What is your definition of "middle class"? Someone making $400k is most certainly in the top 1%.
What tax changes have occurred so far in the past few decades that are significantly affecting you? I would genuinely like to know
My effective tax rate between state and federal is something like 55% before including sales taxes.
These Billionaires find ways to pay basically nothing in tax because their wealth comes from capital gains and not from RSU + salary compensation which are taxed as normal salary.
The bulk of the burden of new tax increases will fall on people like me who make more than 400k but make it in easy to tax ways instead of changing the law and making it easier to heavily tax people in the 100M/yr+ category
These aren't complaints, just facts.
That seems extremely high, what state is this? Do you mean the top marginal rate, or is that literally the effective rate when you file your 1040?
Also, making 400K does not make you rich. In California, you are actually bringing home around 200K with high cost of living in areas where an engineer might make that much, whereas the top 1% (measured by household wealth instead of income) still has a net worth of ~$10M.
$400k can buy you an entry-level home in cash, or a 10% deposit on that $4M mansion across town. Most choose the latter.
In other words, you have accumulated 1/10000 the wealth of your FAANG employer.
Calling that lifestyle "rich" just serves to muddy the water. This is soundly in the category of upper-middle class and decades away from being financially independent.
Tell them at the end of the year you’re going to give them the next nine years of paychecks as a Christmas bonus and then ask them if they feel financially independent.
Tell that hypothetical average American to buy a mediocre house in Sunnyvale and see what reaction you get.
Nobody cares what lifestyle $400k can buy in Mississippi because very few people are making that much in a locale that cheap.
Or, 90 minutes from Sunnyvale, an amount of time they are keenly aware of as they commute there every day to clean the clothes, cook the food, and maintain the real estate of the “not rich” people you are describing.
> Tell that hypothetical average American to buy a mediocre house in Sunnyvale and see what reaction you get.
They would say I’m sorry I can’t, because the prices of those houses have been bid up by the rich people who currently live there and make $400k a year.
> Nobody cares what lifestyle $400k can buy in Mississippi
People in Mississippi do. They also get a say in setting tax policy for the U.S. which is the topic of current discussion.
This is completely independent of CoL. There are very, very few Americans who will ever be able to seriously consider doing this.
A little perspective is always a good thing.
A federal sales tax with exemptions for basic necessities (food, rent, school supplies, etc.) would make so much more sense, as already exists in 7 states at the state level.
In this way you don't have to worry about whether income was earned offshore or onshore, if you're buying stuff or services here or importing stuff, you get taxed on it.
Even with the exemption for basic necessities, a person who earns 100x what you do will probably spend on the order of 5-10x more than you, thus making the tax very regressive.
If you make $50k plus COLA for your entire career but one year your stock options materialize and pay $400k, are you rich?
If you're making 400k post-tax, sure. If that's pre-tax income, however, you're not making 4M after 10 years.
After federal taxes you're making closer to $286k, roughly. This is just for the privilege of being a US citizen - even if you don't necessarily spend the majority of your time in the country.
Assuming this is a CA software engineer, it's closer to $250k. This is just for the privilege of having a tax basis in CA.
Assuming you actually do live in the Bay Area as a single bachelor and would like the privilege of having your own apartment that you don't have to share with others (remember, you're "rich") a nice unit to yourself will run you roughly $3k/m -> $24k/y. So we're much closer to $225k/y.
Even assuming this person has no car, no social life, and no metabolism we're still running at roughly half of your projections. Which is still a fair chunk, to be sure. But it's still half of their money going towards the privilege of obtaining money.
EDIT: just saw this bit
> I get that COL lowers that, but if you are making 400K you're not renting
This depends, as buying is not always superior to renting, especially when you're talking a house. A house is a pretty big investment - so much so that a lot of financial circles still spend a lot of time between "get a home, what isn't equity is a tax write off" and "just rent, no surprise expenses, remain more liquid, invest the difference between your rent and a typical mortgage in the market".
The last time I was looking in the South Bay area, average prices for a 2 bedroom home in a suburb were ~$1.2m. This is a $240k down payment and ~$7.3k monthly (15 year conventional, down to ~$4.7 for 30 year but we're outside of the "10/20 years" we described above and paying more interest for it besides).
