There's quite a few of us here making more more than 400k/year but less than Billion dollar money.

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.

> My effective tax rate between state and federal is something like 55% before including sales taxes.

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?

There should definitely be efforts made to figure out how to tax those billionaires (and there are!), but that doesn’t mean that those making $400k shouldn’t be taxed way more as well. Let’s be honest, your life won’t change in any meaningful way because of this.

And my effective tax rate on the total my employer pays is 52% (excluding VAT), and I earn at least 6 times less than you. I’m in Europe so public services include more than the US, but paying 55% on $400k isn’t something to complain about. You’re very rich, you get taxed as such.

The fact that there are people making 10,000 times as much as the highest bracket in a single year suggests whoever is proposing these tax laws does not actually want to solve the problem. There should be brackets going up to a billion dollars, adjusted every time someone makes an order of magnitude more than the highest bracket.

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.

Are you serious? 400K definitely makes you rich. As if you do that for 10 years you have 4M dollars, 20 years? $8M I get that COL lowers that, but if you are making 400K you're not renting.

If you are making $400k in California, in places where you are likely to make that much, quite a lot of that is going to taxes and expenses. Sure, you might be able to save $2M over a decade, which makes you well off for sure, but "rich" is a bit of a stretch when all it affords you is paying a mortgage on a mid-century formerly middle-class house vaguely within commuting distance.

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.

This is a staggering lack of perspective. The average American takes around ten years to make that amount of money.

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.

This is a bizarre take. The average American is more likely to live in the equivalent of Flyover, Kansas than Sunnyvale, California. I've lived in both, more the former than the latter. I'm sure the person living in Sunnyvale would love to pay $55k for a nice brick two-story house (current price for one I grew up in) but that doesn't seem to be an option in Sunnyvale.

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.

But in your previous post you noted the idea that you could save $2M in a reasonable time frame.

This is completely independent of CoL. There are very, very few Americans who will ever be able to seriously consider doing this.

> The average American is more likely to live in the equivalent of Flyover, Kansas than Sunnyvale, California.

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.

You're ignoring the people who make nowhere near 400k who also work in California, but have to do things like living in a trailer park, or winning a FAANG lottery for teachers in the local school district to have subsidised housing, or commute dozens of miles.

A little perspective is always a good thing.

It's all relative. But no, making 400K after 10 years does not result in $4M. If you make that 400K as an engineer in a coastal tech hub and put all the savings in the bank after taxes and expenses, you have 1M after 10 years. Not much more than the median price of a home in LA county, and far below the median in SF.

In other words, you have accumulated 1/10000 the wealth of your FAANG employer.

If you make 400K after taxes and don't spend any of it, you'd have 4M after 10 years...

It seems like even with taxes... at some point people are sitting on a multi-million dollar property that typical far exceeds the taxes they spent.

This is the problem. Income and cost-of-living is a spectrum and varies wildly from place to place. And everyone wants to put some kind of hard line on tax rates, etc. To me, this just underscores that income tax, as a concept, is completely fucked. You can offshore your earning and shelter them if you're savvy enough. If you earn your income from capital gains, you're paying lower rates regardless, from whatever percentage of those gains happen to fall in your particular jurisdiction.

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.

Sales taxes are completely regressive, because the rich do not spend much of their income.

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.

Not at all, especially if you exempt basic necessities. Poor would still pay low to zero tax because those costs are a greater percentage of their income. And you could even subsidize the taxes with a universal monthly payout.

Such a scheme doesn't change things for the poor (defined by those who don't earn enough to pay any taxes). But it does change the effective tax rate ratio between the middle class and truly rich. The middle class will pay a higher effective tax rate than the truly rich, because the middle class spend more of their income.

Except the tax code doesn’t care if that was a one time thing vs something that actually does happen for 10 years.

If you make $50k plus COLA for your entire career but one year your stock options materialize and pay $400k, are you rich?

Moreover you can slum it by scraping by on $100k and bank the remainder every year. Most Americans don't have that luxury.

> As if you do that for 10 years you have 4M dollars, 20 years?

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.

For most, newfound income does not materialise itself as wealth but rather an increase in living standards.

$400k can buy you an entry-level home in cash, or a 10% deposit on that $4M mansion across town. Most choose the latter.

I see multiple people in this thread talking about high taxes without knowing how tax brackets actually work in reality. I wish people understood them. It's very easy to senationalize high taxes.

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.

I don't think anyone on either side of this thread is confused by this simple concept. But perhaps in writing your own comment you realize how unprogressive these tax brackets are. You start paying pretty close to the top rate on income over 44,000. And then it stops increasing at a tiny fraction of the incomes of the truly wealthy (the wealthiest of whom don't need help from offshore tax gymnastics -- they just pay the highest rate on the capital gains bracket which is even LESS progressive). Not to mention people making ~400K are also significantly affected by employment taxes (social security and medicare) which are extremely anti-progressive.

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).

Sure, the tax bracket in 1913 might have been 1 million USD (not adjusted for inflation). The highest tax bracket was also paying 67 percent in 1917 and 77 percent in 1918 [1]. During WW2, the tax rate for the highest bracket jumped to a whopping 94% [1]. Most people don't realize how low the rates have gotten compared to previous times. Subsequently, as rates have gotten lower, the income inequality gap is near all-time highs [2].

[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.

I'm in agreement. But to tax people 67% starting at 400K is ludicrous to me, barring emergency wartime measures (although nowadays the Fed would just print the money and dissolve the value of USD). That 67% rate was for income over TWO MILLION (not inflation adjusted). Using the extremely conservative CPI figure, that's over $25M USD today. Using the median price of a home in the US for inflation, that's nearly $100M. A much more sensible maximum bracket than what we have today.

