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?
This post comes from Alicia Munnell at partner site SmartMoney.
It 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."
Both 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
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
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:
I interpret the article as saying saying $250K is the highest end of middle class, not "average" middle class. I'd say middle class is a range, somewhere from $70K to $250K. With two professionals working $250K is not unrealistic.
The middle class is everybody who is not rich and not poor! People who bring in millions each year are rich. People who bring in whatever is around the poverty line are poor. Everyone else is middle class, and that can be subdivided into lower-middle and upper-middle.
A combined family income of $250,000 is technically upper middle class, but middle class nonetheless. The rich make much more than that. Ask your celebrities, professional athletes,bankers and debutantes if they could live on $250,000 a year. They waste that much on a party.
The range of being middle class is huge. Just because two people combined earn more than you doesn't mean they are automatically rich.
Why politicians insist on embellishing or skewing reality is beyond me, are we so gullible? In general, our leaders have an unrealistic view of were the middle class income originates. Certainly where you live in the country affects the income/cost of living ratio and may limit the opportunities available to affect that ratio. With that said, if our political leaders truly wish lesion any notion of penalizing an income bracket then we, as a nation, need to begin discussions on a Flat Tax. Until that happens, it will be business as usual and begs the question, which power brokers do you really believe? Money still buys elections.
Everyone's comments are so valid. My husband and I just retired after working a combined 98 years (in the private sector). The $250,000. middle income bracket helps us to see our perceived middle class status is really upper or middle poor. Our one adult child and spouse oth work (also for the private sector). They have two young children. Based on the $250,000. they might just scratch the upper poor status. Middle income should allow two earners with two young children to make a mortgage payment, one or two car payments, food on the table, gas in the car, utilities, clothing, insurance for home, auto and life an emergency fund, savings and an annual vacation. I don't know where the numbers are coming from or who is feeding Washington the numbers but they are far from average. 80% of the working people don't make anywhere near $250,000. Maybe the numbers would be more realistic if they came from the IRS.
Due the ecomony my wife and I live in different areas. We can't afford to sell the house in suburban Atlanta and my job took me to No. VA. where we now have a second home. We file our taxes seperately as when I moved we refinanced the GA home in her name, the VA home is in my name. I live in the "richest county in America" and my income is right at the medium household income in the county, my wife is in the second highest income county in GA and her income is 15% higher than the mean. We are not rich, we live comfortably take vacations, max our 401K and have 1 years emegery funds (mortage, utilities, taxes) for each house in regular savings. We consider ourselves upper middle class, we make charitable contributions etc. Yet our combined incomes is slightly less than Mitten's lower end figure fo rmiddle class.
He has no idea about the citizens of this country that cannot afford to belong to country clubs, yatch clubs or have their own private aircraft.
Also I currently pay about 12 percentage points less on my income tax today than when Ronald Reagan was president, after his tax cuts. This country does need tax reform and going back to the Clinton era rates is a good begining, across the board at all income levels.
These fools call $250k middle class so they can include themselves based on their congressional salary. if you take 50% of everything from the rich, who combined earn a total of around $750 billion, it won't put a dent into fixing the problem. The problem is their incessant spending and giving away money, like bankrupt green companies, bank bailouts etc. and bloating the free-stuff bandwagon moochers.
The easy solution is a VAT, the more you consume the more you pay. Exempt clothes up to say $250 per purchase, food (groceries, not caviar). Someone buying a Hyandai for $15K pays say $1,500, someone that buys a $150k lamboghini pays $15,000. The rich that buy boats etc will be forced to pay more. Those of us that don't buy lots of stuff wil be relieved. This way no loopholes, or shinanigans.
