The “new rich” are about twenty percent of the U.S. population

by on December 10, 2013 at 11:01 am in Current Affairs, Data Source, Economics | Permalink

Hope Yen reports:

It’s not just the wealthiest 1 percent.

Fully 20 percent of U.S. adults become rich for parts of their lives, wielding outsize influence on America’s economy and politics. This little-known group may pose the biggest barrier to reducing the nation’s income inequality.

The growing numbers of the U.S. poor have been well documented, but survey data provided to The Associated Press detail the flip side of the record income gap — the rise of the “new rich.”

Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at some point during their working lives. That puts them, if sometimes temporarily, in the top 2 percent of earners.

Even outside periods of unusual wealth, members of this group generally hover in the $100,000-plus income range, keeping them in the top 20 percent of earners.

I have been predicting that this group will do increasingly well over time, relative to lower earners.

ebase22 December 10, 2013 at 11:13 am

The thing I appreciated about this study was that is trys to capture the churn that happens over time. Most people seem to treat th rich and poor x% as as a perminent group of same individuals as opposed to a different collection of people in each time frame. Many people spend some of their lives temporarily poor due to just starting out, lay offs, failed businesses, messy family issues, etc, but then later find themselves to be relatively rich. But even that is not necessarily perminant as many rich years are only temporary gains achieved.

john personna December 10, 2013 at 11:23 am

But do us “churners” really feel particularly empowered or secure in this economy? I have a safe (early) retirement, but the heat’s not on because the house isn’t really that cold.

Roy December 10, 2013 at 11:36 am

No, but being in that group can sure make you very uncomfortable with the idea of using the tax code to reduce inequality by punishing anyone who makes 250k in a give year.

john personna December 10, 2013 at 11:41 am

As I’m explaining to Brian, I took a big hit, with both pre-GWB federal taxes and California state taxes. At the time I didn’t like being taxed like a guy who made a million dollars a year, every year. All it would have taken to make me happy then was a reasonable income averaging system, to separate the lucky duckies from the really lucky duckies.

ebase22 December 10, 2013 at 11:44 am

This is something i bring up often. The tax code punishes people over time with inconsistant income levels relative to people who are steady. So something who owns a small business and has a great year every once in a while pays a higher tax rate over time than someone who lives a welthier life style but has their income at a consistant level.

Mike W December 10, 2013 at 11:53 am

Back in the days when the tax code included “income averaging” the top marginal rates were almost twice what they have been recently. What you’re asking for is a tax code that includes everyday-low-prices plus income averaging. That’s kinda asking a lot.

john personna December 10, 2013 at 11:57 am

No Mike, one subtext here is that I think the Bush tax cuts were a mistake. Could we do pre-Bush with some sort of income averaging? I’d hope so.

JWatts December 10, 2013 at 12:22 pm

“I took a big hit, with both pre-GWB federal taxes and California state taxes. At the time I didn’t like being taxed like a guy who made a million dollars a year, every year. All it would have taken to make me happy then was a reasonable income averaging system, to separate the lucky duckies from the really lucky duckies. …No Mike, one subtext here is that I think the Bush tax cuts were a mistake. Could we do pre-Bush with some sort of income averaging? I’d hope so.”

Translation: I want the rich to be highly taxed, as long as, I’m not counted as rich.

john personna December 10, 2013 at 12:25 pm

I could answer you a lot of ways JWatts, but probably the most truthful is this: The rich people I know don’t think I’m rich.

JWatts December 10, 2013 at 2:07 pm

“I could answer you a lot of ways JWatts, but probably the most truthful is this: The rich people I know don’t think I’m rich.”

What do the poor people you know think? (The one’s who have never been able to afford a new car in their entire life.)

Mark S. December 10, 2013 at 12:00 pm

Roy,

Remember, if you have a specific tax revenue target you’re trying to hit, then the flip side of higher taxes on the rich is lower taxes on the non-rich. The couple who makes over $250K during one or two years would likely be happy to pay higher taxes on their income above $250K during those years to have lower tax rates for the rest of their lives.

If there really is a lot of churn, and many people are only ‘high income’ for a few years, I see that as an argument for higher taxes on high incomes, not lower.

JWatts December 10, 2013 at 12:25 pm

There’s an implicit assumption that $250K is the border line here. However, there’s little chance that it will stay at that level with our current deficits, looming entitlement crunch, and modest economic growth. Rates will go higher on the +$250K population, but they will also go higher on the +$100K population.

agorabum December 11, 2013 at 6:16 pm

Well, there is a new rate for the 400,000+ a year. But remember, it’s always about the marginal rate.
Everyone pays the same rate on each dollar they make; your first $50,000 and $100,000 is taxed just the same as someone only making 50 or 100k.
But a new marginal level at the million+ level and 5 million+ level would be nice as well. Once you start getting that much a year, it all starts becoming rather abstract…

Larry Siegel December 11, 2013 at 7:59 pm

…unless you make $5 million once and it’s supposed to last for the rest of your life. A friend of mine had a best-selling book. He’s never made a 6-figure income. Five figures for 20 years, then several million bucks all at once, then back to five figures.

ebase22 December 10, 2013 at 11:42 am

I’m making no argument here on what this actualy means. I’m simply pointing out that a real descriptive picture of what is going on involves a lot of mixing of people over time and not a static story about a certain gorup of people being “rich” and certain group being “poor”. And this study trying to capture that is what I appreciate. I wish there was more work trying to capture the various angles of dynamics and not just snap shots.

