Column: Answering Biden tax plan, conservatives absurdly claim $400,000 a year isn't 'rich'
If you can't afford that luxury yacht, the Fisker 50, are you really "rich"? Some might say no. (Henrik Fisker)
In the "Do we have to do this again?" The financial press and personal finance websites recently saw an eruption of articles asking us to feel sympathy for families who can barely get around healthy six-figure incomes.
The latest posts ponder whether it is possible to financially survive on $ 400,000 a year. The reason is that this is the income that Democratic presidential candidate Joe Biden says would start raising taxes.
Marketwatch.com put the implications most succinctly in the headline: "Joe Biden defines an income of $ 400,000 as" wealthy, "but here's why for some it barely comes around."
I bet a large chunk of American households suddenly making $ 400,000 a year would likely experience negative cash flow.
Sam Dogen, Financialsamurai.com
Lovers of personal finance writing will recognize these articles as representative of a sizable genre of fiction. The threshold varies from piece to piece - sometimes up to $ 500,000, sometimes up to $ 200,000 - but the theme is always the same: the more you make, the better the chances of ending up in the poor house.
Many of these articles appear to have come from analysis of the Financial Samurai website, the owner of which Sam Dogen lives with his family in San Francisco and typically uses the cost of living there or in New York as a baseline estimate of the costs involved in these putative down-and- Outer.
"I bet a large chunk of American households suddenly making $ 400,000 a year would likely experience negative cash flow," Dogen wrote in response to Biden's tax plan. That's pretty awful, given that the median household income in the US was $ 68,703 last year.
The Wall Street Journal also joined in the fun, writing in 2014 about "how some high earners live from paycheck to paycheck".
As we reported earlier, these items all depend on manual dexterity. They offer their own definitions of "rich", listing as necessary or unavoidable expenses many things that ordinary families would consider a luxury.
Let's take a look at Dogen's latest version quoted by CNBC and Marketwatch. His bottom line is that his alleged $ 400,000 family - two full-time parents, two children - will receive a shocking $ 34 "to pay for miscellaneous items" at the end of the year. As a result, he asks, "Is $ 400,000 really considered rich?"
Dogen defines a rich lifestyle as one that includes driving a luxury car "or two", with a $ 10,000 an hour NetJets private jet account, front row seats for NBA games, and a 100-foot yacht to order to sail on the high seas with mysterious people. "No one who only makes $ 400,000 a year can afford all of this, he says, which is believed to be true.
Dogen's "middle-class" lifestyle, which he can barely match for $ 400,000, includes owning a three or four bedroom home, raising two children and paying their tuition, saving for retirement with a 401k plan, or an IRA and going in two to four vacations a year.
Obviously there is a lot of daylight between these two marks. One can be considered wealthy, or even extremely wealthy, even without a NetJets account or front row seats for the Lakers and a luxury yacht. Similarly, one can maintain a bourgeois lifestyle as Dogen defines it for much less than $ 400,000 a year.
The real reason is contained in Dogen's expense list. Let us assume that a family's necessary expenses are food, shelter, and health care. Everything else is an elective. But here, too, Dogen puts his thumb on the scales by providing his family with what ordinary families consider to be gratuitously lavish, even lost taste.
Casing? Dogen's family lives in a hypothetical $ 2 million house. He justifies this number by stating that the middle house in San Francisco costs $ 1.65 million.
"I assure you that $ 2 million is just a normal home in a larger metropolitan area," he writes, but that is obviously wrong. In Orange County, California, which is near the Los Angeles metropolitan area, the average home price is $ 776,000, according to Realtor.com. For Dogen's hypothetical home, insurance, property taxes, maintenance, and utilities bring the total cost of housing to just over $ 114,000 per year.
Eat? Dogen's family spends $ 65 a day, or nearly $ 24,000 a year. That's far more than what the US Department of Agriculture estimates for its most expensive "liberal eating plan" for a family of four with two teenagers, which is roughly $ 16,000, or $ 43 a day.
Dogen notes that if there are two parents who work full-time, the family has to pay for "regular food deliveries". Does that increase food costs by 50%? Doubtful.
Dogen estimates the health care costs at $ 7,440 a year, which actually seems a little low, although the family's coverage is subsidized by their employers.
That covers the needs. What about the rest?
Dogen lists 401,000 posts totaling $ 39,000. This is the maximum allowed for two working spouses together. The question here is how many families earning a median, or even mid-six-figure income, could maximize their contributions by putting away 10% of their income for retirement.
Most of them can't. Because of this, the median retirement balance for households with an old age account is only $ 60,000. Retirement plans like 401k plans are relative luxury; Participation in such plans falls sharply with income, not because middle- and low-income households are unwise about retirement, but because they lack disposable income.
This family spends nearly $ 64,000 per year on their children's daycare and preschool and is saving an additional $ 18,000 on their 529 college plans. You pay nearly $ 2,000 a year for life insurance ($ 2 million) and liability insurance.
Then there is spending on vacation, a car, clothing, charity, entertainment, and "personal care products".
Nobody would suggest that all of this spending is necessarily unwise or morally wrong. What they are is optional, the result of choices the couple could have made differently. You could live in a smaller house or trade the city for the suburbs. Put less into your savings and lower your term life insurance to $ 1 million.
Therefore, it is essentially a lie to claim that the family only has $ 34 left of their $ 400,000 income. Better to say, of their after-tax income of $ 295,530, and after necessary expenses for their home, groceries, and health insurance, they have nearly $ 150,000 to spend on whatever they choose - retirement and college savings Child care, vacation, "personal" care, "what do you have.
Mind you, that $ 150,000 is more than twice what the average American family has to spend on everything. By the time this family finishes the year at $ 34, they'll have $ 39,000 in the bank for their retirement and $ 18,000 for their college funds - they still have the money growing tax-free - and numerous others Expenses made Many average families have to forego it.
As we discovered in 2017, the motivation behind these articles is insidious. They go out of their way to show that in certain $ 400,000 cities, they are in the same mid-range boat as you or me. You want to reassure the rich that their financial troubles are not their own fault - they are inevitable costs of living like taxes or funerals.
More specifically, they are meant to make us cry over households that may face a higher tax burden in a Biden administration - after the Trump administration and its GOP maids received a huge tax break. The tax cut, it should be repeated, brought the greatest profit to households making $ 300,000 or more. They got an average break of more than $ 13,000 a year.
So should you cry for those stubborn $ 400,000 earners? Obviously not.
This story originally appeared in the Los Angeles Times.
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