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Is $250,000 really middle class?

How is it that a quarter-million dollars of income has come to represent the dividing line between the middle class and the wealthy?

By MSN Money Partner Oct 17, 2012 4:44PM

This post comes from Alicia Munnell at partner site SmartMoney.

 

SmartMoney logoIt seems as though no one reads the Census Bureau's annual publication "Income, Poverty, and Health Insurance Coverage in the United States" for anything but the number of people in poverty. The parts I find most interesting are those pertaining to the level and distribution of income. The numbers go to the heart of conversations about the "middle class" and the "rich."

 

Couple stood outside of villa © Image Source, Image Source, Getty ImagesBoth President Barack Obama and Gov. Mitt Romney have adopted household income of $250,000 as a meaningful demarcation point for defining the middle class. In the case of the president, he proposes to retain the Bush tax cuts for households with less than $250,000 and eliminate the tax cuts for those above that threshold. Romney, in a recent ABC interview, offered the same definition of the middle class: "Middle income is $200,000 to $250,000 and less."

 

Where does this concept of $250,000 as the appropriate cutoff come from? According to the data in the Census Bureau report shown in Table 1 below, which presents the thresholds for being in different parts of the income distribution, the median household in 2011 had an income of $50,054. A household with an income of $143,611 was at the 90th percentile point, or in the top 10th of the income distribution. A household with an income of $186,000 was at the 95th percentile, or in the top 5%. The table does not even show households with $250,000, but they must be in the top 97th or 98th percentile.

 

Table 1. Household Income at Selected Percentiles, 2011

Percentile

Dollar limit

10th

$12,000

20th

$20,262

50th (median)

$50,054

80th

$101,582

90th

$143,611

95th

$186,000

Source: U.S. Census Bureau, "Income, Poverty, and Health Insurance Coverage in the United States: 2011." Table A-2.

 

The thresholds must be interpreted with caution, because households include old and young, urban and rural, coastal and midland, and small and large. But it is very hard to understand how anyone could think of $250,000 as the middle. It seems as if both candidates have a mental picture of the very rich and everyone else.

The "very-rich-vs.-everyone-else" framework may come from data on the share of income earned by various households. Here the census data show that those in the top quintile -- the highest-earning 20% -- earn more than the bottom four quintiles combined (see Table 2). That is, the top 20% receives more income than the bottom 80%.

 

Table 2. Shares of Household Income by Quintile, 2011

Quintile

Share

Lowest quintile

3.2

Second quintile

8.4

Third quintile

14.3

Fourth quintile

23.0

Highest quintile

51.1

Source: U.S. Census Bureau, "Income, Poverty, and Health Insurance Coverage in the United States: 2011." Table A-2.

 

And a recent study by economist Emmanuel Saez shows that within the top quintile the distribution is also very skewed, so that the top 1% receives about 20% of total income.

 

Thus, while the $250,000 threshold makes no sense in describing the middle class, it seems like a relevant divide for defining where the money is. Nevertheless, dividing the nation's households into the "wealthy" and "the middle class" doesn't seem like a useful exercise. It pits the majority of Americans against the top 1% or 2%.

 

It suggests that the majority of Americans should not be called upon to solve the nation's fiscal problems. It violates the notion that we are all in this together. Yes, the rich can contribute more, but we can all contribute something.

 

More on SmartMoney/MarketWatch and MSN Money:

766Comments
Oct 20, 2012 12:51AM
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Yeah I knew I made that mistake I meant six figures, not three I knew someone would comment. I saw it when I had already posted and couldnt correct.
Oct 19, 2012 5:48PM
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That's absurd! Definitely, cost of living factors in more heavily that anything else. With exceptions of California and NY, I would say $150k for family would be top limit for 'middle class'. Anyway, when were doctors and attorneys middle class?

 

Funny thing about this is MOST people earn a lot less than this and live comfortably, though not easily in CA or NY. The $200k+ people are the ones we hear whining about not earning enough money and unable to pay 'for it all'. Geees!

 

 

Oct 19, 2012 3:31PM
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I don't think Obama ever said "the middle class make $250,000 a year.  He has said people who make at least that much should pay more in taxes.  Those are the rich.  The majority of people make less than that.  Romney has no clue about the middle class.

Oct 19, 2012 3:11PM
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We are all a bunch of dogs in a pit fighting over the scraps thrown to us from above.  We have been trained to fight and bite each other instead of turning on our owners.  And those who think they are so clever in their attack on "freeloaders" are too foolish to realize they are just a silly lap dog.  Go sit in front of Fox News and wag your tail and maybe your master will throw you a bone.  But you will never be allowed inside the house.

