Taxing the 'Not-So-Rich' Rich

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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 "wealthiest" Obama means married couples earning more than $250,000; for a single taxpayer, the equivalent income would be roughly $200,000. Today, taxpayers making that much fall into the top two federal income tax brackets, paying rates of 33% or 35%. Their rates would revert to the 36% and 39.6% top rates used in 2000. The same households would also see a bump up in the rates they pay on capital gains and dividends, both of which now stand at 15%.

Austan Goolsbee, Obama's top economic advisor, points out that only a relatively small number of high-end earners would be tapped, while the majority of Americans would see their taxes fall or remain the same. "Income growth in that group has been extremely rapid, while it's been stagnant for everyone else," says Goolsbee. "It's hard to argue they face the same struggle to get by."

Yet for many close to that $250,000 cusp, what sounds like a lot of money often doesn't feel like it. "Depending on where you live, $250,000 is middle class, at best," says Michael Ginn, 49, a longtime media executive who lives with his wife, Dafne, 34, and 3-year-old daughter, Erin, in the New York suburb of Pelham; their second daughter is due in July. Though his income has topped $300,000 for more than a decade, Ginn says he's never felt so stretched. With the cost of everything from health insurance to upkeep on his 90-year-old home surging, even as he takes on new expenses for his growing family, Ginn can't stash away anything near what he once did for retirement, let alone save for college. "We're just dog paddling now," he says. He argues that if Washington is going to raise high-end taxes, then the local cost of living should be taken into account.

STILL NOT ENOUGH

Yet limiting tax hikes to the $250,000-and-up set probably won't pump enough money into the U.S. Treasury to pay for new spending programs and deal with the ballooning deficit, even when combined with proposed corporate tax increases. Analyst Daniel Clifton of Strategas Research Partners has tallied some $350 billion in promised new annual spending by Obama. He has outlined plans to pay for new programs without increasing the deficit, but budget analysts are skeptical. "Targeting just a fraction of the population [for an increase] is not going to generate the revenues they need," says Roberton Williams, an ex-Congressional Budget Office staffer now with the independent Tax Policy Center. Adds Clifton: "They are going to have to find a way to get more from the middle class."

That prospect has many well below the $250,000 threshold convinced that they, too, could be coughing up more to Uncle Sam. Ken Grunski, the CEO of international cell phone provider Telestial, lives with his wife and two young children in San Diego—a pricey area where, he points out, plumbers make upwards of $90,000. Grunski brings home $147,000 a year; enough to live in a modest three-bedroom house, but no more. Every time he hears politicians talk about targeting high-end earners, he feels like he's right in their sights. "I'm resigned to having my taxes go up, but we're not living extravagantly here," he says.

Obama could lose support if too many people who see themselves as stretched members of the middle class get tagged as wealthy. "If they draw the line in the wrong place, they risk alienating an important constituency," says Mathias. That's a prospect McCain, who has lost no opportunity to remind voters that he would cut taxes while the Democrats would raise them, would be only too happy to exploit. Yet even if McCain is elected, analysts say taxes at the top end will probably rise. With the Democrats likely to wield a stronger grip on Congress after the election, there's little chance they'd agree to a renewal of all the Bush cuts. "People think the President can just extend the cuts, but he can't," says Stanford Group's Mathias. All of which explains why Mathias has been warning her clients that the next couple of years "will be a very bad time to be rich." Whatever, precisely, that means.

Join a debate about whether $250,000 a year makes a household rich.

Sasseen is Washington bureau chief for BusinessWeek.