During the 2020 presidential campaign, Joe Biden made a significant promise: he would not raise taxes on anyone earning less than $400,000.

A Pledge Under Scrutiny

This pledge has been a cornerstone of his administration and remains a key point as he seeks reelection in 2024. However, the landscape of American incomes has shifted dramatically, raising questions about the practicality and fairness of this pledge. Between 2019 and 2023, the number of American households earning over $400,000 surged by nearly 50%, from 2.6 million to approximately 3.8 million out of about 131 million households. This increase is attributed to a strong economy and rising consumer prices, which pushed average hourly wages up by more than 20% from $28.44 in January 2020 to $34.75 in April 2024. Consequently, $400,000 does not hold the same buying power it once did. Adjusted for inflation, a $400,000 salary in January 2020 is now equivalent to about $486,000.

Inflation and Tax Policy

“Back then, $400,000 was a more notable number,” says Jonathan Swanburg, a certified financial planner in Houston. He notes that while it may be unrealistic to expect a candidate to adjust campaign promises for inflation, the static nature of Biden’s pledge highlights a broader issue in fiscal policy. Michael Strain, director of economic policy studies at the American Enterprise Institute, criticizes the arbitrary nature of the $400,000 threshold. “The threshold is not indexed to inflation or average growth,” he points out, meaning more households will be affected over time as incomes rise.

Despite these criticisms, Biden administration officials defend the pledge as a clear signal of his commitment to not raising taxes on the middle class. “President Biden’s pledge not to raise taxes on anyone making less than $400,000 is a clear, direct, and easy-to-understand commitment,” says White House spokesperson Jeremy M. Edwards. The administration emphasizes its focus on ensuring that the wealthiest Americans and largest corporations pay their fair share.

Growing Incomes and Tax Implications

Even with the rise in high-earning households, over 95% of American households still earn less than $400,000. Advocates for progressive taxation, like David Kass, executive director of the nonprofit Americans for Tax Fairness, support the pledge. Kass argues that those earning $400,000 are significantly wealthier than most Americans, with a median net worth of $6.4 million. However, the increasing number of high-earning households presents a challenge for tax policy and revenue generation.

Both Republicans and Democrats are campaigning to protect Americans from tax hikes, but economists express concern over the lack of new tax revenues to address the federal deficit, which reached $1.7 trillion in 2023. “There’s this myth that there’s disagreement between the parties over tax increases,” says Strain. “In reality, Republicans don’t want to raise taxes on anybody, and Democrats don’t want to raise taxes on 98% of people. That’s a terrible situation.”

Who Earns $400,000 a Year?

The Economic Innovation Group’s research shows that two-thirds of households earning more than $400,000 are in states Biden carried in 2020. The top states include D.C., California, Massachusetts, New Jersey, and Connecticut, while Mississippi has the fewest families earning above this threshold. Lucrative professionals such as pediatric surgeons, cardiologists, and radiologists are among those who typically earn $400,000 or more.

Biden’s $400,000 pledge remains complex when applied to policy decisions. For example, his latest budget proposal raises the top income tax rate for single filers earning over $400,000 to 39.6% but sets the threshold at $450,000 for married couples. The administration’s focus on auditing wealthy tax cheats also raises questions about whether the $400,000 cutoff applies to individuals or households.

Overall, Biden’s $400,000 tax pledge illustrates the challenges of maintaining a static fiscal promise in a dynamic economic environment. As incomes rise and inflation alters the value of money, the implications of such pledges will continue to be a critical topic in political and economic discussions.