$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.


More on Money Now

314Comments
Jan 2, 2013 9:16PM
avatar
Obama wants your money regardless and will do almost anything to get it, taxes was just one of the things as the stuff rolls down hill. Watch out.... and if you thought you lucked out, ha it won't be long until you will find another hand in your pocket....like raiders in the night the Obama clan will be there. 
Jan 2, 2013 9:09PM
avatar
Rich to me is being DEBT free.  I learned that from a very frugal grandfather.  Stay single and child free and you'll be rich....at least financially.  Luckily my grandfather didn't stay singe and child free! 
Jan 2, 2013 9:08PM
avatar

I'm not writing to get a thumbs up or down either way here, I'm simply posting my opinion and thoughts..  First, I feel blessed to live in one of the best countries in the World where I am able to openly epress my perspective on whatever topic I am moved to write about.  Second, I feel equally blessed to be able to participate in public debate and even argument about matters that are important to me and my family.  I am a guy who grew up poor.  My family and I, four sisters, my mom and dad, lived in about 550 square feet of living space and got by on around $380 a month when both my mom and dad were able to work.  For fun, we played outside and swam in a pond covered in seaweed and runoff from the factories of the small town I grew up in.  At 18, I opted to join the Air Force out of a sense of wanting to help protect my country and fight for freedom and democracy.  I know right?  It even looks corny as I write it!  I made about $14,000 a year.  I saved more than half of that to be able to one day go to college.  When I did go to college, I worked two part time jobs and served in the reserves on weekends.  I graduated with a small family and a respectable 3.4 GPA and got a job making $19,780.  I was happy to pay more because I earned more and I lived in one of the greatest places on Earth. 22 years later, I may be considered in the 28th percentile in terms of my and my wife's combined earnings.  We pay annual taxes that amount to what is considered entry-level middle class.  We support my sister and my orphaned nephew and our own two kids.  We do not consider ourselves rich.  We live below our means, try to pay most of our bills on time and are even stronger and more faithful in our belief that although our country isn't what it used to be, it's still moving to promote freedom and democracy and still represents what nearly 7 billion people dream of.  If you live in the US, make approximately $50,000 in combined family income per year, you are in the two (2) percent in terms of global wealth.  If you do not fall into this category, my friend, you have more hard work to do.  Anyone is capable of achieving their dream here- anyone who isn't hampered by a disability or mental illness that prohibits them from contributing.  I flipped hamburgers, I cleaned toilets, I sloshed in a toxic paint factory, I picked tobacco.  I had no shame in whaterver work I did.  I simply took the approach that I wanted to have a different life than my parents.  I wanted to be able to have some options.  I didn't care how big or small those options may be, I just didn't want to have the feeling of hopelessness, or hunger.  God bless Amerca!

Peace!  

Jan 2, 2013 9:01PM
avatar
Let me say this If lowering taxes creates jobs and great oppertunities we would not be in a recession today. We would have a booming economy and not be worried about too much. What has happened to this country is greed plain and simple. We no longer make that many items as we used to why Profit margins aka greed we could still manufacture everything in this country but that would lower the amount of money companies line their pockets with why does a ceo need millions greed. I have no problem with anyone who wants to make a better living for themselves what i do have a problem with is when it comes at a cost to others around the country. We have been de-regulating industries in this country since the 80s and it led to a world wide finacial collapse. Why does gas cost  over three dollars a gallon on average when adjusted for cost and inflation it should be under 2 dollars a gallon greed. When those who have money wage a war of propaganda to convince the nation they are not the problem I have an issue with that. Profits are fine Greed is what will ruin our world.
Jan 2, 2013 8:54PM
avatar
Anyone want to talk about a flat tax? Pros and cons?
Jan 2, 2013 8:53PM
avatar

Interesting idea .... if the democrats are the poor persons party, and the republicans are the rich persons party ... who has incentive to put policies in place to make more americans wealthier? 

 

the democrats who get votes from the poor?  or the republicans who get votes from the poor ... i mean the rich.

Jan 2, 2013 8:52PM
avatar
If you work for Uncle Sam, you are rich.  You get benefits and are overpaid and underworked and there are tax breaks not available for the private sector.  (For example, your benefits are not subject to state taxes.)  The tax rates should hike for federal employees.
Jan 2, 2013 8:52PM
avatar
The really crazy part is we just let them raise the deficit! The dems can not figure out that if you are what they consider wealthy you probably own your own business. Raise my taxes and I raise prices to the 99% to recover any lost income. Who really pays? We have got to wake up and realize spending is the problem and the Washington Clan will spend to keep you happy. The 99% may think this is a victory but believe me the 1% will survive. We are all in this together and will solve this problem only if we stick together. We live in a land of unparalled opportunity. As a 1%er I have no problem paying my share. But we must have a president and congress with the guts to make decisions that uses increased tax revenue while reducing spending to make this country better for all. Wahington is the problem , not the wealthy.
Jan 2, 2013 8:41PM
avatar

Life is a game.  everybody rich or poor works the system.  

the rich blame the poor for being lazy, but the rich would never do the work the poor do for as little as they do it for.  when they see they can sit on their **** and have roughly the same as if they work why blame them.  Fix the system.

The poor blame the rich for being greedy, taking enormous rewards and offering as little as possible for those that work for them.  they take on enormous responsibility for their employees and enormous risk, why shouldn't their reward be larger? so when they realize they see that they can dodge taxes and regulations so they can become wealthy faster, why blame them? Fix the system.

everything should sort itself out if you fix the system so work is rewarded and the value each person creates is rewarded in proportion to how much value they create.
Jan 2, 2013 8:41PM
avatar

Does everyone remember the Housing Bubble - and how it was caused?  GSE's ( fannie and freddie ) where mandated by the US gov to buy subprime loans - creating demand for banks to loan out subprime ( because Fannie and Freddie had to buy it by Gov mandate )  and so on......  I propose we are creating a new bubble - A far worse bubble - I have coined it the Poverty Bubble.

