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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:

769Comments
Oct 17, 2012 6:14PM
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i'm tired of every one thinking they are owed something by someone.  if you are able to work, get your butt out there and do something. i can't stand to see people pulling out the food stamps to buy cold drinks, steaks, deli sandwich meat and be talking on a smart phone and driving a escalade,  what is up with this????????  if you have to have a handout can you not do without the cell phone or can you not drive a less expensive vehicle?  if i can't afford something, i have to do with out.
Oct 17, 2012 6:15PM
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$250,000 defininitely is not middle class. Where I come from if you are making $250,000 you are definitely considered rich. Perhaps they are looking at big metropolitan areas where $250,000 probably is considered middle class. This is why our politians are so out of touch with the real America!
Oct 17, 2012 6:54PM
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If middle class is $250,000 then I've spent my entire life living in poverty as well as all of my friends and co-workers. The Government is completely out of touch with the struggles and challenges of the average American.  I challenge any member of Congress or the President to live on my salary. It wouldn't take long for them to find out how it is in the real world.  Guarantee they wouldn't last 6 months. 
Oct 17, 2012 6:55PM
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 I  like  to know where these people live and what they do for a living. Me and my husband work 5 days a week and make a total of $42,000.00 per year TOGETHER and I know for sure I'm not RICH, NOT MIDDLE CLASS but not poor according to the proverty guidelines. I make to much to be poor and not enough to be rich. WHAT GIVES. We pay our own health insurance 80/20 more than that on prescriptions, have to pay Appalican Power our electric company more every month because our Public  Service Commission thinks they deserve it, groceries are higher, gas going up daily and our pay checks are going down. I don't know about other workers but we haven't received a raise in  close to 5 years working the State of West Virginia. Then the great brains of Washington want to raise OUR taxes. I think they need to forget about the balancing the budget and figure out a way to budget the american peoples. How to put food on our table and money in our bank accounts.. Let the foreign countries have their budget cut, build factories here. If they would open a couple of steel mills in Pittsburg, then Detroit could build cars, then the local mom and pop stores would open back up, the small business that make spark plugs, nuts and bolts, etc. could open back up, the chain reaction would be a boom for all. But no they worry about themselves unfortunely its not just the democrats it the republicans also. This mess didn't happen just over the past 4 years its been in the making for 10 years or more. Its BOTH PARTIES AND BOTH ARE TO BLAME. They have gotten out of touch with the real world.

Oct 17, 2012 6:06PM
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I would say any income over 50 grand up to maybe 100 grand is middle class income...250000 is an insult to call it middle class and is way way off!
Oct 17, 2012 7:02PM
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They call 250k the middle class because the congresspeople make 247k and they want to feel like the middle class.
Oct 17, 2012 6:05PM
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$250,000.00 is the Middle Class? Not In my 37 years of working. At the end of my career, when Mr Bush, et al, put the US into a Recession, I lost my job of 37 years selling insurance for someone who valued money over loyalty and found that no one will hire a 60 year old (except Walmart). I thought I was middle class. Turns out I must have been just over poverty level.

 

Jokes on me, huh?  I'm not laughing.

Oct 17, 2012 5:58PM
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IF 250k IS MIDDLE CLASS, THEN WHEN IN THE _ _ _ _  IS ALL OFMY FREE STUFF THAT THE GOVERNMENT KEEPS DISHING OUT TO PEOPLE.  AND THESE PEOPLE THINK THEY ARE ENTITLED TO IT.  THE ONLY THING YOU ARE ENTITLED TO IS THE THINGS YOU GO AND WORK FOR (I KNOW THAT'S DIRTY WORD TO SOME) AND EARN AND BUY YOURSELF, NOT STANDING AROUND WITH YOUR HAND OUT WAITING FOR SOMEONE TO GIVE IT TO YOU.
Oct 17, 2012 6:29PM
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Who the hell are YOU kidding????

 

$250,000 MIDDLE CLASS????

 

No WONDER the country is so F'd up if they think 250K is MIDDLE CLASS.....

