$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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323Comments
Jan 2, 2013 5:17PM
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The rich did not get a tax hike - it only returned to pre-Bush tax cuts as it should because trickle down does not work.  Over the last decade the rich have gotten richer and the rest of us had to eat cake.  How about no one who makes $100k or less a year plays any income taxes?  The extra money will create demand for goods and services - which the rich will have to provide - and will therefore make more money which will be taxed by the government at a higher rate.

 

401K is another gret rip off - the money is used to prop up wall street - billions upon billions of dollars just pours into the system with very little control - if you have money in a 401K - you are paying top dollar fo rthe stock - the brokers and other traders know when the quartly holdings areto go into the market and raise the price of stock accordingly.  If you don't believe me track your portfolio and the individual stocks that make it up.

Jan 2, 2013 5:12PM
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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 5:07PM
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I never made more than 45000 a year. and i did just fine.If you make 100000 and cant pay more taxs to help the contry out. your selfish like most americans. THAT DID NOT SERVE IN THE MILATARY DURING DRAFT YEARS. THEY ALL WENT TO COLLAGE.a nd whos running the country them.

Jan 2, 2013 4:59PM
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im 1/8th rich, bitch. what a joke. 400K is declared rich. So 90% of the US is not. How bout we share the wealth?
Jan 2, 2013 4:58PM
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joe 777....I'm not really sure what kind of answer would satisfy you....??
Jan 2, 2013 4:53PM
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Exactly john James;  Me thinks that's exactly why they pushed the figure out to 400 big ones...

 

As a Sole proprietorship, Partnership or a Schedule S Corp....You might stay under those figures..??

 

Anything else, You might as well be a full blown Corporation...Or a LLC, which many do today.

 

Farms/Ranching are another Animal, but ours never generated that much profit, and most I knew found ways to make sure they didn't....All legal by IRS standards.

And the Commercial business my wife ran for 20 years, never took her over the lower thresholds.

Jan 2, 2013 4:52PM
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AND MOST PEOPLE THAT MAKE THAT KIND OF MONEY WHJERE NEVER DRAFTED IN THE MILATARY.
Jan 2, 2013 4:51PM
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i am not saying your rich. iam saying you need to pay a little more. And every 50000 more, you pay higher tax bracket. dont start at 400000.

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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. 
Jan 2, 2013 4:40PM
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Don't think it's anything against marriage...Just a number they came up with...

When someones wife or husband makes over 400K per year, usually the other is involved in a business or their own endeavors...Like charitable work...

 

You really have to be greedy, for two of you, out trying to make 400K per year...

But such people as Celebrities, Doctors and Lawyers in the Family, have a tendency to make much more then the 400K.

Think also as such of the Clintons or the Obamas, Bushes et..al.

 

Maybe we will see a lot of "on paper divorces", but I really doubt it....??

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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 4:38PM
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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 4:28PM
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 i THINK THEY SHOULD HAVE RAISED TAXES ON ANYONE MAKING 100.000 THOUSAND A YR. AND SCALE UP. THE RICH GREEDY PEOPLE ARE MAKING THIS COUNTRY A SAID PLACE TO LIVE.

Jan 2, 2013 4:20PM
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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 4:18PM
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$400,000?

Hell, I'd be ecstatic to make $40K

Jan 2, 2013 3:51PM
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Why can two singles make $800k but a married couple only $450k.  Are they against marriage?

Jan 2, 2013 3:44PM
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Due to the years of low taxes and run-away profits while the normal working person's salary has remained stagnant there are several new classes of rich that were created and they should all have their own bracket to account for these groups. 

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