WHAT TAX CUT?

By Daniel Kadlec

The new tax bill has something for everyone, it's true: a cornucopia of savings for the middle class, plenty of goodies for the rich and poor--and a dagger in the back for upper-income wage slaves. The most pathetic of these victims are the high-earning slobs who live middle-class life-styles because of the high costs in cities where they must work and the draining expense of things like child care. O.K. No sad violins for onetime yuppies now pulling down $100,000 a year. Things aren't so bad for them. But that income isn't exactly the stuff of winters in Bimini. And the new tax bill deals this bunch out in a big way.

Wealth is a relative thing. We can all agree that Bill Gates has it and that the typical bus driver does not. But in between, much depends on individual circumstances. It's no stretch to interpret $100,000 as a lot of money for a childless couple in Louisville, Ky., where life is good and the cost of living is low. But that same money disappears fast for a two-earner family in a high-cost city like New York, Chicago or Los Angeles, with three children approaching college age and parents who may need financial help. Yet the new tax bill arbitrarily sets that level as the threshold for wealth. Provisions for education and child tax credits and dream IRAS are phased out at household-income levels between $80,000 and $160,000. With that much income, lawmakers presume, families already have enough money invested in things that will be sold for a capital gain. That's the bone that was thrown to the wealthy--a lower capital-gains tax rate. It's a valuable bone, for sure. The catch is that you have to be invested in order to gnaw on it. The superwealthy will do fine buying and selling things. But many wage slaves just don't have the cash.

Consider the plight of Mid L. Manager. At age 46, he's reeling in $110,000 a year. When the last of his three children started school, his wife went back to work, and she now makes $50,000. It sounds like a lot of money, even to him. But his job is in the big city, where federal, state and local income taxes, which have not changed, eat up nearly a third of his gross household income and nearly half of every raise. On an after-tax basis, his wife's job barely covers the cost of dry cleaning and a mother's helper, without whom she could not work. Manager's nothing-fancy four-bedroom, two-bathroom house cost him $475,000. So he has a fat monthly payment. He'd love to invest more in the stock market. But his eldest child starts college in three years. Every spare dime goes into a short-term bond fund, where it is certain to hold its value and be available when the tuition bill arrives. It's all Manager can do to fully fund his 401(k) plan, which is in stocks. But that is a tax-deferred account. So the lower gains-tax rate is no help.

Is Manager wealthy? He certainly doesn't feel that way. Still, he's thankful that the new tax bill at least doesn't hurt him. Sure, he believes there's a fundamental inequity about income thresholds for tax breaks and thinks that if they must exist, they should be higher. But he knows it would not be politically correct for someone of his means to complain. So he won't. That's why I'm doing it for him.