Joe Biden is promising to raise taxes only on families making $400,000 or more each year—the top 1.8% of taxpayers. Here to explain why that will really hit middle-class families is CNBC with the latest contribution to the “why rich people are really barely making it” genre. No, really. Experts say!
“Based on the expenses, a $400,000 household income provides for a relatively middle-class lifestyle,” one personal finance website guy claimed. “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.” Ha ha ha, yeah, okay. In other words: “A middle-class lifestyle is defined as: a bunch of stuff out of reach for most people in this country who consider themselves middle-class, transferred to one of the 10 most expensive cities in the country. Middle-class, I tell you!”
Let’s take a look at the sample budget provided for a family with $400,000 in income in an expensive city. These highly representative imaginary people end the year with just $34 left over after all their budgeted expenses—really a hand-to-mouth existence all provided courtesy of CNBC wanting to argue that Biden’s proposal to tax the rich is mean to the middle class. So how does this family spend the $260,530 that’s left after taxes and $39,000 in 401(k) contributions? (Because they have to be able to retire in their early 60s or they won't count as middle-class, apparently.)
We’re starting with a family of four, which is a perfectly reasonable family size, but let’s not forget that poor people are often judged for having “more kids than they can afford.” So this “middle-class” family in the top 2% of earners is getting a pass on something that might be questioned if they were trying to scrape together a full-time schedule at McDonald’s.
Our allegedly middle-class family lives in a four-bedroom, two-bathroom house, which is a fairly standard size of house in many parts of the country—except that people who live in the most expensive metro areas typically recognize that they will need to sacrifice some of the space they would be able to afford out in the suburbs or in a smaller city. If you say “I need to live in New York City rather than in Short Hills, New Jersey” or “I need to live in Boston rather than Newton,” you are making a choice. If you continue that sentence with “and I require four bedrooms for my four-person family,” you are making another choice. Both of those choices cost money, which you have with $400,000 a year in household income, but you don’t then get to whine about how middle-class you are. You’re a person in the top 2% of earners who has made some expensive choices. Expensive as in a $1.6 million mortgage on a $2 million house with $24,804 a year in property tax.
Moving along, our hypothetical family is paying more than $60,000 a year for one child in daycare from 7 AM to 6 PM and one child in preschool from 8:15 AM to 5 PM. The article doesn’t say, but they are likely paying extra for the long day at daycare. They are also putting $18,000 a year into a 529 plan to save for their children’s future educational expenses. Again: choices. They could arrange their work schedules so that they didn’t need the extended hours at daycare—if the preschool kid is only in school from 8:15 to 5, that must be possible, and it would save some money. They could cut their 529 contribution by half until the preschool kid was old enough to be in public school, a point at which their expenses will drop by $26,400 a year, unless of course the assumption is that the kids will go to private school, which would be another choice that these people are making—and one that many middle-class people cannot afford to make, let alone in the most expensive cities in the country.
CNBC and their personal finance website guy want to be sure we understand that this hypothetical middle-class family’s consumer decisions are all extremely middle-class. They drive a Toyota Highlander, the poor dears, not a Range Rover or Lamborghini. The freakin’ agony, right? They buy their clothes at “Gap not Gucci,” which no, I’m sorry, they don’t. The article is written as if there’s nothing in between the Gap and Gucci, and seriously, no urban-dwelling professional adults earning a combined $400,000 are buying their work clothes at the Gap. At the low end they may possibly be waiting for sales at Banana Republic, but give me a break with this Gap nonsense.
They spend $7,200 a year on three weeks of vacation—two staycations and one road trip—and $3,600 on entertainment, defined as “Netflix, museums, zoo, w/e getaways.” Apparently for this family weekend getaways do not fall into the vacation category, but given that Netflix plus family memberships at a zoo and a couple museums will run you about $600, the weekend getaway budget is healthy.
Our struggling family spends $1,800 a year on personal care products and gives $3,000 a year to charity. And that, along with food and utilities and health insurance and life insurance and so on, is how this budget proving that a family in the top 2% counts as members of the struggling middle class which cannot afford to pay any more taxes at all, if you squint just right and ignore the choices involved in their budget.
The reality, of course, is that many American families maintain their middle-class lifestyles through debt and an inability to save for the future, so providing a budget implying that people are really just barely getting by as they put $39,000 a year into retirement funds and $18,000 a year into 529 accounts for their kids is already a radical distance from many, many families’ reality. Doing so while budgeting for a $2 million, four-bed, two-bath house in one of the most expensive urban areas in the country rather than moving half an hour out into the suburbs and cutting the mortgage by $500,000 or more or sacrificing the fourth bedroom for a similar savings is … well, this whole exercise in the name of arguing against slightly more fair taxation is outrageously offensive.
This is a myth people write for themselves about why they deserve what almost no one else has. This is the personal finance analysis of people for whom only people richer than themselves truly exist, who are always, no matter how much money they make, going to be looking at the income category above themselves and feeling bereft. Here’s something to try for anyone who feels middle-class at anywhere above, let’s say, the 89th percentile for income: Look below rather than above yourself, for a damn change, and embrace reality. Yes, the ultra-rich are ultra-rich, and the distance between them and the rest of us is horrifying. But if your rationale for claiming middle-class status is that you don’t live like the 0.1%, you’ve let our twisted, unequal economy twist your judgment. And if you think that your choices about how to spend your $400,000 a year mean that you shouldn’t pay an extra 1% in taxes, you’re just looking to justify a monstrous selfishness—and unfortunately, you’re finding plenty in our society to back you up in that.
