

"I'm not after sympathy. We are blessed. What I want is a reality
check on what rich means," Ms. Parnell says. "I can pay my mortgage
and I can buy some clothes. I'm not going without, but I'm not living
a life of luxury."


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