Robert Frank writes in the New York Times on 11/28/10, that taxpayers who have incomes above $250,000 can handle the tax increases embedded in the expiring tax cut legislation from the Bush Administration because it would not “…affect their own standard of living.” He notes further that “Truly wealthy families wouldn’t have to alter their spending at all.” Implicit in his commentary is that the wealthy merely spend the bulk of their income. Nowhere does he suggest that a material portion of the wealthy earners incomes are saved. A popular book that made the rounds several years ago, The Millionaire Next Door, chronicled the fact that most of the millionaires in the United States got that way not necessarily because they made huge incomes, but because they tended to be entrepreneurs who saved a significant portion of their earnings and actually lived quite modestly. They did so by explicitly expecting to use their savings to support themselves when their businesses inevitably faced difficult periods. They also did so to provide the funds for their own growth in case banks could not, or would not loan to them. Sound familiar? Taking this perspective, Mr. Frank might want to reconsider the impact that higher taxes might have on “wealthy earners” and their future hiring plans.
Robert M. Bilkie, Jr., CFA