BenK December 11, 2013 at 8:22 am

It’s an interesting observation, in the context of having recently read ‘A Christmas Carol’ about another wealthy individual who doesn’t use the heat much. Not to make this some sort of accusation, but to say that wealth and self-restraint regarding conception frequently come together for reasons other than unfounded insecurity. Instead, thrift is perhaps a cause of wealth.

dead serious December 10, 2013 at 1:39 pm

One variable that always gets neglected in these “who’s rich” and “who should pay more taxes” discussions is regional cost of living variance.

$150k and living within stone’s throw of NYC is certainly not living high off the hog. You’d be able to afford a dated 3-br house on 1/4 acre lot in a decent, not great community, and you’d have absolutely no disposable income.

$150k in Charleston and you’d have yourself a 5-br, 3-car garage McMansion with a decent plot of land and disposable income out your ass.

wiki December 10, 2013 at 3:46 pm

But of course it is a choice. New Yorkers who had the same level of real income as those in Indiana would consider themselves MUCH better off. In fact New Yorkers with higher nominal incomes and small flats look down on midwesterners with lower incomes but huge houses and more cars. So that tells us something, they in fact DO feel richer. So it makes sense to tax them as such. If they didn’t feel that way, let them move out of Manhattan and get a lower paying job in Kansas and live in a nice house with a secure income stream.

Deepish Thinker December 11, 2013 at 9:00 am

To quote Megan McCardle (http://www.theatlantic.com/business/archive/2011/11/expensive-urban-real-estate-is-a-consumption-choice/247937/#comment-355915529):

“There’s a sort of irritating supposition in all of this that living in New York (or San Francisco, or Boston) is something that just happens to you, like getting cholera.”

dead serious December 11, 2013 at 9:10 am

It’s something that has to happen if you want to work in certain industries. No matter how long I hold my breath I’m not getting a job in e.g. finance, fashion, publishing, software development, entertainment industry while living in bumfuck, Tennessee. Auto assembly line work? Sure.

TMC December 11, 2013 at 12:41 pm

So you are confirming it IS a choice.

dead serious December 11, 2013 at 5:54 pm

No, you just have reading comprehension issues you need to work out.

Larry Siegel December 11, 2013 at 11:15 pm

It’s McArdle.

prior_approval December 10, 2013 at 11:15 am

‘I have been predicting that this group will do increasingly well over time, relative to lower earners.’

Being a member of it, you do have the grace to share your perspective – apparently, servant is still a great job prospect for those who will never earn more than $100,000 a year.

mofo. December 10, 2013 at 11:19 am

“Servant”? Your rhetoric is about 100 out of date, i would say.

karl December 10, 2013 at 12:31 pm

How about “wage slave”? Is that still too retro?

Cliff December 10, 2013 at 1:16 pm

I start to lose sympathy when the complaint becomes that you don’t want to have a job working for someone else.

Brian Donohue December 10, 2013 at 11:17 am

Dear 20%ers,

The Federal government is in hock to the tune of $17.2 trillion dollars. Your state is probably piling on here. This is for services rendered- your tax dollars today are going to current operations — a few hundred billion short this year, but close. At some point, we’re gonna by passing this here hat around.

In the meantime, behave accordingly.

Regards,

David Ricardo

john personna December 10, 2013 at 11:22 am

I’ve paid a solid six figures in yearly federal taxes, but I don’t pretend that I would have made the same underlying income in some counterfactual without federal government. I am certainly not an MMT, but this idea that income is divorced from government, until tax is collected, is equally extreme. I mean, I went to a cheap state university and then enjoyed an internet boom and windfall. Government hands all over my path, even if I never worked for government.

john personna December 10, 2013 at 11:24 am

(BTW, I paid my big taxes before GWB cut the rates. You kids today have it easy.)

Brian Donohue December 10, 2013 at 11:26 am

“I’ve paid a solid six figures in yearly federal taxes.” Unless this statement refers simply to pre-2001 years, you are busted.

john personna December 10, 2013 at 11:34 am

Of course it is pre-2001. I said that with “before GWB” and “internet boom and windfall.” That would be your dot-com bubble.

Brian Donohue December 10, 2013 at 11:40 am

Oh, so you’re saying you didn’t pay six figures in federal taxes during the oughts? Whatever. Taxes were too law on everyone- so figure out what you paid, multiply by, say, 10%, and send the check in.

