Taxation on the “wealthy”
It's relative.
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Monday, April 15, 2024
· 41 comments
Richard Rubin and Joe Pinsker write for WSJ (“'I don't consider myself rich': Americans above Biden's $400,000 tax line“):
President Biden is back on the campaign trail, and so is his favorite tax policy figure: $400,000.
During his successful 2020 presidential campaign, Biden promised to protect households from tax increases if their income fell below a threshold. He will renew his re-election campaign pledge and contrast his Republican rival Donald Trump on tax policy in a speech in Pennsylvania on Tuesday.
If Democrats take control next year, the $400,000 cap would be the floor in negotiations over who would and wouldn't pay more. If your income is less than that, you will be exempt. If you get above that line, your 1040 is on the menu as Democrats push for trillions of dollars in new programs and middle-class tax cuts.
Republicans have called for extending tax cuts enacted in 2017 for all income levels, but Biden and Democrats have insisted on protecting at least the bottom 97% of households from higher taxes. Competing anti-tax promises appeal to voters' pockets, but limit debate to a few households and limit policymakers' ability to generate revenue.
In particular, the persistence of Biden's pledge highlights a shift in political alignment as wealthy suburban voters shift away from the Republican Party. Biden's pledge will help Democrats reassure middle-class Americans that they can vote for the party without putting their bank accounts at risk. But it would also limit Biden's tax plans and give his critics an easy target.
Notably, Biden did not adjust the $400,000 to account for inflation during his first term, keeping the original approximate number. That amount would be more than $487,000 today as of May 2020, when Biden made his plan clear.
Inflation and economic growth will increase the number of households making $400,000 or more to 3.4 million households by 2022, an increase of 33% from 2019, according to census data analyzed by Economic Innovation Group, a Washington, D.C., think tank. increased. The proportion of households above that line rose from 2.1% to 2.6%.
[…]
Biden's pledge is often interpreted as drawing a sharp line between the “middle class” and the “rich,” but that was not his intention. Officials say the $400,000 figure was set so middle-class families could get by on less.
“They were very precise about who was meant to benefit,” said Ben Harris, a 2020 campaign aide who served as assistant secretary of the Treasury in the Biden administration. “It wasn't a definition of who was rich, it was a value judgment about work and the worth of labor.”
Compared to the overall population, households with incomes above $400,000 are more likely to have children and are disproportionately white and Asian American. They are also concentrated in urban areas. In Washington, DC, 6.1% of households exceeded this threshold in 2022. In Mississippi, it was 0.8%.
As the headline suggests, the report states that people who make just over the $400,000 line are considered “wealthy” because they worked hard to get where they are, rather than by inheriting wealth. Contains anecdotal quotes from people who do not believe that Typical example:
In Louisville, Kentucky, $400,000 feels like a good amount to David Deyer.
“We're in a pretty good place in the Kentucky area,” Dayer said. He and his wife earn about $25,000 below the threshold.
The 33-year-old, who works in business development for an HVAC contractor, said he is able to travel internationally and make a monthly charitable donation equal to his mortgage payment.
Deyer said he can afford to raise taxes, but he doesn't consider himself wealthy. He and his wife make coffee to avoid Starbucks and buy fruit based on what's on sale.
“We're not luxury people with fancy country club memberships and private jets,” he says. He declined to say who he would vote for.
Objectively speaking, if you have a household income of $400,000, you are well off in the DC area. Median price is $117,432. That's surprisingly true in Louisville, where the median price is $63,114. Admittedly, I was shocked that a 33-year-old with a seemingly mundane job was bringing in so much money. At the same time, many upper-middle-class people clearly think that they are just being forced to work, and that the “rich” are people with extremely lavish lifestyles that they can only dream of.
While Rubin and Pinsker are clearly trying to paint Biden's proposal in a negative light, there are actually some valid points. The $400,000 threshold set forth in the 2020 campaign actually affects far more people now than it did then, and represents a lower point on the income curve. If the issue is about public policy rather than rhetoric, the numbers should be adjusted for inflation.
What's more, it has long been clear to me that the numbers need to be adjusted regionally. While $400,000 is a high household income in San Francisco (median $136,689), basic living costs are much more expensive in some parts of the country than in others. In fact, the federal government has known this for some time, including the fact that it currently pays significantly more for its own employees, ranging from 45.41% in the San Jose-San Francisco-Oakland region to 17.11% in the Reno-Fernley region. Includes regional salary adjustments.
