Upper income: Are they rich?

They put their pants on the same way you do.

Of course, their pants might be nicer.

They are the people whose households make $250,000 or more a year, the people President Barack Obama has been targeting to bear more of the government's financial burden since he campaigned for president and who face the prospect of new Medicare taxes in the health care overhaul headed for a House vote Sunday.

They are 1.4 percent of Nebraska's households and 1.7 percent of Iowa's, which makes them slightly less common in the Midlands than in the nation as a whole (1.9 percent), according to census data. But there's more to be said about them than their numbers.

Where do they live? What do they do? What's on their minds?

The head of such a household in the Midlands is most likely to be a white, married middle-ager with a college degree who owns a home worth more than $200,000, according to census data from the past four years. In Nebraska, he or she is most likely to live in west Omaha or south Lincoln; in Iowa most often in suburban Des Moines or one of several other cities.

“Most of them I see are either professionals” doctors, dentists, lawyers and such “or business owners,” said Dennis Hein, an accountant and partner at Seim, Johnson, Sestak & Quist in Omaha. But a few would be dual-income householders of other occupations, he said.

“A lot of people in that tax bracket are low-profile. ... It's a Midwestern thing,” Hein said. “They just want to fit in.”

“An awful lot of them,” said Dick Zacharia of the Omaha accounting firm Frankel Zacharia, “don't consider themselves wealthy.”

For one thing, he said, they like most families at any income level have committed their incomes to certain goals, such as getting kids through private schools or college or providing for elderly parents. That can make them feel locked in and vulnerable to tax changes, he said.

Have the rich gotten richer?

Even that simple question apart from whether they should pay more taxes is so fraught with politics that it can set fire to any dinner-party discussion. Add religion or sex and you could start a war.

Income distribution is the statistic usually cited, but it's tricky to measure, something economists argue over a lot. What exactly should count as “income”? Should it be measured after taxes or pretax? What data should be used, since each set such as census reports and IRS figures has limitations? Is income even the best thing to measure? Maybe wealth income that's accumulated over the years would be a better yardstick?

Nevertheless, most economists agree that since the 1980s, income inequality in America has increased, after having declined during the decades after World War II.

A more important factor, though, may be the perception of richness.

Cornell University economist Robert Frank, who is known for researching this phenomenon, says people rate their economic well-being not by how much they make and consume but by how much they make and consume compared with their neighbors.

Therefore, he says, a $250,000 family living amid other households that seem to be making and spending similarly or even living next door to one of the super-rich will feel poorer than if it were living on the other side of the tracks.

For example, CNNMoney recently ranked America's 25 highest-income towns. In all of them, it said, real estate was so expensive that someone making $250,000 a year would have a tough time buying a dream house. Yet in each town, earning that income would mean doing better than most of one's neighbors: Even in the richest town, New Canaan, Conn., the median income was $231,138.

Another factor in how rich one feels can be the nature of the income.

Some small businesses are organized under a part of the tax code called Subchapter S, which allows the corporate income to be reported on the personal return of the owner. On paper, the owner could be a $250,000-plus household, yet he will bristle at being lumped together by his neighbors or the president with people pulling down quarter-million-dollar salaries.

Believe it or not, another feature of the $250,000-a-year set is recession worry, said Ron Carson, CEO and founder of Carson Wealth Management Group in Omaha, which gives financial advice to many such families.

Although “the people who live in the Midwest are patient” and mostly conservative financially, he said, he has encountered a surprising number afflicted by “the cancer of real estate speculation.” For some, that took the form of overborrowing to buy an expensive home. Others borrowed against a home here in order to buy properties near the coasts, where the bursting of the housing bubble hit harder, he said.

“They're under a lot of pressure,” and some verge so close to bankruptcy that a tax hike would push them in, he said.

In fact, Carson predicts the overextension of upper-incomers across the country is pushing the economy toward a double-dip recession.

“I think it's at least as big an issue as subprime,” the investments in mortgages based on risky lending to ill-qualified home buyers that's been blamed for the recession's first dip, he said.

The health bill aims two Medicare payroll tax provisions at $250,000-a-year households: a new 3.8 percent tax on investment income, starting in 2013, and a 0.9 percentage point increase in the tax on couples' wages above $250,000.

“They're struggling,” Carson said. “I know people find that hard to believe.”

Contact the writer:

444-1140, roger.buddenberg@owh.com

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