Sure, libertarians will cavil, but surely not good moderates, particularly not those who cannot ordinarily be distinguished from progressives.

john personna December 10, 2013 at 11:42 am

You say “whatever” after you took off with a strange side argument? Whatever.

Brian Donohue December 10, 2013 at 11:42 am

Maybe closer to 20%. At least have the grown-up sense to adjust your balance sheet. God forbid folks don’t pay their fair share.

john personna December 10, 2013 at 11:47 am

Dude, you are confusing “six figures” with “percentage income.”

Brian Donohue December 10, 2013 at 11:51 am

I am confusing nothing. I’m sorry that you’ve mapped out your retirement strategy without thinking this through. Your are either not as rich or not as virtuous as you think you are.

john personna December 10, 2013 at 11:55 am

I’m pretty sure you are showing pretty high innumeracy. Given the “peeks” I’ve given at my history, there are actually an infinite range of fitting scenarios.

Brian Donohue December 10, 2013 at 12:01 pm

Oh dear John, it pains me to see you contorting this way.

From what you’ve told me, you entered the oughts with a big pile. You are the guy Bush had in mind.

Infinite scenarios, indeed. Only you know how much you paid. Whatever it was, it was 10%-20% less than it should have been (rule of thumb, not confusion.)

Seriously, you embrace our welfare state a helluva lot more than I do. Be a man about it.

john personna December 10, 2013 at 12:13 pm

You keep making these unrooted comments, like they have some meaning. “Only you know how much you paid. Whatever it was, it was 10%-20% less than it should have been (rule of thumb, not confusion.)”

You are now arguing that my pre-Bush taxes should have been higher?

Why are you wasting bandwidth with this drivel? Is it because the core of my comment was too dangerous? That is, I benefited greatly from a mixed economy. I attended public schools, including state university, and then prospered in a new internet economy spurred by government research and development. I then paid back some of my millions.

Was that a bad deal, really? Really?

Brian Donohue December 10, 2013 at 12:27 pm

John, there is no shortage of commenters on this blog willing to argue that millionaires have paid their fair share, maybe more.

I’m sympathetic. I’ve paid a shit-ton in taxes myself. I’ve been a ‘good deal’ for the government.

Somehow or other, it hasn’t been enough. I understand (a) government spending should have been lower or (b) taxes should have been higher positions.

And while I prefer (a), it’s water under the bridge. The $17.2 trillion is a sunk cost. The money can’t be unspent.

But a millionaire that rejects both of these, yet embraces further expansion of the welfare state. Hmmm.

JWatts December 10, 2013 at 12:30 pm

Seriously, you embrace our welfare state a helluva lot more than I do. Be a man about it.

Now Brian, John is being perfectly consistent in his posts. He consistently wants high tax rates on other people.

john personna December 10, 2013 at 12:35 pm

I’d say Brian that anyone who answers “more” or “less” in response to “government” is not being too smart.

Smart people can probably see where government (and markets) do badly, and should think of improvements in design. That’s probably why I self-identify as a moderate and pragmatic rather than as a conservative or progressive.

Personally, I want more for my dollar in government, and I will listen to conservatives or progressives with rational plans. That’s harder though than throw away arguments about the national credit card.

john personna December 10, 2013 at 12:36 pm

How old are you JWatts? Do you even remember high taxes?

Brian Donohue December 10, 2013 at 12:45 pm

I’m not talking about a philosophical position about ‘more’ or ‘less’ government.

This is simple budgetary arithmetic. Or perhaps you have identified the “Third Way” of closing a budget gap.

And you have. Yup. As far as I can tell you just played the “eliminate waste, fraud, and abuse” card.

Don’t you know this is akin to the guy who realizes he’s out of bullets and hurls the gun?

john personna December 10, 2013 at 12:52 pm

To tie this back to my original comment, some past politician could have “improved” the US budget by eliminating the funding which created the internet.

You are telling me that there’s no other way. It is spend or not spend, all accounting, and no rewards for money well-spent.

john personna December 10, 2013 at 12:53 pm

As an aside, I tend to listen to conservatives when they say they want to improve schools while spending less. I listen to liberals who say they want to downsize excess military capacity. Pulling from both sides actually makes it easier, not harder, to balance a budget.

john personna December 10, 2013 at 1:06 pm

Note also that I tend to like “national health” plans because they cost less, not more. While it is the crazy conservatives who see them as “more government.”

TallDave December 11, 2013 at 12:13 pm

“the funding which created the internet.”

The government helped fund the hook up of a few dozen computers. The private sector added billions more. It’s a mistake to assume the latter was in any way dependent on the former, except in sense of not actively preventing it — ARPANET and NSFNET were eventually decommissioned precisely in order to allow full commercialization.

