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Monday, January 30, 2012

Top 1% of income: how much?

How much do you have to make to make the heralded 1% level?

#1: IRS figures

According to 2010 IRS figures, this is an adjusted gross income of $380,000.



table copied from http://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/ 

Not surprisingly, these numbers are pretty volatile, although it’s still good to make a lot. This is from the IRS via http://money.cnn.com/2011/10/20/news/economy/occupy_wall_street_income/index.htm

#2: Other figures for the 1% are $690,000 and $530,000

But that’s the AGI on your 1040 form, and we all know that the rich, even those planning to run for president, have a variety of ways to have income that doesn’t show up on the AGI line.  Other estimates put the number a lot higher. Note that the $690,000 Federal Reserve figure is almost twice as high as the $380,000 IRS figure.

The cutoff for the 1 percent varies depending on how income is calculated. On the low end, an analysis of census data puts the cutoff at $380,000 for a household and provides a wealth of demographic characteristics that were used in this article. On the high end, the Federal Reserve’s Survey of Consumer Finances, which uses a broader measure of income that includes capital gains, yielded a cutoff of $690,000 in 2007, the most recent year of data available. The Tax Policy Center, a nonpartisan group,t u makes projections based on Internal Revenue Service data and adjusts for people who do not file taxes. It puts the cutoff at $530,000 per tax return in 2011.

http://www.nytimes.com/2012/01/15/business/the-1-percent-paint-a-more-nuanced-portrait-of-the-rich.html?pagewanted=3&_r=1   and http://www.federalreserve.gov/econresdata/scf/scf_2007.htm

#3: But what if we use wealth rather than income?

Income is a lot easier to measure, particularly for the IRS.  But perhaps we shouldn’t look at what comes in as income in a particular year, but the net worth of households.

This was also attacked in that same Federal Reserve study, summarized in a different NYT article: http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/

The Times [really the IRS] had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000.

Well, this makes sense. If your income is $50,000 and your expenses are $40,000, you’ve saved $10,000.  But if your income is twice as much ($100,000) and your expenses are $40,000 you’ve saved $60,000 – six times as much. While the rich do spend more, it’s far easier for them to save.

(Really, if the Times was going to use the Federal Reserve study for net worth, shouldn’t they have used the Federal Reserve numbers for the 1% level of $690,000? There would still make their general point, but involve a comparable methodology.)

Of course, there are competing numbers here as well:

"The State of Working America's Wealth," a study by the Economic Policy Institute, or EPI, produced similar bleak income results, especially for lower-income earners.

The Washington, D.C.-based think tank found that from 2007 to 2009, average annualized household wealth declined by 16% for the richest fifth of Americans and 25% for the rest of the country.

But even with the across-the-board income drops, EPI researchers found that in 2009 the wealthiest 1% of U.S. households had net worth that was 225 times greater than the typical median household's net worth.

That disparity, according to EPI, is the highest ratio on record.

Read more: http://www.foxbusiness.com/personal-finance/2011/10/24/is-top-1-really-filthy-rich-maybe-not/#ixzz1l0AVSQ5d


#4 It’s never enough

Regardless of your income, it’s always possible to think of yourselves as struggling:

Many of Nassau’s affluent families think of themselves as practically middle class, saying that property values and taxes are so high that $380,000 does not go very far. “On Long Island, it’s barely a living, said Steven R. Schlesinger, a lawyer and professional poker player.

#5: Does it matter?

In my opinion, Americans don’t hate the rich. We want to be the rich. The real problem is with declining wealth, declining real income,and the perception of declining prospects.  We resent those who don’t seem to be sharing the pain, sure, but the real problem is the pain itself.

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