Then do what Romney wants, eliminate write-offs but lower the marginal rates. Over the past 20 years my federal tax rate has been between 15-17% of gross income, while my tax bracket is defined as the 36% level. Eliminate deductions and everyone pays 20%. Of course this is way to simple so therefore be greek to the bureaucrats
$250 is not rich by any means UNLESS you are a single adult who has been earning this income for at least a few years. If you are a family man who has only recently earned his way up to this income then it's barely enough and does not make you rich. It also depends on where you live. If you are using that money to put four members of society (aka my kids) through college, and have a wife that stays home to raise these members of society so they are productive adults then NO this is barely enough. But we've made sacrifices all along (no day care will raise my children, no vacations, no fancy cars, no fancy house) and I have only recently came into this income as the result of very very hard work. It's disheartning to hear now that I may be considered rich. Now what? If I'm taxed even more then college for my kids, and my wife staying home to raise them is in jeopardy. How is that a good thing for society?? Will this push folks into considering a two parent income where kids are left to be raised by day cares and people who will never care for them like their parents?
Honestly, I neither know nor care whether it's middle class or not. My wife and I manage nicely (kid grown and out of college - yeah!!) on annual gross of around $80K per year. We're certainly NOT rich. Definitely NOT poor. Can't get some stuff I'd like to have. Blow money on other things I want but don't need. Give to charitable causes as much as possible. All in all, a good life.
I honestly don't give a rats #$$ who makes more than me and what they have that I don't. This whole conversation is in my view, pointless.
I see alot of people posting here who are making excuses for their high income and saying we make 250K per year but were not well off because it's expensive where we live or our taxes are high...waaa, waaa, waaa...
if your family income is over 80K per year your doing alright, if your over 120k per year your doing better than alright..but if your family income is 250K per year, your not midle class anymore..No excuses !....you would not be able to afford that place in NYC if you were middle class....and I really dont give a rats **** how hard you think you worked to make that much or if your college education helped you get there, there are plenty of us who work long hours and break our backs but dont make half what you do..
So lets call it like it is and stop complaining and be glad you live in a country where you can make that much .....I'd love to be making 250K a year...I would not waste it living in NYC or Chicago or LA...
250K is an arbitrary number. As many folks have pointed out, you have Federal, State, and Local taxes. Depending on your familial status and location, 250K has different meanings.
I dont know HOW or WHY the political machine is focused on this number. Where we got this number from...and why we are using it to determine "class".
If you are single in the big city and live a minimalist lifestyle you can have a very comfortable lifestyle. If you have tons of kids and only one salary and a spouse in a major metropolitan area, you may have to watch your budget close. If you are in the middle of gods country where groceries cost pennies on the dollar (compared to the city) you are doing very well.
The typical profile of someone making 250K in NYC is a college graduate (usually an advanced degree) who is now a working professional (Doctor, lawyer, engineer, accountant) in mid to advanced level in thier career. (In NYC its not hard to get 80K and above). Now this person will pay fed, state and local taxes, commuting costs, housing costs (very high in NYC metro area), groceries (also very high), utilities, and most likely STUDENT LOANS (which is how they got their salary)...and if they have kids and a spouse that doesnt work then your 250K is not so sweet.
Take the mechanic/plumber or electrician in nyc making 80K-100K (again in NYC if you are skilled it wont be hard to get that) . If they have no kids and live in the outer boroughs so they pay no local taxes (just fed and state) and rent is cheaper. They are single and have no student loans (because they didnt go to college). They are actually paying a higher percentage of taxes but net they come out with more disposable $$$$...
Thats just an example of how 250K is not some magical sweet spot. Depends a lot on you, your decisions, your familial position and location.
Im single with no kids, I make 101K and my SO makes $150K (plus bonus of $24K). We do okay now that we live together. We each have no kids and the split in housing costs is a great help. We are comfortable. Now if there were a couple of kids and a need for larger space then those costs rise!
250K is great if you plan properly. lots of people increase thier spending when thier salary increases. Those who stay on a minimalist lifestyle (and are happy with simple things) do the best financially. Those who make $250K and spend $150K after taxes (due to increase in lifestyle) can be worse off than those who make 100K and spend 20K after taxes living a simple lifestlye. Most of NY'ers who have a large salary...have large debt (student loans or business loans) to accompany it.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
The Fed's latest statement confirms that it won't be coming to the rescue of depositors soon, but these institutions are worth following anyway.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'