Joe Teicher December 11, 2013 at 7:47 am

>(BTW, I paid my big taxes before GWB cut the rates. You kids today have it easy.)

Maybe we did have it easy. Not so much anymore. Taxes are higher now than they were under Clinton.

Brian Donohue December 10, 2013 at 11:25 am

Sorry John, you reaped a huge benefit from the hated Bush tax cuts. Anyone who made a pile during the oughts (like me) needs to man up. Don’t go all conservative on me now.

john personna December 10, 2013 at 11:36 am

If I enjoyed any Bush reduction it was dwarfed by my pre-Bush payout. That would be true for any of us older “new rich.”

Brian Donohue December 10, 2013 at 11:43 am

If? If? Did you live in this country? Then there is no question of if, just how much.

john personna December 10, 2013 at 11:49 am

You aren’t using a terribly sophisticated mental model there Brian. Say one of these “churners” mad million dollar years, off and on, and then retired around the time of the Bush tax cuts? Then his “unavoidable income” might be reduced, and his ability not to show taxable income might be increased.

Sol December 10, 2013 at 11:18 am

I fail to see how defining “Made $250,000 one year” as rich is helping clarify matters at all? We usually make about $100,000 a year, but there was one year where it looked like there might have been a business deal that would get us to close to $250,000 for just that year. While it fell through, I don’t see how that would have jumped us to “rich”. It most likely would have meant paying off half the mortgage, starting a decent college fund for the little guy, and maybe once nice vacation. Probably would have had a big screen TV by now. But I don’t think it would have made a fundamental difference in our life.

awp December 10, 2013 at 1:05 pm

wow, as a fellow rich person.

Want to know how I know your rich? You feel that an extra $100,000 dollars wouldn’t make a “fundamental difference in your life”.

Cliff December 10, 2013 at 1:20 pm

Well an extra $100,000 wouldn’t make a fundamental difference to many poor people, see: the lottery.

JWatts December 10, 2013 at 1:46 pm

That’s trueCliff, but nonetheless awp is absolutely correct. If you don’t feel like an extra $100K would make a fundamental difference in your life, you are definitely above the median US wealth curve. It’s a completely different issue about whether the extra $100k would actually make a fundamental difference to many poor people.

By poor, I’m explicitly talking about an American version of poor, which probably includes living in a fairly large house and owning a car,using central heat and air, having a cell phone and cable TV.

Keith December 10, 2013 at 11:21 am

“This little-known group may pose the biggest barrier to reducing the nation’s income inequality.”

What a strange sentence. Shouldn’t we be trying to get the poor to earn more rather than the rich to earn less?
On second thought, maybe we should just let people be rather than trying to get them to do anything.

The Anti-Gnostic December 10, 2013 at 11:43 am

Yes, that was a very strange statement. I’d even characterize it as an alien perspective.

I also doubt Hope Yen or the GMU economics department are doing anything personally to reduce their income inequality with folks further down the ladder.

prior_approval December 10, 2013 at 12:04 pm

Average Is Over – buy the book. Available at fine web sites everywhere.

Cliff December 10, 2013 at 1:21 pm

+1

JWatts December 10, 2013 at 1:49 pm

“This little-known group may pose the biggest barrier to reducing the nation’s income inequality.”

What a strange sentence.

It’s pretty much the standard Liberal meme, isn’t it? That if we reduced the wealth of the rich it would also reduce the poverty of the poor. And that the only reason we can’t reduce poverty is the greed of the rich and the stupidity of the right. So, while I think it’s misguided, it doesn’t strike me as unusual.

derek December 10, 2013 at 7:50 pm

Why is it strange? Get used to it, this is progressive thinking. There was a politician in Canada, who when asked what she meant by ‘rich’ said anyone who made over $40k. This was a decade or two ago.

$250k is rich? The real rich, even if almost all their income was confiscated would not amount to much, so the only rational thing for a growing government in need of revenues it so go where the money is; the middle class. Why not start by redefining the language, call someone who could qualify for a mortgage in one of the more expensive cities in the US as rich. It still won’t satisfy the hungry maw of government, so it will be defined lower again, as anyone who makes more than the defined poverty level. They are obviously rich since they make more than a poor person.

The focus on inequality is about taking money from people who you think have too much. If you think that you are not among that group, be patient. They will get to you.

Larry Siegel December 11, 2013 at 8:07 pm

We should be trying to get the poor to earn more *so that they’re not poor any more*.

There is a large class of people with a vested interest in living their middle-class lives providing various services to the poor (sometimes in the way that a bull services a cow). *They are the little-known group that poses the biggest barrier to reducing the nation’s income inequality.* They vote, they belong to public sector unions, and they can’t survive without a large and expanding supply of poor people.

charlie December 10, 2013 at 11:34 am

I’m really curious how many people in the 2% of income (250k?) end up “wealthy?”

