Reagan Years: As Some Suffer, Others Prosper : Well-to-Do Benefit From Lower Taxes, Don’t Feel Cutbacks

President Reagan’s economic policies, now entering their fifth year with the submission of his new budget to Congress Monday, have brought mixed results to America’s 80 million families: better times for most who were already prosperous, little relief for most at the bottom of the ladder. In these two stories, The Times examines the impact of the Reagan program on a well-to-do family in Dallas and on a working-poor family in North Carolina.

“We’ve had a nice meal this evening,” said Bob Palmer, finishing a plate of the Spanish seafood dish called paella in his candlelit dining room. “But, in a lot of ways, our family has a very simple life style.”

Palmer, a lawyer, and his wife, Cathy, who operates her own word-processing business, earned a total of $59,000 last year, which placed them in the top 7% of American families. They live in a rambling house worth $275,000, maintain an $11,000 “security account” for emergencies, send their older son to private school and employ a maid one day a week.

They do not consider themselves wealthy. Of their four cars, the newest is a 1979 Volvo. They buy only one new set of clothes a year for themselves and dress their two sons mostly in hand-me-downs from their cousins. They eat out only once every two weeks, at a modest seafood or hamburger place. They rarely go to the theater, and they take economical vacations.

“We’re dull, dull, dull,” Cathy said with a laugh.

They are also comfortable and relatively secure, thanks in no small measure to the budget policies of the President they admire, Ronald Reagan. And, like other Americans in their income range, they are unlikely to be hurt by any of the spending cuts recommended in the new budget Reagan will send to Congress on Monday.

Although hardly touched by the massive spending cuts already made during Reagan’s first term, the Palmers have profited handsomely from the President’s tax cuts. Their federal income tax returns show that tax cuts passed by Congress at Reagan’s urging in 1981 were worth about $5,000 to them over the first three years. And their 1984 tax return, which they have not yet completed, will probably reflect additional savings of about $2,000.

Invest in IRA

In the last couple of years, the tax rate cuts have allowed the Palmers, among other things, to save $2,000 a year, which they have placed in a tax-sheltered Individual Retirement Account, thus adding to their security while further reducing their taxes.

And one of Reagan’s key business tax cuts--an accelerated tax write-off for computers used for business purposes--allowed Cathy to buy the $10,000 word-processor with which she started Palmer Business Services in 1982.

The word-processing firm that she operated out of her home brought in $6,000 last year and, although all but several hundred dollars of that was eaten up by expenses, those expenses will be tax deductions when the Palmers file their 1984 income tax return.

Altogether, the Palmers have used Cathy’s business to knock more than $8,000 off their taxable income since she began the venture.

Even before the Reagan tax cuts, which were phased in over three years, took full effect, Bob recalls, they helped the family “stay even” in spite of a $300-a-month pay cut that he took in 1980, when he left private law practice to join Dresser Industries as an environmental attorney--”to do the work I like to do.”

“We don’t think of ourselves as being rich or even all that prosperous,” Bob said. If Congress had failed to pass the tax cuts, he adds, “we wouldn’t be destitute, but it sure would have left us awfully thin.”

Certainly, they have found that a thicker cushion of money can enhance the quality of life.

“The more money you have buys you time to spend with your kids, which is very important to us,” Bob said. “Also, a lot of people have to fight about how to spend their money. We don’t have those kinds of problems. There’s a certain amount of security because we meet our bills.”

Detest Buying on Credit

In fact, they pay all their bills in cash; they abhor buying on credit. Their only major debt is the mortgage on their house, which they bought for $90,000 in 1977. With an 8.75% loan, their monthly payments are now $691, including taxes. In addition, they pay about $350 a month in utility bills.

Although many families that have benefited far less may think the Palmers have done quite well by Reagan’s economic policies, the Palmers do not necessarily see it that way. They strongly disagree with critics who charge that Reagan’s policies have helped the rich at the expense of the poor.

“That criticism is really not fair,” Cathy said, “because the people who have it are going to spend more and create more opportunities for the have-nots.”