Oct 19, 2012 10:06AM
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Your partially right, we moved here in 1992 (Kansas) from San Bernardino California. We owned a single family home on a tiny lot in a Cul de Sac. Sold it for one hundred twenty five thousand dollars. There were not many homes in the two hundred's in California then. Our home was a little above average then, had an inground pool with built in Jacuzzi etc and was located in the foothills above the city. Had a hard time finding a home here that cost an equal amount because of the capital gains we would have to pay for buying something for less. 
Oct 19, 2012 9:54AM
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Good morning. Have a nice day.  (I wanted to see how many people would be upset by my comment.  It seems as though someone will be offended by anything you say.)
Oct 18, 2012 10:22PM
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1.  So many of you seem to think that if $250,000 is middle class, it'd make you poor.   It won't!   If you're making $25,000 a year, calling your self poor, middle or rich won't change how much you make.

2.  Income and wealth are not the same thing.   Some people are cruising on a huge trust fund spinning off $250K in disposable income from the time they're 18.   Other spent 20+ years slogging it out in the corporate world and are just starting to hit their peak earnings.   In the latter case, they certainly can lead a nice life but are dependent on a job and can see it all slip away should they lose their job.

3.  True wealthy have the assets generating passive income to support their lifestyle.

4.  The tax system as it is, makes each step up the ladder more difficult.   Make 200K?  State/Federal taxes are taking $50K.   You probably live in a metro area where housing is expensive.   Subtract another $30K for a mortgage on a 2,500 sf home in a decent area.  Health, auto, home and life insurance suck out 1,000 a month.

5.   Yes, you can work hard, catch a break and make good money for a few years.  But it ain't rich yet.

Oct 18, 2012 9:01PM
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A lot depends on where $250 K is made and spent.
Oct 18, 2012 9:01PM
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this is for Me in Vegas. I'm not laughing either but you cannot blame everything on Bush. You must remember that for his last 2 yrs in office that he had a senate that was a democratic majority and a congress that was a democratic majority. You can't just blame one man. Did I like him has president heck no. But alot of this downward spiral started two years before he left office. And just think president obummer (mr hope and change) had that same democratic majority in the senate and house led by the wicked witch of the west nancy pelosi for his first two years in office. He should have had all he needed to bring about his hope and change. What do we have now an impossible national debt, the change was for the worse, and many of us (sounds like yourself) are losing hope. No thanks I believe in less government. Which means less dependence on the government. Are there people out there that need a helping hand up absolutely. But when someone reaches out to give you a helping hand up then damn'it get the heck up. There are those out there that abuse the system and don't want help up they just want more handout and that is what this election is all about. The liberals want us to be more dependent upon the system so that they can stay in power.  We has a nation were empowered by the founding fathers to take charge of our own destiny not to be dependent on a government that wants us dependent on what they decide we should have or not have. What is the matter with you people? Grow up step up and fight for what's right. Take responsiblity for your lives. We has a people have a good idea as to what's right and what's wrong, and what 's been going on is all wrong. The minority of athiests telling the rest of us that we can't instill these values in our younger generation is crazy. If we can't teach what is right and what is wrong  then how will they know?  People it's time to grow up and step up. And if that means cleaning house on both sides of the isle then so be it. It's time that we the people take back control while we can and before it's too late.    I'm just say'n
Oct 18, 2012 8:41PM
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Wow I don't make even 10% of 250k at the job I'm at now. What does that make me, dirt??????????

 

Oh wait, of course it does. According to most politicians, I'm a young white female who should be working in some high paying executive or medical care job. Forget about the fact that I entered the job market RIGHT as everything started crashing (I'm only 21), have been lucky to get only temporary/part time work that only lasts for 2-3 months after 3 months of interviewing/testing/skill assessing (which, by the way, pretty much means I won't ever get hired at a decent job because I don't have the "Steady" work history they all require of you being at a position for 3+ years), all while trying to juggle a schedule around being a future mom and trying to attend college to finish obtaining my degree in Software Engineering (I'm no slacker, and rather intelligent!!!)

Oct 18, 2012 8:26PM
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That's rich to me. 52,000 a year is 1,000 a week, very nice, I could do very well on that. I would say middle class  stops at 75,000 over that you're in upper class.
Oct 18, 2012 8:23PM
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Under Romney's plan a Surgeon making $600,000 a year would pay around $177,000 on that $600,000 the same $177,000 as Romney on over $21,000,000. Does anyone really think that's fair? Nothing Romney proposes is about those making $250,000 or $500,000. It's about him and people like him. The argument that people are after the money from those making around 250K is absurd,  Nothing Obama proposes would increase it a penny and only a few percent for money earned above that. Quit drinking the Kool aid.
Oct 18, 2012 8:22PM
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I guess I live in poverty by this pile of s***.

Oct 18, 2012 8:19PM
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BTW, great topic and great discussion
Oct 18, 2012 8:18PM
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 If you make 250K to 500K you'll pay more under Obama or Romney.  If you make millions or billions you'll pay almost nothing under Romney.