I mean, $1 million in a retirement account is not “wealthy”. sorry. You are not going to the poor house but you aren’t liquid.

Axa December 10, 2013 at 11:35 am

Would you be kind enough to draw the line for wealthy and explain why you chose that boundary?

Norman Pfyster December 10, 2013 at 11:40 am

The traditional understanding was someone who was able to live (well) without laboring (i.e., off their accumulated wealth).

john personna December 10, 2013 at 11:54 am

Exactly. If you take a package tour once or twice a year, you are probably middle class. If you can rent a house and “summer” somewhere, you might be rich.

Axa December 10, 2013 at 12:02 pm

Come on guys, you’re trashing the boundary of having an income superior to 250K one year to be “wealthy” and you’re not coming up with any quantitative measure. Once again, what is wealthy?

john personna December 10, 2013 at 12:19 pm

OK, here’s the problem with your question. We have the whole “millionaire next door” thing. There are levels of wealth that seem large to those living on paychecks, but which when managed prudently don’t yield a lifestyle much different than one enjoyed by those living on paychecks.

Is the millionaire next door, with the same house as you, the same car as you, the same vacations as you, really “rich”? Or his he slightly higher middle class?

Norman Pfyster December 10, 2013 at 2:26 pm

Assuming a 6% return over 20 years, you would need $3,000,000 in principal to purchase an annuity to pay you $250,000 for 20 years. Same assumption, but 30 years, you would need $3,700,000. And that would be dipping into capital. To live off just the income, you would need $4.16 million. People can, of course, live on considerably less than $250K annual income, but I’m trying to keep within the parameters of the OP’s definition of “wealthy.”

JWatts December 10, 2013 at 5:20 pm

“To live off just the income, you would need $4.16 million.”

Of course, inflation would eat it up over a 30 year period. So, you’d need to get a 6%+inflation return or start with more capital. I’m guessing you were assuming a 9% rate of return minus the 3% long term inflation rate to arrive at the 6% figure, but I thought I’d point it out.

The Anonymouse December 10, 2013 at 3:32 pm

My understanding was that, in contemporary political discourse, the definition of “rich people who need to be taxed more” is “(anyone who makes my income) +$1.”

JWatts December 10, 2013 at 12:34 pm

I’m really curious how many people in the 2% of income (250k?) end up “wealthy?”

I mean, $1 million in a retirement account is not “wealthy”. sorry. You are not going to the poor house but you aren’t liquid.

If your income was consistently at the $250K range and you only have $1million in a retirement account, then you have only yourself to blame.

Bob December 10, 2013 at 12:52 pm

Expenses typically don’t raise linearly with income. If you go from 75K to 150K, chances are you don’t buy a car that is twice as expensive, or move to a house that requires twice the mortgage. Every increase in income gives a great opportunity for increased savings.

If a couple is making 250k a year since they are 35, and their net worth at retirement time is only 4-8 times their income at 35, they must have hosted a lot of very big parties.

IVV December 10, 2013 at 1:32 pm

That depends on ROR. If the ROR hovers around 1% for, say, a decade, then yes, net worth can very reasonably be only 4-8 times income.

JWatts December 10, 2013 at 1:53 pm

No, not really. That’s a 30 year time span. At the very least someone making +$250K should be saving 20% of their net income. If you assume that’s $40K a year in savings (ignoring inflation) then they should have $1.2 million, even if the ROR was 0% for 30 years.

JWatts December 10, 2013 at 1:55 pm

Whoops, I’m sorry I was wrong.

I was looking at the $1 million figure, but you said 4-8 times income. Assuming, net income of $200K, that would be $800 to 1,600K which would be in the range. However, that would still require a 1% or lower ROR for the entire 30 years.

IVV December 10, 2013 at 2:34 pm

Although I might be wiling to accept that it’s unlikely over the entirety of the 30 years, we are off to a most impressive start on that account.

JWatts December 10, 2013 at 5:24 pm

I would think that a 1% rate of return to be pretty abysmal, even for recent history. How are you arriving at that low a rate? Pure US Treasuries after inflation?

TallDave December 11, 2013 at 9:38 am

Most millionaires are unusually thrifty – they wear the same shoes longer than normal people, etc.

You’d be surprised how few professionals even bother to max out their 401ks, though, which is crazy because it’s like getting an extra 20-30% return (depending on marginal tax and how you compute the deferred tax in NPV terms).

charlie December 10, 2013 at 2:02 pm

Or several kids who went to private school and college.

Turkey Vulture December 11, 2013 at 2:08 am

We are a little below that threshold but save about 65-70% of our after tax income (depending on how one treats 401k contributions in that calculation), and that’s after some lifestyle creep. But I know of people who spend everything they make at similar income levels, while maintaining student loan balances too.

That man is richest whose pleasures are the cheapest, at least once a certain minimal level of resources is reached.