If we account for all that, we're looking at much closer to $190k being available to us after the privilege of living and working (that's adjusting for the taxes, but it's not so clean as interest is a sliding scale over the years) - just now we have a place to ourselves that cost us around a year or two of savings time just to start the house purchase and a recurring expense that's over double the nearby rent. This is largely not favorable to the majority of people unless they're wanting to lay roots. That said, given people seem to be leaving I'd imagine housing prices will become less steep in a matter of years; albeit whether it makes it more reasonable to buy than rent for those not looking to stay for 15+ years remains something of an open question.
I'll make up some numbers to make it simple. Let's say there's 2 brackets. Everyone who makes under $399,999.99 pays 0% tax. And everyone who makes over $400k pays 90% tax. You make $400k. How much do you owe the taxman? Did you know it's only 90 pennies out of $400k? The first $399,999.99 you make is in the 0% bracket. It will always be taxed at that rate. Only the amount over that ($1) will be taxed in the next bracket.
Now in reality, we have 7 tax brackets. This is how much you really pay, assuming filing single for 2020.
$9875 of $400k @ 10%
$30,250 of $400k @ 12%
$45,399 of $400k @ 22%
$77,775 of $400k @ 24%
$44,049 of $400k @ 32%
$192,649 of $400k @ 35%
You wouldn't even make enough to pay anything into the 7th bracket @ 37%.
Personally, I believe yes, we need to raise taxes on the uber rich just to slow their growth. NO, it will not affect you who make $400k (which is already wealthy compared to most of America!) And add more brackets while we're at it. There was a time in America where the uber rich had a 94% tax bracket. I'm not saying we need to go that high. But 37% and too many deductions is a joke.
So a tax increase at 400K will indeed affect someone who makes 400K (or maybe ~450K, or someone who files jointly) now or in the ensuing years when they get raises to combat inflation. The brackets never keep up with inflation, because the government uses CPI to pretend like there isn't much inflation. The highest bracket in 1913 was 1 million dollars (NOT ADJUSTED FOR INFLATION).
[1] https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...
[2] https://www.pewresearch.org/social-trends/2020/01/09/trends-...
Note: I'm not saying correlation = causation; just an interesting phenomenon to notice.
The point is that the distribution of tax rates is broken, with no statement made about the rates themselves.
Lower taxes makes it less expensive for the rich to pay the government.
Look at housing and food costs to see how the middle class are affected, they don't get welfare, social housing, or food stamps.
If you are in between (say) my salary and 400k, no amount of increase in the price of food is going to be a problem for you unless you are ludicrously bad with money. I'm not in favour of wanton taxes aimed at "the rich" as a political manoeuvre, but let's not be blinkered here.
CoL increase maybe not a problem, but its still an increase, if you're trying to tax the rich, you've hit the wrong target.
After a certain rate, as taxes rise, revenue falls. Feds keep spending, when they realize projected income will fall short, the goal line moves from 400K to 200K, then 100K, etc.
We should lower taxes and close the 1000's of loopholes, I would bet revenue goes up.
And I learned a new word today, "wanton"!
That might be true of new taxes/tax increases created by those doing the bidding of the truly wealthy. In fact, it is true.
But that's true of all possible new taxes, and increasing taxes on those with earned income over $400k will have ZERO impact on those who earn less (in terms of their own taxation).
We should put effort into compliance, instead of increases.
Under a federalist, state-first system, the federal government shouldn’t consider mandated transfers to state (including administrative subdivisions) government which plays the primary role in the conditions of local commerce which enables income as part of the free income of a taxpayer subject to taxation (this also avoids federal taxes altering the calculus of net benefit in state democratic decisionmaking on tax and spending.) In a federal-first, centralized system, ignoring state taxes consistently makes sense. In either case, a limited SALT deduction has no principled justification, and is simply an effort to use the power of federal tax policy to put a federal thumb on the scales of state decisionmaking to get the successful states whose economic success makes them net contributors to the federal government to adopt tax and spending policies more like those characterizing the politically-overrepresented but less successful states that are net drains on federal resources, leveling the playing field by making every place suck equally, so at least the former can’t make the latter look so bad any more, while advancing the Norquistian vision of shrinking the size of government to where it can be drowned in a bathtub, without concern for thr consequences, because ideology.
