How far it goes in a city

Democratic presidential candidate Joe Biden says his tax hikes would only affect the wealthy — defining that as those who make more than $400,000 a year.

But according to a financial planning analysis, families making $400,000 a year aren’t exactly living large — especially in major cities. A family of four with $400,000 a year in income is more likely to drive a Toyota and take staycations than drive a Lambo and fly first class.

By national measures, those making $400,000 or more in income belong to a rarified group. They represent the top 1.8% of taxpayers, earning about 25% of the nation’s income. The $400,000 cutoff is also higher than the $250,000 income threshold proposed by President Barack Obama in 2008 when he sought to raise taxes on the wealthy. 

Since Biden’s plan is largely a marginal tax increase, taxpayers will only see tax hikes on income above $400,000. So those making slightly more than $400,000 will see small increases, while the bulk of the $4 trillion in added revenue from Biden’s plan would come from super-earners making more than $1 million, according to the Tax Policy Center.

“People making between $400,000 and $700,000 are going to have a tax increase of only about 1% or less,” said Seth Hanlon, senior fellow at the Center for American Progress, a left-leaning think-tank. “The tax plan is really aimed at the very top — the top 1% or 0.1%.”

While $400,000 a year may provide for a comfortable life in West Virginia or Alabama, it could hardly be considered “wealthy” in big U.S. cities, experts say. The soaring costs of housing, education and child care can quickly absorb the after-tax income on a $400,000-a-year family.

Sam Dogen, founder of the personal finance site Financial Samurai, calculated what $400,000 gets a family of four in a high-cost city like New York, San Francisco, Boston, Los Angeles, San Diego, Washington or Honolulu.

“Based on the expenses, a $400,000 household income provides for a relatively middle-class lifestyle,” Dogen said. “A middle-class lifestyle is defined as: owning a home, having two kids, saving for retirement, saving for college, going on modest vacations several weeks a year, and retiring in one’s early 60s.”

He said a family of four living in a high-cost city with $400,000 a year in income could afford a $1.6 million mortgage on a $2 million home. He said they would be able to drive a mid-range vehicle — like a Toyota Highlander — and be more likely to shop for clothing at the Gap than Gucci. They would be able to take three vacations a year, but two would have to be staycations and the other would be a road trip.

He said a large chunk of the family’s budget — or over $60,000 a year — would be eaten up by school and child care. While the family could save for retirement, they would only have about $34 left at the end of the year as extra cash flow once their household expenses are paid.

“They are not living it up on $400,000 a year,” he said.


Correction: An earlier version misspelled Sam Dogen’s last name.

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