TallDave December 11, 2013 at 9:42 am

That’s the way to do it. We were able to get close to that until we had kids. Now we try get to about 40-50% (but our income is higher, so it’s about the same).

Norman Pfyster December 10, 2013 at 11:37 am

Wealth vs. income: you’d think people would learn to distinguish.

As a 20%er, I had to laugh at the notion that I wield “outsized influence” on American politics.

Slocum December 10, 2013 at 11:40 am

It strikes me as a fairly obvious attempt to lower the bar on class-warfare. Obama defined ‘rich’ as $250,000+, but this is inconvenient as there just isn’t enough money to be had from that group. So, apparently the innovation is to define ‘rich’ as those who have ever hit that magic $250K threshold (“Are you now or have you ever been in the top 2%?”). The idea seems to be to make a legitimate target out of this ‘new rich’ class (a “little known group” with “extensive influence over America’s economy and politics” and who constitute the “the biggest barrier to reducing the nation’s income inequality”).

Ted Craig December 10, 2013 at 11:40 am

I’m not sure the rich are as much an issue as the upper middle class. For example, the rich probably don’t care if government-funded pre-school is targeted only at the poor. But the UMC, which always believes it has less money than it really does, insists all programs are universal. They are in that sweet spot of consuming both private and public goods, as well as voting in large enough numbers to impact elections.

Jacob December 10, 2013 at 11:52 am

+1

We live in interesting times December 10, 2013 at 12:18 pm

I’m not buying the $250k/yr. argument. Obamacare defines “rich” as $120K/yr., that’s when the subsidy cuts off. I’m not divorcing, either, to save about $10K/yr., if that’s what it turns out to be. It will be interesting when the blue state middle-class teachers, nurses, police & firemen who are at this time exempt, but may not be in the future, get hit with this.

JWatts December 10, 2013 at 1:59 pm

Obamacare already does hit a lot of Union workers with the “Cadillac” insurance tax and that’s not sitting well. The Unions are happy to vote higher taxes on other people, but not so happy to pay higher taxes themselves.

Turkey Vulture December 11, 2013 at 2:11 am

Doesn’t that cadillac tax not kick in until 2017 or 2019?

We live in interesting times December 10, 2013 at 12:20 pm

“Once again, what is wealthy?”

When you have or can afford to do more than me? Or you have the lifestyle I aspire to?

steve December 10, 2013 at 12:24 pm

new rich? These are just older people nearing retirement. The middle class are mostly middle aged people, and the poor are either young people just starting out or the chronically poor.

Brian Donohue December 10, 2013 at 12:51 pm

AKA Baby Boomers, AKA The People Who Brought Us $17.2 Trillion in Debt.

I see justice.

We live in interesting times December 10, 2013 at 12:59 pm

“It’s for the children.”

It’s time to start polishing the shot glass & choosing your favorite beverage, how many times will Hillary say it?

AndrewL December 10, 2013 at 12:32 pm

Wealthy (in NYC) is when you never have to take public transportation anymore. And whole foods will deliver to your house.

Larry Siegel December 11, 2013 at 8:12 pm

There is nothing wrong with the NYC subway. Moderately wealthy in NYC is when you can commute from your job to the condo or coop you own without having to leave Manhattan south of 96th Street.

Thompson December 10, 2013 at 12:55 pm

Yet another economics article and blog post that conflates wealth and income.

It’s important to distinguish between wealth and income. They’re not the same thing. Just as position and velocity are not the same thing.

If physicists conflated velocity with position the way people conflate income with wealth, where do you think technology would be today?

Scharlach December 10, 2013 at 1:30 pm

Right. Someone who makes 250k/yr but spends it all on whores, cocaine, and child support is not at all wealthy. He is, like the man making 50k/yr, just one bad year away from the poor house.

On the other hand, a man who makes 50k/yr managing an apartment building but forty years ago bought some property that ended up being right across the street from DIsneyland, is, if he has kept and wisely invested in the property, eminently wealthy even if he only makes 50k/yr in paychecks.

Income is a fluid variable and, for the super rich, doesn’t contribute much to their wealth. Wealth is a measurement of assets (minus liabilities).

Brian Donohue December 10, 2013 at 4:40 pm

Grasshoppers play, ants pay.

Still, I don’t think I could live as a grasshopper and sleep at night.

Axa December 11, 2013 at 7:19 am

Yes, the proper definition of wealth is assets minus liabilities.

If most of high individual earners created wealth, the taxman would be me more motivated to tax wealth. That may explain why the taxman goes after income, not wealth……for individuals. Businesses are taxed based on profit, not income. But if individuals where taxed based on profit (delta wealth) almost no one would pay taxes.

Another problem is that cocaine, whores and child support don’t contribute to VAT government income, so the taxman take his cut before the money goes into the grey economy.

Benny Lava December 10, 2013 at 1:14 pm

250k a year does not make one rich. So I’m not quite sure what we are getting at here; what are these professions with a temporary 6 figure churn? A good run at a law firm and then the clients leave? Finally making bank at a private practice as a doctor during those twilight years before you taper off to 3 days a week?

