$400K a year is the new 'rich'

The budget deal for tax hikes on America's upper crust sets the bar far higher than the previous $250,000.

By Jason Notte Jan 2, 2013 3:18PM

Image: Wealthy woman (Corbis)The fiscal cliff deal didn't solve all the nation's economic problems, but it did answer one pressing question from the debates that preceded it: Who, exactly, are "the rich"?

The answer, apparently, is an individual earning at least $400,000 a year or couples making at least $450,000. They're the only folks who qualify for the deal's new 39.6% tax bracket, and they easily clear the $325,000 bar the government uses to separate the top 1% of income owners from the unwashed plebes below.

They're also somewhat wealthier than the demographic President Barack Obama had in mind when he suggested Monday that raising taxes on "the wealthiest 2% of Americans" could help reduce the deficit. Back then, policymakers still seemed to agree that $250,000 in income was the dividing line between rich and poor. By raising the bar, Congress just cut off 28% of the income that could have been taxed at higher rates.

Sure, people making more $250,000 still account for just under 2% of all tax filers, or about 2.85 million households, according to the Tax Policy Center. But what's the use of being "elite" if 2.85 million others are being elite right alongside you?

Clearly something needed to separate the deep-pocketed swells tacking their sloops toward Newport from the nouveau riche bombing across Lake Washington on their cigarette boats. After all, there are fewer than 1 million households with annual incomes of $500,000 or more nationwide. They're 0.6% of all taxpayers and, by jove, should get some sort of special recognition for it.

The folks below that bar don't seem to disagree. Ipsos Mendelsohn earlier this year asked affluent Americans earning $100,000 or more annually to define who they felt was in the "1%" targeted by Occupy Wall Street. On average, they cited people making at least $1.4 million a year.

According to Ipsos, those $100,000-plus households are in the top 20% to 25% of earners, but think they're in the 38th percentile. Meanwhile, super-affluent households making $250,000 a year or more in the top 2% of earners think they're in the 16th percentile.

"That's a big difference from 2006 or 2007, when everyone kind of overestimated how wealthy they were, or at least they felt like they were going to get rich, so started spending according to their perceptions," Steve Kraus, chief insights officer in the Audience Measurement Group at IpsosCT, told Ad Age. "Today, I think it's more the opposite pattern."

They may not feel 1% rich, but the $250,000-and-above earners who just dodged a tax hike are still fairly confident that they're doing better than most. According to a Gallup poll released in late 2011, it would take a median of just $150,000 a year in income for most Americans to consider themselves rich. While those making less than $50,000 a year would make do with $100,000 a year, college graduates, city dwellers, inner suburbanites and those already making $100,000 would feel flush with between $200,000 and $250,000 a year.

That's some cute schoolyard daydreaming compared to how government's newly defined "rich" view personal finance. Back in June, Fidelity surveyed 1,000 millionaires with an average of $3 million in worth and asked what it would take to make them wealthy. The answer? About $5 million in investable assets, which is down roughly a third from the $7.5 million they felt they needed a few years back.

Increased income taxes for the $450,000-plus crowd left a lot of expendable income on the table and did little to address inheritance, capital gains and other income streams that keep the top bracket on top. But wringing some more cash out of the American elite gets a bit easier when both sides are comfortable with that club's admission price.

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Jan 2, 2013 3:51PM

Why can two singles make $800k but a married couple only $450k.  Are they against marriage?

joe777 Why is someone making 100K automatically greedy and rich? What if they have kids at home or sick parents they have to care for physically and financially. What if they are saving for retirement so they don't have to depend on the government to live at subsistance level on social security alone. If eveyone earning more than 100K is greedy and rich then all the charities in this country are in trouble as well. I'm thrilled if people make a lot of money because that means less poor to care for and less taxes the government should need to take care of them. Let's all hope that we can all make more money not villify those who already make 100K. 
I hate to break the news to some folks but 100K isn't rich. Neither is 150K. Don't get me wrong its a great income and anyone should be comfortable with that income but 150K for an empty nest couple goes much further than someone with 2-10 kids still at home. I doubt that guy would say he is rich.
Jan 2, 2013 6:03PM
What about a flat tax? Thats the only way to be fair about it.
Jan 2, 2013 5:12PM
To me. anyone making 600,000  after taxes is rich. What Obama is trying to do is Punish people for making money. I don't know if America can survive 4 more years of this idiot in the White House. Small businesses are not hiring because Obamacare punishes employers for addidng employees to their payroll which would mean more people paying tax. The real problem is Obama spending our money faster than we are taxed along with his wonderful Democratic party. The Republicans are just as guilty. Politicians are insulated from the struggles that every American deals with because they have benefits fit for royalty. How about they(the Politicians ) have their benefits only while in office. When they leave office they go back to whatever benefits they had before Washington? 
Jan 2, 2013 4:38PM
For all of you who don't understand the US tax code for a small business let me explain. When the owner of a small business does his taxes and net profit that is made is put on our personal taxes. Yes that mean that even when the money is not taken out of the company we still pay taxes on this through our personal taxes. If we are penalized under the Obama plan then how can we as business owners able to compensate our employees? I make less than the 250K but when you add the profits from the company it pushes me over the limit. This in return will effect how much I can pay my employees. 400K was put in to protect small business owner and their EMPLOYEES.
Jan 2, 2013 5:43PM

Rich isn't a figure! If you have a roof over your head, food on the table and are surrounded daily by friends and loved ones who are glad to see you, then you are rich.




damn, I'm poor...

