HENRYs (pg. 2)

Of course, how far those mid-six-figure salaries stretch depends heavily on where the HENRYs live. A $300,000 paycheck goes a lot further in Peoria or Wichita than in Manhattan or San Francisco. "If I lived somewhere else, like Indiana where I grew up, I'd own a minor-league team," jokes Hall Davidson, 59, of Hollywood Hills, Calif., who produces educational videos and whose family income is just over $250,000. Twa, who relocated from St. Paul to Northern California for his job, is getting a salary increase from $144,000 to $250,000, partly to compensate him for the far higher cost of housing. Even so, he can't afford what most Americans think of as a luxury home. For the HENRYs, a $1.5 million mini-mansion with $9,000 a month in mortgage and property tax payments would be a budget buster. As a result, HENRYs who live in areas with high housing prices own modest homes.

In the L.A. suburbs, Tony Molino, his wife, Barbara, and 7-year-old daughter share a three-bedroom Cape Cod-style home that he bought 20 years ago for $388,000. His monthly payment for taxes and mortgage: $3,100. The HENRYs hold down their housing costs so that they can lavish money on what they consider the ultimate staple, their kids' education. Selden, the North Carolina dentist, and his wife, Kym, a pediatrician, spend $1,680 a month for day care for their two children, ages 6 and 3. That number will rise by $1,000 when their third child arrives early next year. They're also putting away $750 a month per child - that will be $27,000 a year - for college. John and Kym want to send the kids to her alma mater, Duke. They figure it will cost a total of $500,000 per child when their kids are ready to attend in 2020 and 2023. "I had no idea I'd have to accumulate that kind of money for college," says Selden. "I thought that money would be going into savings."

Even at the upper end of the HENRY group, our cover subjects, Lindsay Mayer and her husband, Zach, a Dallas attorney, feel stretched on $500,000 a year. Lindsay, a senior manager at telecom provider Avaya, has also started her own small business on the side, investing $60,000 to launch a company called Maelee Baby that markets stylish diaper totes. Once again, their biggest expense outside of taxes and their mortgage is the children. The Mayers pay $2,200 a month for child care for their two kids. "Child care is the real killer," says Lindsay. "We've achieved so much. We can't understand why we're still worrying about money." The last ten days of each month, she and her husband invariably remind each other to watch expenses. "It baffles us that we have to say that to each other," she says.

Folks like the Seldens and the Mayers are a fat target for tax increases because they prospered mightily - far more than the middle class - from the recent boom. From 2002 to 2006 the total income of the HENRYs, who earn $250,000 to $500,000, rose by 34%, vs. 22% for households earning between $64,000 and $109,000. During that period companies wrested far more productivity from their midlevel employees and were extremely cautious about adding new factory workers, secretaries, or salesmen, a major reason that profits exploded. But it was a great time for executives in fields from natural resources to financial services, not to mention real estate. "That was a golden period," says David Tysk of Ameriprise Financial, who has 200 clients who fit the HENRY profile. "High earners could always move to another good job across town with a good income."

Now, however, the HENRYs are suddenly fearful for their jobs and distressed by their shrinking portfolios. They operate without the safety net that the rich enjoy. "How quickly things change," says Tysk. "Local companies that were hiring in the good times, like UnitedHealth and ADC Telecom, are now laying off high earners."

Now that the government needs more revenue for bailouts and stimulus packages, is it fair or efficient to burden the HENRYs with even bigger tax bills? The case in their favor: As the HENRYs go, so goes the struggling economy. Their stats tell the story.

For the 2006 tax year, 3.1 million HENRYs accounted for about 10% of all U.S. personal income, yet they contributed 17.3% of all federal income taxes. That's almost as much as the 12 million families and individuals who earned between $100,000 and $200,000. (The Tax Policy Center estimates that HENRYs now number five million and will pay 24% of federal incomes taxes in 2008.)

NEXT: HENRYs (pg. 3)

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