$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 2, 2013 6:37PM
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And the middle class gets butt f*cked... again.

No surprises here. It's bullsh*t politics, as usual.

Jan 2, 2013 6:35PM
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Ah, yes ,this raises again the "marriage penalty" thing.  High earning same sex couples, beware of being married for federal income tax purposes.  The Supreme Court may give you a present you may not like. High earning heterosexual couples, beware of getting married.  Ah, what a tangled web is being woven by our elected representatives! 
Jan 2, 2013 6:30PM
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AND THATS ARE LEADER. MOST NEVERED SERVED DURING DRAFT YEARS
Jan 2, 2013 6:29PM
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ITS NOT BAD IF PEOPLE MAKE A LOT OF MONEY PAY MORE TAXES. RICH SORRY AS PEOPLEPUTTING POOR PEOPLE DOWN MOST  NEVER SERVED THIER COUNTRY.THIS IS THE TRUTH
Jan 2, 2013 6:25PM
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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 6:24PM
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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 6:22PM
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And to those who have been given much, much will be required.
Jan 2, 2013 6:22PM
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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 6:20PM
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Maybe we should start handouts for those poor people trying th get by on $400,000.
Jan 2, 2013 6:13PM
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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 6:11PM
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all you poor people (<50,000) dont pay anything but you sure like to bitch alot though  lol...

 

Jan 2, 2013 6:03PM
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What about a flat tax? Thats the only way to be fair about it.
Jan 2, 2013 6:02PM
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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 5:58PM
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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 5:43PM
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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.

 

oops.

 

damn, I'm poor...

Jan 2, 2013 5:39PM
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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 5:19PM
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Who  makes 600000 a year  5% of america .I BET 90% make less than 80000 a year.
Jan 2, 2013 5:19PM
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What if people with incomes of $100,000 were no longer eligible for Social Security Payments regardless of their age? Isn't SS supposed to be for those who need it and not a nice "perk"?
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? 
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