The point is that the distribution of tax rates is broken, with no statement made about the rates themselves.

This is the best lie ever told, "don't worry, these taxes wont affect YOU!". Every new tax inevitably falls onto the middle class, because they can't hire people to restructure their wealth and the poor pay no taxes.

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.

Aren't you completing dodging the fact that the comment/s above you are pretty obviously talking about income taxes?

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.

"Restructure their wealth" poor phrase. Income isn't only salary, you're getting stocks/options. Consultants, not available to the middle class, can optimize your income.

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"!

>Every new tax inevitably falls onto the middle class, because they can't hire people to restructure their wealth and the poor pay no taxes.

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).

I guess my point is those $400K+ people will have more incentive to avoid the taxes, and when theres a shortfall ... the fed will move to taxing the next group down $400K -> 200K -> 100K -> 50K, etc.

We should put effort into compliance, instead of increases.

Not OP, but the removal of the SALT deduction hurt.

Yeah that was a good one; promise a tax cut for the rich, and give a slight tax cut to the rich in low tax states and screw people in high tax states (which happen to mostly be were the proposer of the tax cut didn't get votes anyway).

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.

Except for the fact that landlords still have the full mortgage interest deduction (as is proper for any business loan in a system that taxes income/profit) meaning it’s harder for owner-occupants to bid against them for housing.

Why should people in states that do not have an income tax have to effectively subsidize the SALT tax deduction?

Maybe it will make ca/ny think twice about having such high tax rates…

Do they fund the SALT deduction? NY and CA pay more in taxes to the Federal government than they receive back in inward investment. Sounds like it's the states with no state tax that are being subsised to me.

WA/TX/FL do not have an income tax and still pay more to the Federal Government than they receive.

IMO the SALT deduction is a horrible thing and allows state governments to become way too bloated.

Can you expand on that please?

The 2017 “tax cuts” partially eliminated deductions for state and local taxes, capping them at 10k. This means people in high cost of living, high tax states effectively get taxed on income multiple times instead of being able to discount the money they already paid to state and local taxes above 10k.

https://taxfoundation.org/tax-basics/salt-deduction/

SALT is “state and local tax”... you can deduct state and local taxes from your federal taxes, but a few years ago they put a cap on it so you can only deduct $10,000. This really hurt tax payers in higher tax states.

Let's be precise here. It only hurt tax payers whose itemized deductions exceeded the (new) standard deduction of $12k. There were more them in higher tax states because SALT was part of their itemized deduction. It had no impact on tax payers whose itemized deductions were below $12k, or who did not itemize.

I pay more now because of the SALT cap, but I still support the idea - why should residents of low tax states subsidize residents of high tax states, all other things being equal?

> I pay more now because of the SALT cap, but I still support the idea - why should residents of low tax states subsidize residents of high tax states, all other things being equal?

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.

Canadian here can’t really comment on US taxes but our PM Justin Trudeau elected on demonizing the 1% but then promptly cut tax credits on children sports, public transit, child credits, etc while doing nothing to his billionaire buddies so certainly sounds familiar from up here.

Don't forget "raised taxes on the highest income Canadians while claiming that he was raising taxes on the wealthiest Canadians". He has been repeating that lie for five years now.

Owns a reasonable home in a decent school district with a commute around 30 minutes. Eats out a few times a month. Takes 1-2 vacations a year. If upper middle class, savings adequate to gradually upgrade housing, send kids to University of State, etc. If regular middle class, home will be maintained against entropy and kids will take out student loans. Either way, will retire at the usual time.

In some places $400k can give 8 families this life. In others not even one. It depends.

> In some places $400k can give 8 families this life. In others not even one. It depends.

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.

There’s a wide world between “survive” and the lifestyle I described. A wider universe between that lifestyle and “rich.”

In San Francisco it's just about striking distance to the lifestyle I described. The commutes and the housing are generally a little worse.

In San Francisco a family can absolutely make do with $400k annual income, have a home, go to decent schools, put kids through college, save for retirement, etc. You wouldn't have to live in and commute from Oakland. You could still amass sufficient wealth to be considered "rich" by the time you retire. Average household income in SF is something near $135k. $400k is well well above that.

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".

> 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?

inside a volcano

As noted this is not really true in most locations, but I still would not feel bad about the person earning $400k. They live in a desirable location. They can move if they wish.

They live in a productive location. When they leave it their productivity collapses.

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.

This is a specious argument. You can't measure expenditures that go solely to retaining the exclusive use of desirable land as productivity.

Large engineering firms have offices in various Midwestern states that are just as productive as SV, NY, what have you.

High-wage-high-cost and medium-wage-medium-cost arrangements are on balance pretty similar for the employee. Dramatically higher taxes on the former will push people to the latter. Which, as you note, they can do without even changing employers. There might be some lens through which this is good. Decentralization, or inequality. But tax revenue from this cohort will go down, not up, because there’s so much less income to tax in the first place.

"Unless you are making more than $400,000, the new tax proposals would not affect 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.

In my state (MA), it takes $473K in individual income to crack the top 1%. Household, the figure is $678K to make top 1%. Figures for CA seem only slightly lower.

> Unless you are making more than $400,000, the new tax proposals would not affect you.

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.

Those taxes will be passed onto the majority in the form of price hikes.

Further, with current inflation rates, $400k will be solidly middle-upper class in a few years from now.