 

What a load of HORSE$HIT.........

Oct 17, 2012 6:34PM
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middle class is between 40-80K  upper middle class is 80-120K   over that you are making good money unless you have 10 kids then add 30K to the above numbers.
Oct 17, 2012 6:31PM
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What's lost in this debate is the fact that $50,000, $100,000, or even $250,000 does not mean the same thing in Los Angeles as it does in Battle Creek, MI. There are certain parts of the country (like California, where I live) where hard-working citizens are already over burdened by high sales taxes, high gas taxes, high property taxes, high state income taxes, high housing costs, and high overall consumer costs. Never mind the fact that many of us here in California (like Nevada, Florida, and some other places) couldn't sell our houses to save our skins. Through no fault of our own, due to the housing collapse, we now struggle to make mortgage payments on homes that may never be worth what we owe on them. The United States is not a monolith and policy makers should refine methods of taxation to account for this.
Oct 17, 2012 6:54PM
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Wow, if 250K is the middle class, then a lot of us are poor...
Oct 17, 2012 6:07PM
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AMEN! IF 250K IS MIDDLE CLASS THEN IM IN SOME SADD SHAPE. i WANT MY FREE CELL PHONE AND FREE INTERNET. THIS IS A HUGE STEAMING PILE OF BS!

Oct 17, 2012 6:11PM
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250,000 is rich to us poor folk,hell my parents or their parents never got close to that,lets start going backwards alot dropping rediculous prices for health,taxes the chinese crap we pay way to much forgas,everything I can think of has easily quadrupled in the past 50 years,it,s crazy what the hell is our spend thrift gonernment when they pay 2900 each for a porcilon toilet when you can go to home depot and get one for 125 bucks the gov needs to curb outragus spending right now.........
Oct 17, 2012 6:23PM
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As a 1%er ..... with a net worth in the mid 8 figures, I know for a fact that $250,000 per year is not very common and definitely not middle class. I would make the cut off at about $125,000 annual income. A lot of guys and women at my boating club are making around $250,000 and I would not consider them middle class. But .... whatever???  It's a Gov't thing!
Oct 17, 2012 7:10PM
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If you make $250k,your wealthy jack!
Oct 17, 2012 7:06PM
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It really depends on where you live and the the hard costs of the local. 1/4 mil doesn't get you much in NYC but in N.C. it would be more than comfortable.
Oct 17, 2012 7:16PM
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Only mathematically challenged and functionally illiterate Americans can be convinced that the middle class are those with incomes approx equal to $250,000.  I don't know where in the world the rest of the country is living! I've been trying, quite unsuccessfully,  to explain to my ignorant conservative neighbour  that people who believe middle class includes $250K earners, by any stretch of the imagination, aren't really anchored in reality!  Unfortunately, since it only makes sense to define middle class using mathematics, the purview and understanding of what actually constitutes middle class is beyond the understanding of a majority of  conservative and liberal Americans.  If you are reading this, that most likely includes you as well!   The politicians use that 250K number only because it includes a greater number of their high-income close friends (a senator is not likely to hang with "Bubba" the grease monkey) while also encompassing, at the same time, a majority of Americans that aren't also rich.   It's all deceitful trickery long mastered by politicians more interested in placing their own well being, and that of their friends, ahead of the electorate (or the country).  It's ill-responsible, bordering on the criminal, to continue Bush tax breaks for people with incomes in the top 10% (yes, that's where the $250K earners rank) .  How gullible does Governor Romney or President Obama actually think we are? 

Oct 17, 2012 7:03PM
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in the SF Bay Area ... the better spots .. $250K puts you in the middle class (oakland/berkeley hills, marin county, peninsula, sillyclown valley). all of the other spots - you need a minimum of $100k/yr to be able to sleep at night minus the need for a household gun.
Oct 17, 2012 6:55PM
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I seriously question where you find these writers?

 

"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."

 

No one has EVER said that those making 250k and under should not pay something, just less while those making more contribute more.


Please MSN do us all a favor and find some read-worthy writers.

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