Democratic presidential candidate Joe Biden says his tax hikes would only affect the wealthy – defines this as those who make more than $ 400,000 a year.
However, families earning $ 400,000 a year do not live big, especially in large cities, according to a financial planning analysis. A family of four with an annual income of $ 400,000 is more likely to drive a Toyota and take stays than a Lambo and fly first class.
By national standards, those earning an income of $ 400,000 or more belong to a rare group. They represent the top 1.8% of taxpayers and earn around 25% of national income. The $ 400,000 threshold is also above the $ 250,000 income threshold proposed by President Barack Obama in 2008 when he tried to raise taxes on the rich.
Since Biden’s plan is largely a minor tax increase, taxpayers will only see tax increases for incomes over $ 400,000. Those who make just over $ 400,000 will see slight gains, while most of the additional revenue from Biden’s $ 4 trillion plan would come from super-earners, who, according to the Tax Policy Center, would add more than $ 1 million. Earn dollars.
“People making between $ 400,000 and $ 700,000 will have a tax increase of only about 1% or less,” said Seth Hanlon, a senior fellow at the Center for American Progress, a left-wing think tank. “The tax plan is really aimed at the top – the top 1% or 0.1%.”
While $ 400,000 a year can make life comfortable in West Virginia or Alabama, it can hardly be considered “wealthy” in major US cities, experts say. The rising cost of housing, education, and childcare can quickly absorb a family’s income of $ 400,000 a year after taxes.
Sam Dogen, founder of the Personal Finance Site Financial samurai, calculates what is $ 400,000 for a family of four in an expensive city like New York, San Francisco, Boston, Los Angeles, San Diego, Washington, or Honolulu.
“Based on expenses, a household income of $ 400,000 makes for a relatively middle-class lifestyle,” said Dogen. “A middle-class lifestyle is defined as: owning a house, having two children, saving for retirement, saving for college, taking modest vacations for several weeks a year, and retiring in your early 60s.”
He said a family of four living in an expensive city with $ 400,000 annual income could afford a $ 1.6 million mortgage on a $ 2 million house. He said they could drive a mid-size vehicle – like one Toyota Highlanders – and more likely to buy clothes gap than Gucci. You could take three vacations a year, but two would have to be stays and the other would be a road trip.
He said a large chunk of the family budget – or over $ 60,000 a year – would be eaten up by school and childcare. While the family could save for retirement, by the end of the year they would only have about $ 34 left in extra cash flow once their household expenses are paid.
“They don’t live on $ 400,000 a year,” he said.
Correction: In a previous version, Sam Dogen’s last name was misspelled.