 

Under , Mitt Romney wouldn’t pay any taxes for the next ten years — or any of the years after that. Now, do I know that that’s true. Yes, I’m certain.

Well, maybe not quite nothing. In 2010 — the only year we have seen a from him — Romney would have paid an effective tax rate of around 0.82 percent under the Ryan plan, rather than the he actually did. How would someone with more than $21 million in taxable income pay so little? Well, the vast majority of Romney’s income came from capital gains, interest, and dividends. And Ryan wants to eliminate all taxes on capital gains, interest and dividends.
Romney, of course, when Newt Gingrich proposed it back in January by pointing out that zeroing out taxes on savings and investment would mean zeroing out his own taxes.
Almost. Romney did earn $593,996 in author and speaking fees in 2010 that would still be taxed under the Ryan plan. Just not much. Ryan would cut the top marginal tax rate from 35 to 25 percent and get rid of the Alternative Minimum Tax — saving Romney another $292,389 or so on his 2010 tax bill. Now, Romney would still owe self-employment taxes on his author and speaking fees, but that only amounts to $29,151. Add it all up, and Romney would have paid $177,650 out of a taxable income of $21,661,344, for a cool effective rate of 0.82 percent.
But what about corporate taxes? Aren’t they a double tax on savings and investment, so Romney’s “real” rate is higher than his headline rate? No. As of the Center on Budget and Policy Priorities has pointed out, Romney has structured his investments as “pass-throughs” that avoid corporate tax. In other words, the 0.82 percent tax rate is really a 0.82 percent tax rate.
It might seem impossible to fund the government when the super-rich pay no taxes. That is accurate. Ryan would actually raise taxes on the bottom 30 percent of earners, according to the nonpartisan , but that hardly fills the revenue hole he would create. The solution? All but eliminate all government outside of Social Security and defense — a point my colleague has made in incredible chart form.
Maybe that Romney didn’t pay taxes for a decade was really a time-traveler from the future. If Romney wins, it could very well be true.

 

Oct 18, 2012 8:18PM
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I think $250,000 can be considered upper middle in a lot of regions.  For example, if you are a police officer in Washington, D.C. and work a ton of overtime and your wife is a nurse and works a lot of overtime then you are over 250,000.  Does that make you rich? I do not think so especially in a region where the housing market is high and cost of living is high.  Now, in some other parts of the country is that rich? i am sure it is. I just feel people around this income should not be taxed more than 28%. 
Oct 18, 2012 8:17PM
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I must have been in poverty my whole life, in my house we make well less than $55,000 a year and my husband and I both have two jobs. I understand the welfare and food stamp situation, unfortunately, I have had to dip into the "pot" before for food stamps while my husband and I were struggling. We definately were not buying steaks, we were buying all the food for our child with the money. I actually felt embarassed to swipe my card, I guess because I knew at that point We were really poor and struggling and people around us knew it...too... We definately don't drive a nice car...but my "little red" gets it done. oh, and my phone is not smart at all, no camera, no internet, no txt only voice. Needless to say, not all people are trying to rape the system or claim fraudulant income. Agreed, the agency that give these subsidaries need to police it alittle more.

Oct 18, 2012 8:05PM
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Fellucio-  "All the rich, greedy pigs" , "It's not too much to ask them that they give something back to that society for making it possible for them to succeed."

What makes you say they don't give back? And why the hatred about calling them greedy?? Do the people who take the initiative, make success for themselves, and contribute most to society deserve any compensation for their hard work? Do you know how many different organizations we donate to every year? Just something for you to think about.
Oct 18, 2012 8:03PM
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It's very simple why 250 k is the number used. Small business owners can be screwed by taxes and this number is high enough that everyone should be able to agree for higher taxes. As mentioned many times here, very few people make more than 250,000.

 

I find the writer to be an instigating PoS that doesnt have the courage to post under their real name though. Twelve years of tax breaks have greatly increased the wealth of the top 5% and I never saw them 'share the wealth'. So why should I be upset if they have to suddenly pay more? We aren't in this all together. There is the haves, have-nots, and have everythings. Paying 14% of your pay should be the rate of McDonald's workers, not millionaires. Just like the free loaders, the rich arent owed any special benefits for being rich. They are rich lol! What more do they truly need?

 

Lets get the freeloaders back to work, the rich back to paying 35%, and give tax incentives to the companies that hire americans not the other way around.

Oct 18, 2012 8:03PM
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Perhaps it would be good to compare the incomes earned with the amount of taxes paid in.  To me it would help to see the picture of who is giving a "fair share" by  what the average percentage of income is paid as taxes(relative to earnings)  Also, how does this amount relate to other income groups?  It is too easy to say people don't pay enough, but if they already pay a huge portion of the taxes paid and we are still hundreds of billions short of what we are spending.... Lets have a revolution and take all the assets of the top 5%!  Then everybody can have a debit card with $300 bucks on it and go out and buy cigarettes and booze.
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