Joe December 10, 2013 at 1:57 pm

Stock options for workers of acquired start-ups

JWatts December 10, 2013 at 2:04 pm

“250k a year does not make one rich.”

Your opinion is in the minority.

“Americans say they would need to earn a median of $150,000 a year to consider themselves rich. However, 30% say less than $100,000 would be enough, including 18% who would consider themselves rich if they made less than $60,000 a year.”

http://www.gallup.com/poll/151427/americans-set-rich-threshold-150-000-annual-income.aspx

Anon December 10, 2013 at 2:24 pm

But that is the opinion of people who don’t make anywhere near that much. People who make at least 50000 a year (still a long ways away from 150,000), have a median threshold of 200000 for being rich instead.

We live in interesting times December 10, 2013 at 2:29 pm

If you make $50K/yr. down South, the living can be pretty decent. I think most people who write these articles forget you can live your version of “the good life” on less.

MP December 10, 2013 at 3:33 pm

Isn’t it the nature of a progressive tax code that people underestimate what is required to be rich? 150k in income seems more valuable to someone who assumes a near zero tax rate (because that’s what they’re paying).

JWatts December 10, 2013 at 5:27 pm

“People who make at least 50000 a year (still a long ways away from 150,000), have a median threshold of 200000 for being rich instead.”

Umm, people who make at least 50,000 a year include people making $200K per year.

Cliff December 10, 2013 at 8:23 pm

But not too many…

Dave December 10, 2013 at 7:13 pm

There’s a lot of variation in cost of living. In parts of the Midwest, the median price of a home is around $150,000. And these are areas with decent school districts. It’s easy to see why someone living in these kinds of areas would consider earning $150,000 a year sufficient for them to qualify as “rich.” They’re earning the median value of a home in their area.

While in the suburbs with good school districts in major metro areas in the Northeast, the median price of a house might be $500,000. In major cities, it’s even higher. The median price of a Manhattan apartment is $1.5 million. Obviously $150,000 per year is not the median value of homes in these areas. People earning $500,000 or $1.5 million per year in these areas might consider themselves “rich.”

dead serious December 11, 2013 at 9:16 am

But Megan McCardle has a pithy witticism about that so your point is entirely invalid.

Benny Lava December 10, 2013 at 7:56 pm

That is the opinion of people who don’t hold much debt. 5k worth of debt on a salary of 25k looks bad but man with 125k in income that 5k melts like butter. Of course for the doctor making 125k the debt is probably north of 100k before the first house is purchased. Making six figures in theory is not the same as reality. But if I disagree with the canaille then so be it.

Turkey Vulture December 11, 2013 at 2:18 am

I feel rich and I don’t even make that much, and have a Boston cost of living.

Brian Donohue December 11, 2013 at 6:34 am

I’m not saying we’re richer than we think we are, but we are vastly richer than we appreciate.

TallDave December 11, 2013 at 9:35 am

It does while you’re making it, which is the relevant point.

The question is not “what level of income would make you permanently rich?” or “how many years Y at income X would make you feel rich?” Those might be better questions, but they’re harder to ask.

Scharlach December 10, 2013 at 1:21 pm

Defining “wealthy” will always be a subjective measure. However, no one (including the class warrior who wrote the AP article) seems to be taking into consideration the more objective definition of “wealth”–as opposed to “income”–when trying to define “wealthy.”

Wealth is a synchronic measure of all assets minus liabilities. Income only becomes wealth when invested or saved, and even then, investments and savings have liabilities that come along with them. A good wealth investment will have fewer liabilities but will be a monetarily steady or rising asset over time: a home is a good wealth creator (unless NAMs move into the neighborhood). A bad wealth investment will have more liabilities but will be a monetarily unsteady or declining asset over time: a brand new Jaguar (but perhaps not a Ferrari) is definitely not a wealth creator.

Income on the other hand is a fluid variable. Joe might make 150k/yr, but if Joe spends most of it every month on cocaine and whores and doesn’t have any investments or savings, then Joe doesn’t have any wealth and hence is not wealthy, and any attempt to define him as such is a rhetorical diversion. He’s only one bad year away from an EBT card.

Now, in reality, most people who make six figures also have high future-time orientation and high IQs, so they generally invest wisely, in property or a home if nothing else. If their investments are especially wise and/or lucky, their income literally ceases to matter to their high standard of living because their wealth can fund that high standard indefinitely (that is, their net assets minus liabilities are monetarily rising over time above and beyond what their actual paychecks say).

My wife’s grandfather came from Mexico and invested in property in Orange County in the 1950s and 60s when OC was still orange groves. He owned and operated a mechanic’s shop for 40 years, never made much more than 80k/yr, but wouldn’t you know it, after 40 years, he’s one of the wealthiest men I know thanks to those properties.