The way she sees it, today’s enormous federal deficit was caused not by the tax cuts enacted in 1981 but by excessive spending on welfare programs. (Welfare programs account for about 8% of total federal spending.)

“Far too many people are on a nice little gravy train with Uncle Sugar,” she said.

And, if the tax cuts have provided more direct benefits to the wealthy than the poor, Bob adds, Reagan’s success at reducing inflation has enormously helped the less well-to-do. “If the President, or the government, can slow down that rate of inflation, that’s probably more important than any kind of a tax benefit,” he said.

‘We’ve Got to Scramble’

“Those who have really prospered are in the $150,000 range,” Bob said. “Folks like Cathy and I lead a good life, but we’ve got to scramble with what 90% of the folks think is a good salary. I’m really awed by people who can raise a family on $30,000 a year”--approximately the median income for American families.

Despite their relatively secure standing, the Palmers feel somewhat nervous about the future. First, large education expenses loom for their two sons, 5-year-old Michael and Matthew, 20 months, who goes by the nickname “Bubba.”

“The courts have decimated the public schools,” Bob said, contending that the cross-town busing imposed under a court order to desegregate Dallas classrooms has intolerably lowered the quality of education. The $1,600 a year it now costs to send Michael to Lamplighter, a private preschool, will mushroom to $3,400 a year in the primary grades and at least $5,000 a year in high school.

“We’ll pay for three college educations for each boy before they even get to college,” Cathy sighed.

The Palmers strongly support Reagan’s proposed tuition tax credits for parents of private school students. They had not realized that, at their income level, the proposed credits would amount to less than $100 a year--in fact, zero under a modified plan adopted by the Senate Finance Committee last year.

May Seek Better Job

Concern over future education costs has driven Bob Palmer to think seriously about looking for another job--or possibly even a new profession--that pays more.

He began his career as a federal prosecutor in Washington, served as a consumer affairs aide to President Gerald R. Ford and moved to Dallas in 1977 with his new bride, who had been working as an assistant to a member of the Federal Power Commission. Although he enjoys his work at Dresser Industries, which is an energy conglomerate, the company has fallen on hard times, and Bob does not expect dramatic growth in his $53,000 salary.

“I find a lot of my contemporaries are being challenged by going out and starting a new business,” said Bob, who is pondering whether to set up some sort of service business or go into sales. “I’m beginning to realize that, if there is any security in the world, the only security comes from something you build for yourself.”

Cathy has her own special worry about the future--the Treasury Department’s proposed tax simplification plan. The proposal would repeal two tax breaks that not only helped her business get started but would facilitate her expansion plans. These are the 10% tax credit for new business investment and the accelerated depreciation system for capital investments.

“It’s distressing,” she said of the proposal. “It would just stab small entrepreneurs right in the heart.”

Rates ‘Bunch of Junk’

Bob fears that the reduced tax rates proposed by the Treasury Department would not be enough to offset the loss of the tax breaks. “I think it’s a bunch of junk,” he grumped.

As dinner ended, Bob Palmer reflected thoughtfully on his family’s situation.

“If I were still in law school and somebody said, ‘Do you realize that, when you’re 39, you’ll be making $53,000 and own a $275,000 house,’ I’d say, ‘Lord, I’ve arrived.’ Yet, now, I don’t feel I lead a lavish life style whatsoever.

“I think a lot of people would envy Cathy and me. They think we have it made because of the material things. Well, material things may change your problems but they don’t eliminate them. The greatest riches we have are our children and not the things we surround ourselves with.”

The Poor Get Poorer; The Rich Get Richer

The annual impact of President Reagan’s tax and spending policies on average household earning less than $10,000 (the Hilton family’s bracket) and between $40,000 and $80,000 (the Palmer family’s bracket).

1984 INCOME BRACKET Less than $40,000- 10,000 $80,000 Tax cuts +$20 +$3,080 Spending cuts -410 -170 Overall impact -390 +2,910

Source: Congressional Budget Office