$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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314Comments
Jan 16, 2013 7:22PM
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Tax Laws should be made simple, easy to understand across the board.  Cut the red tape between party lines. Here is what I do, if I were elected to office:

 

Increase minimum wage from $ 8.50 (@18 Yrs) to $ 15.50 (@ 25 yrs. and up) pro-rate it in between.  No one under 16 Yrs of age should be allowed to work. Between 16 to 18 Yrs of age, they should not pay any taxes, regardless. Taxes should be a flat rate of 10% at age 18 to 20 % when they reach 25 Yrs, provided their income is min. $30,000 ($ 65,000 family income). 

 

Above $65,000 family income everyone should pay a flat rate of 25%. until it becomes $250,000 (single) and $ 300,000 (family) and cap it @ 30% flat rate, regardless how they make it. 

 

This is the land of opportunity we should encourage americans to make money, get rich, invest in our infrastructure, create opportunity for our citizenry of all ages.  Why do we want to penalize american  people from making money? provided the rich pay there share of the taxes?  The problem is our tax code is so complex, there are many loop holes, so the person making a 20 million dollars in capitol gains can get away with just 15% (Now 20%). Tax them with a flat tax, irrespective of how they make the money.  More revenue for the Govt.  Let the rich make money, give the new rich a break from 39,6% to 30%. Let them spend it in the economy instead of pulling out their investments to invest oversees.  Win-win situation for all.    

 

Congress can concentrate on more pressing issues.  Get rid of the loop holes, keep it simple.        

Jan 5, 2013 11:59PM
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My wife and I only gross about 17000.00 a year and we have to young girls. We don't care to be rich we barely make it but we are happy, clean and warm. That is all that matters to us.
Jan 4, 2013 8:45PM
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Hello in the 1960's the TOP rate was close to NINETY PERCENT and that didn't interfere with any of the ultra rich enjoying life then, nor would it now either.
Jan 4, 2013 8:42PM
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It is really funny to see all the folks posting here with all these worries and concerns about income levels they never have known and never, ever will know either. Most of you (US) struggle on well under 80K a year per HOUSEHOLD. So the idea that folks is OUR position should be here WHINING about the potential to get more revenue from folks living on a very cushy amount of 200k a year, is pretty funny. If I had made THAT much last year and the year before and the year before, you can be sure I'd have MORE than plenty to pay taxes that I'd BEEN paying over A DECADE AGO, everything ELSE goes up, taxes shouldn't? But of course we don't want ANYTHING we want there for OUR OWN SAFETY NET, cut either, right? Ridiculous.
Jan 4, 2013 5:04PM
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So, If you are in the 2% of earners (over 250,000 a year) you don't feel you are "rich".  98% of Americans make less then you and you don't feel "rich".  So out of 311,000,000 Americans, you make more then 304,780,000 of them.  You would be in a club of about 6,220,000 which is roughly the population of Massachusetts.  It is also a little more then the popular vote difference in the 2012 presidential election (4,957,617).  Point is people, you may not feel "rich" and it is mainly due to your own spending habits (myself included).  98% of this country would be very thankful to be in the $250,000 club.
Jan 4, 2013 4:15PM
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We all know they call trickle down economics right?  

It use to be known as horse and sparrow.  It was called horse and sparrow because as the **** would trickle down the horses leg, the sparrow would try to eat any undigested seeds.

Jan 4, 2013 3:57PM
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Here's a little bit of facts for everyone.  

The 2012 GDP was 15094 BILLION Dollars.  Over 40% of that came in the form of financial transaction and went directly to the banks.  800 Billion of that was made top 15,000 riches Americans.  
The top 15,000 are the 1/10th of 1/10th of the 1%.


Jan 4, 2013 9:53AM
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What no one I've heard talk about is the fact that Warren Buffet is still going to be paying less in taxes than his secretary because most of his income is not from an income but from capital gains.  Even though they are taxed at a higher rate, his wealth really won't be touched.   Those people hit are the productive people working in our society.  If people really want money from the 1 percent, why not a tax on those with a net worth beyond a certain point?  This would actually affect the beyond rich politicians, Wall Streeters and those others that seem to be exempt from any significant taxes because a lot of them have no real jobs but live the ritzy lifestyle off their investments.  In other words, they are not contributing to our economy.  It's easy for them to pass higher taxes since it does not affect them.  Their wages, if any, are diminimus but have these other incredible perks that none of us have, especially the government employees with special provisions for retirement and insurance.
Jan 3, 2013 7:06PM
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Whats funny about America these days, is that rich or poor, white or black, Republican or Democrat, everyone seems unhappy. Everyone seems envious and everyone seems discontent. I think its time for Coca Cola to bring back that 'I'd like to Teach the World to sing' commercial. Maybe that would do the trick. But then again... maybe I would be consumed by how much the producer made on the film. Why did the Dollygrip #2 get paid less than the Dollygrip #3. Do Coca Cola executives hide their money in offshore accounts? Why does Dollygrip #2 pay no taxes when the Camera man just got placed into the top tier tax bracket. My God, listen to yourselves.  This has got to END!!!!!
Jan 3, 2013 2:17PM
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Tax his salary, tax his business, when you spend some already taxed dollars you get taxed again  Tax your savings and investments, tax your drinks, tax your healthcare, tax your home investment, your car, your **** when you wipe, tax your inheritance, tax anyways you can - seems all we do is tax - why are we taxed??????? To cover some spending for the government, correct?  Not all of it.  What is the budget?  If you look at what THEY spend on and require a budget maybe THEY could get somewhere.  There are no specifics on any cuts - the idiot response i heard from the so called leader was we do not need spending cuts. Any moron should be able to figure out if your not cutting you need more revenue(look at the budget) - this tax change for the 2% is not going to change one thing.  Fair tax %18 on what you buy and hold a budget!!
Jan 3, 2013 1:41PM
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When did "rich" become a dirty word? Isn't that the American dream? I know that the possible attainment of wealth is what makes me work so hard every day. Why punish those who have made it? It's shameful really.
Jan 3, 2013 12:54PM
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Sad how uneducated and/or brain washed the vast majority of the 98% really is; you should be ashamed. The American Federal Government IS the voice (and property) of the rich. Vast sums of money spent  on keeping their elected pseudo-rich pawns voted in is a drop in the bucket compared to what they don't pay because of well crafted tax laws. Most 2%ers don't even have jobs.

