Tech

The Apple Tax: America's Costly Obsession

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With the "fiscal cliff"looming, taxpayers are wringing their hands about all sorts ofthings. Income taxes might rise, dividends might get walloped,lifetime gift-tax exemptions might get slashed.

But when it comes to immediate impact on their wallets,maybe they should be thinking about something else entirely: TheApple tax.

Americans are shelling out big bucks annually to outfit theentire household with Apple products. And they are spendinghundreds - if not thousands of dollars - more each year for theunexpected Apple "taxes" -- add-ons that lock them into theApple system: iTunes downloads for music, movies and games,along with subscriptions and accessories.

Then there are the replacement costs for lost or brokenequipment. For a family with multiple children, each with theirown technological needs, the total annual bill can get downrightugly -- like going over a familial "fiscal cliff."

Just ask Sam Martorana. A human-resources specialist for theairline WestJet, Martorana's Vancouver household consists ofthree people and no less than nine Apple products. Betweenhimself, husband Ron, and stepson Evan, they own three MacBooks,two iPhones, two iPads, and two iPods.

"Oh my God, do I have to total it all up?" asks Martorana,40. "It's so depressing. I'd say we spent at least $5,000 on allthat stuff, including $700 in the past year alone. I totallyhave a weakness. I fell in love, and that was it."

Martorana is hardly alone in forking over so much money tothe tech juggernaut. In 2011, the average amount U.S. householdsspent on Apple products was $444, according to Morgan Stanleyanalyst Katy Huberty.

That figure has been rising smartly every year. In 2010 itwas $295. Back in 2007, it was only $150.

And we might only be seeing the beginning. If Apple rollsout its own HDTV, as expected, Huberty sees annual Applespending by households doubling, to $888 by 2015.

Apple products are a must-have this holiday season. AReuters-Ipsos poll finds that one-third of consumers arethinking about buying a tablet computer - and most of them wantan iPad or an iPad mini. About one-quarter of those polled saythey'll cut back on other holiday purchases this year to affordthese pricey gadgets.

The analogy of an Apple tax might sound facetious, but thinkabout it. Median U.S. household income was $50,054 in 2011,according to the Census Bureau. That means a sizable chunk ofthat is getting diverted to Apple headquarters in Cupertino.

Remember, this is not something that consumers are beingforced to pay. They are dipping willingly into their ownpockets, because they're essentially slaves to the devices.

"For so many children, the acquisition of an iPad, iPhone oriTouch has replaced the first bicycle or the first driver'slicense," says Paco Underhill, founder of consulting firmEnvirosell and author of several books on consumer behaviorincluding "Why We Buy: The Science of Shopping."

"I have an image of the 9-year-old clutching his first phonelike a teddy bear when he goes to sleep at night," he says. "Icredit Apple with foresight to recognize what the connectivityprocess means to people. It's one of the few companies tounderstand that technology is no longer technology. It's anappliance."

Reno mom Jessica Torres is very familiar with thosemodern-day "appliances." In 2011 alone Torres' family splurgedon a new iPhone, an iPad, an iMac, a MacBook, an iPod Touch (andbought her husband's mom an iPad for good measure).

With two daughters, age 3 and 9, Torres' purchases arelikely to ramp up even more in years to come. "We easily spentover $5,000 last year on Apple products," says Torres, who runsthe blog MyTimeAsMom.com. "We've sent them a lot of money overthe years. I'm definitely an addict."

Customers like Torres are fueling Apple's eye-poppingearnings, which were $8.2 billion for the fiscal fourth quarter.That was up from $6.6 billion a year earlier, and amazinglystill qualified as a 'miss,' which demonstrates just how highexpectations are for the company.

"People spend more and more as the products are perceived tobe better and better," says Michael Gartenberg, researchdirector at technology consulting firm Gartner. "Aspirationalproducts tend to make more family members want to own, andthat's why we see Apple products on so many holiday wish liststhat are crossing age, gender and other demographics."

As for Martorana, his family's indentured servitude to Applelooks like it will continue indefinitely. He is looking toreplace his MacBook with a newer model within a year or so,which he guesses will cost at least another $1,300. While heloves the products unreservedly, he sees no way out of theannual Apple tax.

"With my MacBook, iPad and iPhone, everything is linked,"says Martorana, who laments that Apple products are so popularthat they never seem to go on sale. "All of my music and photosare in their iCloud. So I don't know if I'd even be able toswitch to another product, even if I wanted to. Apple definitelyhas its hooks in me."