Jan 2, 2013 4:20PM
obama jsut signed recommendations to give biden, congress and government workers a raise.  Which would cost the tax payers about 1 billion a year.  Guess he wants them to fall into that rich category so they can pay their fair share as well!
Jan 2, 2013 6:24PM

This is some of the worst yellow journalism I have ever read.

“”the government uses to separate the top 1% of income owners from the unwashed plebes below.””


Class warfare is not good for our country.  Don’t worry what others have, work hard to improve yourself.  We all make sacrifices in life suck it up and stop whining!

Jan 2, 2013 6:13PM

When did it become a bad thing to earn great money?  It seems like those complaining should be using those that are doing very well as an example.  Find a mentor, put yourself in good situations......or quit complaining and make do with what you have.

Jan 2, 2013 6:02PM
My wife and I make roughly $250K gross between us, and we live in the Bay Area.  We live month to month after maxing out 401K's and paying down debt.  Those who think $250K is rich must live in Manhattan.  Kansas that is.  You can live very well in the middle of the country on this salary but not L.A., S.F., N.Y. etc.
Jan 2, 2013 6:47PM
Democrats have made it politically incorrect to be responsible and successful while making it "normal to be on the government teat".  They have made their party of freeloaders hate the successful for being "greedy"  while generating tons of compassion ( and government dollars) for all of those at the bottom for just being  "down on their luck".
Jan 2, 2013 6:22PM

here's the my plan min wage should be 10.00

and nobody pays taxes on the first 20k a yr 40k per couple

and then EVERYBODY pays 25% tax on everthing and

you pay nothing = you vote nothing

Jan 2, 2013 7:38PM

One more thing that they don't disclose is the age of the people in these demographics. My wife and I both are 55 years old. Neither of us have college educations, but as of last year reached a combined income of $200k. We both have worked our butts off since we were 18 years old and have "earned" every penny of it. Neither of us have ever been members of a union. We have continually donated our time and money to multiple causes and charities.....even when we had very little of each. Neither of us have ever been in any trouble with the law outside of a traffic violation. Simply put, our success is the result of "YEARS" of hard work and doing the right thing. Please tell me what is fair about being taxed more due to a persons income? For that matter, what is fair about being taxed less due to a person's income. Who is in charge of what is fair? Who makes that call? Our government? The same group that has gotten us into this mess to begin with? Should I mention all of the years that my family did without....due to our income? I guarantee you that what goes around, comes around, eventually.


It's time, now more than ever, for real tax reform. Flat tax. Everybody pays the same percentage of their income. Screw all of these brackets and the "what's fair" regulators that control them. People, wake up. Demand that the people that we hired to run this country do the same. Talk about fair? They have pushed BS on us for the last 100 years. Walk away from your political affiliations and dedications. Forget about the Democrats and Republicans and focus on remembering "American"!

Jan 2, 2013 6:25PM
Well, I am glad the government got that settled - and who said nothing gets done in D.C.  ;-)

Now that the US continues to have a socialist at the helm, why don't we go all the way with a flat Tax rate for all. We have Obamacare, we have Government agencies advertising all to get food stamps, we are discouraging anyone making money from investing by the tax raises for both capital gains and dividend, and we are telling small businesses by our actions to stay small because improving the business by hiring will only cost you more through such entitlement payments as contraceptive devices - what the hell, if you are old enough to F--- then you are old enough to pay for your own contraceptives.  What next - an allegiance oath - Heil Obama!   
Jan 2, 2013 5:58PM
I feel that raising the taxes on the wealthy is just  a way for the jealous, lazy uneducated liberals to penalize the educated talented people who have the drive to better themselves.  They are mostly minimum wage workers or young and still living in their parents basements
Jan 2, 2013 7:22PM

If they can't responsibly spend the money they collect now, why should they get anymore?



Jan 2, 2013 5:39PM
It is only 2% more and not 50%.    As to what level is being rich, it depends upon where you live.  I would think living in Little Rock and making 100 grand per year might put you close to the top.  Living in NYC or SF you would be middle class for single.   The reality is for most married people with two incomes and say one or two kids, likely costs you between $3,500.00 to $4,000.00 per month to pay all your bills.   This likely means you need to make 70 grand gross per year.   Anything above that would be gravy to spend as you like or to invest.    This is across the U.S. as an average and not for the most expensive cities.   Yes, there are some doctors and lawyers making the 400 grand+ plus but not all.  Many work in small cities or towns and make no way near that kind of money.   Also, many are stuck paying off very large student loans.   As to a small business, yes you must pay taxes on your personal income but if it from capital gain you will pay now 20% and not 37%.   Also, small business people can take advantage of many rightoffs that non business people cannot.  I speak from experience as a business owner.   Owning a farm is always a great way to get freebe's and rightoffs.   I say that because the Congress which has not passed anything to help people in the N.E did help farmers by giving them 8 billion dollars to pay for their crop insurance.  I thought farmers were suppose to be proud and independent.   I was misinformed.   Also, Texas and Wyoming Repubs forget about the fires and droughts when they received Federal money.  
Jan 2, 2013 7:04PM

My god we defiantly need to better educate our people, you people are fighting over

400,000.00 dollars when our Government is spending (Trillions) wake up people you are getting hosed

this Government don't care about you all they want is your money , and to keep you fighting over who should pay there fair share, this is exactly what all the Dictators tell the people , how about the Government spend less and lower all our taxes . why does our Government need to spends Trillions of dollars ? for there supporters ,for there next election

That is what we should be fighting for ????

Jan 2, 2013 6:57PM

You know who's really rich?  The elistists in washington...


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