In short, wealth and income don’t necessarily have anything to do with one another, though a high income will (unless said income earner is a moron) eventually correlate with decent wealth. If the income earner is, as I said earlier, both wise and lucky, then his wealth will be so great that he can stop working–that is, stop earning an income—and not see his standard of living drop.

And that’s the true measure of wealth: if you stopped earning an income today, for how many years could you continue to uphold your standards of living? If you couldn’t make it a month without cutting back (like Joe!), then you aren’t wealthy. If you could make it till you die, then you’re a wealthy S.O.B. If you could make it till you die and still have millions in assets to pass on to your grandkids, then you’re a Hilton.

If the leftists want to target the “wealthy,” they will necessarily be targeting the people who have been wise and lucky with their money for decades and generations. Not a great incentive for those of us who haven’t made it into their ranks yet.

Thompson December 10, 2013 at 2:43 pm

Exactly.

And a lot of these professionals with relatively high incomes have high student debt (law school, med school, etc.) liabilities, and they also tend to have high mortgage debt liabilities, since they often need to live in a relatively expensive metro area where the high paying professional jobs are and where decent school districts are. So they have huge liabilities and aren’t wealthy at all.

Conflating wealth and income is critical to the liberal alliance of the wealthy and the poor against the middle. The wealthy have an interest in conflating wealth and income since it allows the non-wealthy who have high incomes i.e. the would-be upwardly mobile who are the potential competitors of the wealthy, to be targeted politically as being “the rich”, “the wealthy”, etc. So “tax the rich”, “tax the wealthy”, becomes “tax high incomes” i.e. tax middle class people who aren’t wealthy but who have high incomes, and don’t tax wealth, leaving the truly wealthy relatively unscathed.

yo December 10, 2013 at 4:00 pm

“Joe might make 150k/yr” – first time I read that, I read “Joel Mokyr”. Seesh.

Mercer December 10, 2013 at 1:43 pm

” make me happy then was a reasonable income averaging system ”

Become a farmer they still have income averaging. You might also get government income support if you grow the right crops.

Brett December 10, 2013 at 4:37 pm

The Top 20% is surprisingly broad if you look at individual earners. It’s anyone earning more than $60,000 a year.

rad white blogger December 10, 2013 at 8:27 pm

I don’t believe these bogus income stats the govt puts out. I do know this–the median income for workers 25 and older is about 28K. Period.

And that stat is inflated and massaged as well because it leaves out the younger people who make even less.
Americans are bamboozled by a web of deceptive stats, and this stat is one of them. It’s a lie.

Eric December 10, 2013 at 9:06 pm

Don’t be stupid, if you inherit 100k one year you aren’t “new rich.”

prior_approval December 11, 2013 at 12:48 am

But you look it to anyone earning America’s 2011 median income – ‘Median household income fell to $50,054 in 2011, down 1.5% from a year earlier. Income inequality widened, as the highest income echelon experienced a jump, while those in the middle saw incomes shrink.’ http://money.cnn.com/2012/09/12/news/economy/median-income-poverty/

Because remember, half of all households are under that income – many significantly so.

And looking back to 2010 – ‘The annual median wage fell in 2010 for the second year in a row to $26,364, a 1.2 percent drop from 2009, and the lowest level since 1999, according to David Cay Johnston at Reuters.’ http://www.huffingtonpost.com/2011/10/20/us-incomes-falling-as-optimism-reaches-10-year-low_n_1022118.html

Again, half of everyone earning a wage earned less than that – and being given four years salary in one lump sum certainly looks like wealth to most people.

Turkey Vulture December 11, 2013 at 2:25 am

If someone gives me $100k for nothing I will call myself rich.

Larry Siegel December 11, 2013 at 8:24 pm

Go ahead, call yourself rich. It’s nice to know some people are easy to please. My mother gave me about $100,000 (by dying and leaving me the money). I put it in my retirement plan where it increases my annual income in retirement by $3,000 to $4,000. I’m not complaining, but if I’m rich, it’s not because of the $100,000.

TallDave December 11, 2013 at 9:32 am

Two percent is pretty rarefied territory. I’d be more interested in what %

1) reach the top quintile
2) reach the top half of income

I suspect the numbers are 1) around half and 2) around 80-90%.

TallDave December 11, 2013 at 12:23 pm

This was interesting:

The new research suggests that affluent Americans are more numerous than government data depict, encompassing 21 percent of working-age adults for at least a year by the time they turn 60. That proportion has more than doubled since 1979.

That seems to run counter to:

Because their rising status comes at a time when upward mobility in the U.S. ranks lowest among wealthy industrialized counties

I suspect you can square the circle thus: those countries are poorer and have flatter distributions, so “upward mobility” means a significantly smaller income change than it would here.

jqhart December 11, 2013 at 5:25 pm

Wealth and income are radically different things.

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