Don't believe in redistribution of wealth? Do a little research and discover there has been a redistribution of wealth going on for many years, except the distribution is going TO the rich, and FROM the 98%. Not much chance of rectifying the problem as long as voters prop up this charade.
Jan 3, 2013 12:48PM
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over 500 things that will cost you more this year. CONGRESS
Jan 3, 2013 12:47PM
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Class warfare sucks!

 

In fact, the only thing worse than class warfare, is class surrender.

Jan 3, 2013 12:06PM
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Since warren Buffett only pays himself a salary of $100,000.00 does that mean he only gets taxed on his  billions in dividends at the 15% rate.

 

We concentrate so much on taxing the working stiff that even at $500,000 a year make chump change compared to the con men who make billions and pay less taxes because their accountant knows how to game the system.

 

The real rich pay themselves in dividends and get taxed at 15% while I am putting 2 kids through college at a price of over $70,000 a year and being told I am rich because my wife and I have combined income of over $250.00

Jan 3, 2013 11:37AM
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A billionare is rich.  But if he doesn't hire anyone or do anything else to make that $450k a year he is still rich and unaffected by the income tax hike.  He can just sit back and make his money like Buffet does and be taxed at 15%
Jan 3, 2013 11:27AM
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Shame on all of you who feel it is ok to take other peoples money....i got news for you...they can take all of the 'rich" peoples money and it wont put a dent into our debt that you people got us into, since you people feel the govt can better spend your $$ than you. All you people are doing is screwing yourselves over....#1 do you think the 1% is just going to sit here and pay more with a smile? #2 the real $$ in this country lies with the middle class and since you people just let govt take everything over with the assumption that the rich will pay for it, you are gonna learn over the next 10 -20 years that the govt will run out of rich folks to shake down and they will then turn to you, the middle class to pay for it....this is already happening. You people are fighting the wrong fight by going after the rich....easy sell for these politicans to hook u suckers in, but you gonna learn. I thought American was about freedom.....now is is nothing more than take from someone else.
Jan 3, 2013 11:21AM
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People have irrational views of money and these discussions are ridiculous.  100k income makes you greedy and rich?  100k in some areas of the country is barely enough to scrape by and that doesn't take into account kids or outrageous educational costs.  I live in the midwest and 100k here is way more than I need to live comfortably as a single man, but add a couple kids into the mix and how much education will cost in 20 years and it doesn't measure up anymore. 

 

The fact of the matter is that people without money envy those with it, across the board.  It doesn't matter if you talk about 50k, 100k, 500k or several million a year.  The people who don't make that much will always think those above them don't deserve it but they do.  Life is hard for EVERYONE.  Even the very rich have problems they have to deal with, it isn't all cocktail parties and sandy beaches.  If you think you deserve more money, do something about it.  This country wasn't built on handouts and entitlement, it is the land of the free and the home of opportunity.  New flash:  you create your own opportunity, it won't ever find you. 

 

If I can get myself into a 250k a year job you can be damn sure I will.  I will have worked incredibly hard and dealt with a tremendous amount of adversity regardless of whether I can ever get to that income level...

Jan 3, 2013 7:51AM
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why if you make more than the other guy like in some of these blog quotes they think your supposed to pay more money to the corrupted government to justify fair i don't get it there is nothing fair about are government the are the most corrupted system in the us does not matter how much you pay for taxes the problem will never resolve its self never wake up man quit putting your money in the bank stash it away in cash then you pay less taxes no record government are the biggest cheaters in the world don't re invent the wheel just ply dirty like they do
Jan 3, 2013 5:51AM
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Personally, I do not sympathize with any one the list.  Sorry, not being bias.  For one, I am unemployed and have been unemployed for 7 years.  I am Iraq war veteran (two tours) and former Marine and soon to be former National Guard solider.  I cannot enlist in active duty due to service injury and who knows when VA payments will kick in(only $300). I am told just come back later.  Furthermore, I was  laid off from my job in 2007 and I have not found any more work since.  Furthermore, my wife left me, I lost my home, my credit is destroyed due to home and I just exhausted all of my only income.(GI Bill) I know that married couples seem like they are getting mess with by the government .However, you know kids are a choice, a house is choice, extras things outside of food is choice.  I will soon be living on the streets once this month ends.  So I am sorry if I do not feel sorry for everyone.  Yes, I am attending college but college is not a job.  I think the best thing for me to do is leave the US and try finding new life in another country.  I do not want to be living on the streets and eating at soup kitchens.  I feel bad to make this choice because I born and raised in the US.  Plus, I risked my life for this country.  Then, I get look down among as second-class citizen due to the need to live on assistance. Well, in my case, I refuse to stay around to be labeled as burden.  I think everyone should be happy if food is available and a place to call home and quit complaining.  In reality, there are those who have it worst.

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