Has wealth become a dirty word in these recessionary times? A survey released last week by American Express revealed just 29% of high-income earners actually like being described as wealthy, down from 35% last year.
There are probably a few reasons that the rich are trying to keep a low profile.
For starters, it’s not a great look to be seen gloating about your bank balance when workers are losing their jobs and businesses are going to the wall. There is a lot of anecdotal evidence to suggest the rich are trying to be less conspicuous about luxury purchases (by shopping online, for example).
Second, many of these high income earners may justifiably feel they no longer deserve the “wealthy” tag. Recent rich lists from Forbes and Britain’s Sunday Times have shown that the fortunes of high-net-worth individuals have fallen by round 30% to 40% in the past 12 months.
That’s clearly affecting the psyche of the wealthy – the American Express survey found 78% of respondents are looking to see where they can save money (up from 10% a year ago) and 53% are fretting that they could run out of money (up from 41% a year ago).
Finally, there is a strong chance that many high-income earners feel that being known as “wealthy” is like putting a target on your back.
Tomorrow, the Rudd Government is widely expected to take aim at wealthy taxpayers in a bid to plug its ever widening budget deficit. While Prime Minister Kevin Rudd has guaranteed that previously announced tax cuts for high income earners will go ahead, commentators are tipping changes to superannuation rules for the wealthy, greater means-testing for welfare benefits, and changes to tax breaks for holiday homes and hobby farms.
But Australia’s wealthy are getting off lightly compared to the United States and Britain, where President Barack Obama and Prime Minister Gordon Brown’s plans to increase taxes for the rich have created controversy among wealthy entrepreneurs.
Brown’s decision to raise the top tax rate from 45% to 50% has met with anger from entrepreneurs, led by the always-quotable Richard Branson, who declared that the tax hike would “block the next wave of entrepreneurs”.
“In a very mobile world, where talent can move countries easily, we need to ensure we do not put off the business-builders from setting up in the UK,” he told Britain’s Telegraph newspaper.
Actor Michael Caine, pubs-to-insurance entrepreneur Hugh Osmond, and Peter Hargreaves, co-founder of financial services group Hargreaves Lansdown, have all threatened to leave the country.
“Why wouldn’t I leave?” Hargreaves told the Sunday Times.
“If I stay I’ll pay half a million more a year in tax. If I leave the country I can save £3 million a year. It’s almost like the Government is offering me a bribe worth £3 million a year to go and live abroad.”
What has annoyed Branson and co most is the fact that the measure is only expected to raise around £2 billion – small change when you consider Britain’s debt stands at ?743.6 billion.
Across the Atlantic, Obama’s plan involves increasing the tax rate on those households earning $US250,000 or more from 36% to 39.6%. As an added sting, Obama has proposed that those earning over $US250,000 can deduct only 28% of the value of any donations, down from 33% or 35%.
Obama’s plans has provoked howls of protest from business groups, Republicans and, not surprisingly, charities. More recently, a growing number of commentators have been asking whether someone earning $US250,000 is actually wealthy at all.
“The flaw in that definition of rich is that plenty of families making $US250,000 a year don’t feel rich,” wrote Geoff Colvin, Fortune magazine’s senior editor-at-large, in a column published last week. “They probably see themselves as upper middle class, especially if they live in blue-state coastal cities and suburbs.”
Colvin cites a website called bankrate.com, which has measured how much it costs to afford a similar quality of life in different cities.
“An income of $US250,000 is a lot richer in Abilene, Texas, than in New York’s Nassau County, where it takes $US430,000 to enjoy a similar quality of life, according to bankrate.com,” Colvin writes.
It’s not hard to understand why liberal politicians are taking aim at the wealthy – they’re a soft target and they’ve got the money.
But targeting rich people in the middle of a recession doesn’t necessarily make much sense. The governments of Australia, Britain and the US need entrepreneurs to keep taking risks, keep hiring staff, keep growing their businesses and keep making profits.
Clobbering the wealthy for a relatively small amount of money doesn’t provide a great incentive to help kick-start the economy.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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