In a free market food and resources are not given to people - they are earned by people.  In this system children only eat if their parents can provide for them.  Sounds cruel right?  But really it is a balance.  No one wants to watch their family members starve - so they make smart decisions like choosing not to expand their family with mouths they cannot feed - or getting abortions.

 

Over the last 5ish decades the US government has swayed away from this market result; flooding resources and feeding families and children who would previously not survived.  In essence giving them ability to create more children who they cannot support. Do you see the vicious cycle? We are making a new bubble here in America - A Poverty Bubble.  Where we feed and encourage individuals to have children they cannot afford.  creating even more poverty afflicted homes. 

 

The majority of people who are "poor" in this country are lazy.  Case and point?  FASFA has been running since the 1970's.... How many of these so called "helpless poor people" have bettered themselves using the FASFA program?  Once again case and point - Did you know that only 27.2% of Americans have a bachelors degree?  of that 27.2% the large majority had parents who also obtained atleast a bachelors degree. 

 

The realization is this - Rich people tend to stay rich for generations, because they prepare their children for success.  Poor people also tend to stay poor for generations - because they do not prepare their children .... Problem is we are making more poor children than ever due to welfare.

Jan 2, 2013 8:26PM
avatar
If you think about this if pepole getting food stamps and wealfair had to take a drug test and failed it did'nt get food stamps anymore for that reason wounder how much the numbers would shrink. And how  much that alone would save the tax payer.
Jan 2, 2013 8:25PM
avatar

And here I am scraping by on $8k a year and going to school full-time in hopes of becoming a surgeon someday. 

Jan 2, 2013 8:21PM
avatar
It doesn't answer anything, it was a cobbled compromise that nobody is happy with, how does that define anything?
avatar

the comperative between two famillies it's because they are both does not have the same job but I thing maybe they work different hours one make $450 and the other make $800 dollars because their work .

Jan 2, 2013 8:15PM
avatar
True blue Marxism at work here by the liberal commie democrats and their minions the liberal media. Since 2008 it has only been about one thing. The rich vs the poor, the upper class against the lower class. It's been what Karl Marx preached until the day he died...class envy.


It's worked though that's the scary thing, especially now that the TAKERS out number the MAKERS thanks to King Obama's liberal commie policies.

Bottom line I want to hire two more people for my business, but the taxes have killed me so bad that I can't! 

Tell me how that helps the economy?!
Jan 2, 2013 8:09PM
avatar
Jtcruiser: There are far more rich liberals like Gates, Buffet, hollywood elite etc. than republicans. Most of those screaming their outrage that people like Romney have to pay more than 10.3% are redneck types making next to nothing. It's no coincidence all the high tech and high finance states are blue and poor rural states are red. Keep telling yourself liberals are all handouters while we're driving beemers and you a 20 year old pick up.
avatar
well for me and my lovely lady we together dont come close to even $100k  a year . Like most i know. Maybe it has to do something about where you live to consider yourself rich . Around my parts we both have what is considered by most to be well paying jobs. I would consider myself very well to do if i came close to $100k a year.
Jan 2, 2013 8:04PM
avatar
Someone: Your income of 200k didn't fit the definition of rich under either Obamas definition or the compromise. The flat tax is a good talking point but would fail. Taxing people at a flat tax rate high enough to make up current revenue would leave those on the bottom 20-25% unable to survive without some form of government assistance requiring a higher rate yet on the rest to pay for it throwing more into a catagory of being unable to survive. There's a reason every civilized country in the world has a progressive tax system, because without it we become a 3rd world country. What I don't understand is why people today paying the lowest rates since WW2 feel so burdened. Romney argued that his 10.3% tax rate on 21 million income was too heavy as a job creator yet kept over 100 million in a Caymans account. How many jobs did that create?
Jan 2, 2013 8:04PM
avatar
To me anyone with a fully funded retirement, paid off home and car(s) who has an income of $80,000 or more is rich.   

Many Americans have incomes over 100,000 but they are in debt up to their eyeballs.  A large income doesn't make you rich, a large net worth does.  

That's the problem with income tax. Our nations founding fathers did not want income tax because it made aristocracy inevitable. It taxes people who have an income but  not necessarily property.  That makes it harder for them to get property.  
  
have you ever heard of somebody really rich that doesn't own anything?   

Few people can buy a home with cash from their savings.  so if you borrow money you are working for the bank.  if you have a cool idea and need a business loan first you need a home to prove that you are or have worked well for the bank and then that loan ensures you now have a second obligation to work for the banks more.  People today only become successful if they have made the banks richer.

And people wonder why income inequality is growing ....
Jan 2, 2013 8:03PM
avatar
People making that much have no reason to complain. Most of the people complaining and accusing others of being "lazy" are criminal wallstreet investers who do nothing but gamble all day and never did a hard days work in their life. Get over it, greed is a pathetic choice for a sin.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

Trending NOW

What’s this?

MARKET UPDATE

[BRIEFING.COM] The stock market punctuated July with a broad-based retreat that sent the S&P 500 lower by 2.0% with all ten sectors ending in the red. The benchmark index posted a monthly decline of 1.5%, while the Russell 2000 (-2.3%) underperformed to end the month lower by 6.1%.

To get a better feel for what led to today's retreat, we'd like to look back to Wednesday, when the market had ample reason to rally, but did not. Instead, it ended basically flat after a sloppy day of ... More

MSN MONEY'S