Highearners pay high taxes

Bloomberg News

Spare a thought for the millionaires this week. The bill from last year’s tax increases has come due.

Put aside the tone-deaf rich and their caricatures in pop culture. Hold the class warfare. High-earning Americans who haven’t found the right dodge, or who live in high-tax states, get socked. And yet, they get relatively little for their tax dollars.

Sure, the rich benefit from the society that underpinned their success. But when it comes to their personal finances, wealthy Americans must save a huge portion of their earnings before they are fully protected from future risks and costs.

Blame the nation’s financial safety net. It doesn’t meet the needs of the poor, and it largely leaves out the wealthy.

Consider a married couple living in New York with newborn twins and earning $450,000 a year. They must amass $2 million in savings just to meet expenses that would be mostly or entirely covered in other developed countries.

For example, while university is cheap or free in many parts of the world, a private college education in the U.S. can run $60,000 a year or more. For a newborn matriculating in 18 years, the four-year bill could be almost $500,000, assuming a 4 percent annual rise in costs and no financial aid. Double that for two children if neither can get a merit or athletic scholarship. In addition, many high-earning doctors, lawyers and other professionals may still be paying off their own student loans.

U.S. unemployment benefits are little help to high earners. They’re capped at $405 a week in New York, for example, the annual equivalent of $21,060. If one or both top earners lose a job, they’ll need an emergency fund that covers at least three months’ salary.

The wealthy do get Medicare insurance at age 65. Unlike universal health care programs abroad, however, Medicare coverage has big gaps. Fidelity Benefits Consulting says retirement health care costs outside Medicare can total $220,000, not including long-term care.

And while some countries have universal longterm care programs, the U.S. covers nursing home care only for Medicaid’s low-income population.

A high-earning couple in New York City must save for all these expenses even after paying a 39.6 percent federal tax rate on income above $450,000 and a top marginal local tax rate of 12.7 percent.