Richard Rubin and Joe Pinsker for WSJ (“‘I Don’t Think of Myself as Rich’: The Americans Crossing Biden’s $400,000 Tax Line“):
President Biden is back on the campaign trail, and so is his favorite tax-policy number: $400,000.
In his successful 2020 presidential run, Biden pledged to protect households from tax increases if their income was below that threshold. He reupped the promise for his re-election bid and is planning to draw tax-policy contrasts with Republican rival Donald Trump in a Tuesday speech in Pennsylvania.
If Democrats have any power next year, the $400,000 cutoff will be the floor in negotiations over who pays more and who doesn’t. Have income below that and you will be spared. Above that line, and your 1040 is on the menu as Democrats seek trillions of dollars for new programs and middle-class tax cuts.
Republicans are campaigning for extending expiring tax cuts enacted in 2017 at all income levels, while Biden and Democrats say they will protect at least the bottom 97% of households from higher taxes. The competing antitax pledges appeal to voters’ pocketbooks while limiting debate to the top sliver of households and restricting policymakers’ ability to generate revenue.
In particular, the Biden pledge’s persistence highlights shifting political coalitions as affluent suburban voters drift from the Republican Party. Biden’s promise helps Democrats reassure upper-middle-class Americans that they can vote for the party without risking their bank accounts. But it also limits Biden’s tax policies and gives critics a ready target.
Notably, Biden isn’t adjusting the $400,000 to account for inflation during his first term, keeping the round number he started with. That amount in May 2020, when Biden articulated the plan, is equivalent to more than $487,000 now.
Because of inflation and economic growth, the pool of $400,000-and-up households increased to 3.4 million in 2022, up 33% from 2019, according to census data analyzed by the Economic Innovation Group, a Washington, D.C., think tank. The percentage of households above that line climbed to 2.6% from 2.1%.
[…]
Biden’s pledge is often interpreted as a bright line between “middle class” and “rich,” but it wasn’t intended that way. According to administration officials, $400,000 was set so middle-class households can see they will be comfortably below it.
“It put in very precise terms who was intended to benefit,” said Ben Harris, a campaign aide during 2020 and an assistant Treasury secretary in the Biden administration. “It was less a definition of who was rich and more a value judgment about rewarding work and labor.”
Compared with the full population, households with incomes above $400,000 are more likely to include children, and they are disproportionately white and Asian-American. They are also concentrated in urban areas. In Washington, D.C., in 2022, 6.1% of households were above the line; in Mississippi, 0.8% were.
As the headline suggests, the report includes anecdotal quotations of folks who are just over the $400,000 line who don’t think they’re “rich” because they worked hard to get where they are rather than inheriting wealth. A representative example:
In Louisville, Ky., $400,000 feels like plenty to David Deyer.
“We have it pretty nice in the Kentucky area,” Deyer said. He and his wife are about $25,000 under the threshold.
The 33-year-old, who works in business development for an HVAC contractor, said they can travel internationally and make monthly charitable donations on par with their mortgage payments.
Deyer said he could afford higher taxes but doesn’t think of himself as rich. He and his wife make coffee to avoid Starbucks and buy fruit based on what is on sale.
“We’re not extravagant people with high-end country-club memberships or a private jet or anything like that,” he said. He declined to say who he is voting for.
Objectively, a $400,000 household income is rich even in the DC area; the median is $117,432. It’s fantastically so in Louisville, where the median is $63,114. Indeed, I’m shocked that a 33-year-old with a seemingly mundane job brings in that much. At the same time, a lot of upper-middle-class folks clearly think that they’re just working stiffs and that “the rich” are the people with wildly lavish lifestyles that they can only dream of.
While Rubin and Pinsker are clearly trying to paint the Biden proposal in a bad light, they actually have a reasonable point. The $400,000 threshold that was trotted out in the 2020 campaign indeed hits a lot more people—and represents a lower point on the income curve—now than it did then. If the point is public policy and not rhetorical, the number should adjust for inflation.
For that matter, it’s long been obvious to me that the number should be regionally adjusted. While $400,000 is a high household income even in San Francisco (median $136,689), basic subsistence is simply much more expensive in some parts of the country than others. Indeed, the federal government has long understood this, including rather sizable locality pay adjustments for its own employees, which currently range from 45.41% in the San Jose-San Francisco-Oakland area to $17.11% in the Reno-Fernley area.
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Author: James Joyner
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