On the plus side, between the limit on SALT deduction and the increased standard deduction, the mortgage interest deduction is almost effectively dead; which is something that has needed to get removed, but nobody wanted to do it. Now it's technically there, but almost useless, so best of both worlds.
Maybe it will make ca/ny think twice about having such high tax rates…
IMO the SALT deduction is a horrible thing and allows state governments to become way too bloated.
In some places $400k can give 8 families this life. In others not even one. It depends.
Can you name a place, anywhere in the world, where $400k/yr is not enough to survive for one family?
Ummm, where exactly in the world is $400k per year not enough to survive? Monaco?
If you earn $400k year after year, then you are earning enough to be "rich". But true, it's still possible to live beyond your means regardless of how much you earn and incur financial difficulty.
In San Francisco it's just about striking distance to the lifestyle I described. The commutes and the housing are generally a little worse.
However, as I mentioned above, that same family (or even one that earns millions more) could easily put themselves into financial difficulty if they live beyond their means.
With $400k annual income you couldn't buy a single family home in the Pacific Heights neighborhood and if you had many children perhaps you couldn't afford to send them all to Harvard, but if you lived reasonably within your means you could certainly still be considered "rich".
I understand it’s emotionally satisfying to see them deprived, but the government also ends up with less revenue when they apply their skills to lower impact projects.
Large engineering firms have offices in various Midwestern states that are just as productive as SV, NY, what have you.
That's not true. If your combined income with your spose is more than 400k the tax increase will affect you. so it will affect individuals making as little as 200k if you assume income is divided equally between two spouses.
Someone making over $400k might want to invest some of that money. The businesses in which that person would have invested would hire people. And pay wages. And taxes. If you take more of the “rich” money. They won’t invest as much. And thus won’t create value. Giving that money to the government doesn’t create value — or if it does, there is still the issue of deadweight loss. The private sector always spends more efficiently than government.
Every rich person I know doesn’t put their money under the mattress; they invest it in something.
As far as tax changes that affect me: well the very high rates of California taxation led me to moving my residence and business to Texas. When I lived overseas, the Biden-supported, Obama-signed FACTA legislation (which was ultimately a tax law) had a very significant impact. I couldn’t open business bank accounts in the UK which led me to not being able to expand my (then) consulting business because our potential client required a UK company and that company needed a UK bank account in order to get anything done. Since I wasn’t a UK resident, it made it even harder. I am not super rich so Barclays and friends weren’t going to go through all the FATCA hoops just for my £100k per year in turnover.
And in terms of tax changes that helped? The Trump tax cuts resulted in a significant amount of savings that led to buying an airplane and significant production equipment, for example, being able to deduct a significant amount on an aircraft purchase — an aircraft that we wouldn’t have been able to afford without the change in the tax laws. That aircraft enabled my business to expand into smaller markets, which benefited those smaller markets in which we entered (they could get our product cheaper and resell it at a greater profit.) We could also target smaller towns that would have otherwise required flying commercial and then driving all day — then there was the issue of moving cargo quickly. Also the tax savings on equipment purchases allowed us to not have to pay copackers and instead set up our own bottling facility. Which lowered our cost per unit, allowing us to lower our wholesale prices, which led to our customers being able to make a larger profit. (Our business is making specialized fitness cleaning products and our customers are small boutiques and fitness studios.)
It’s very short sighted to see taxes that are paid only by “someone else.” If you run any sort of business at all, the effects of tax policy can be immediately evident. The typical wage worker doesn’t see it because they limit themselves to their immediate viewpoint: they fail to see the chain of transactions that lead to them having a job in the first place. An employed person has more economic impact than an unemployed person. That’s just a fact.
So yes, tax policy is felt by everyone, even those that don’t pay taxes.
Further, with current inflation rates, $400k will be solidly middle-upper class in a few years from now.