The Economic Policy Institute came out with a interesting report that chronicles the top one percent income levels by State. To save you the hassle of reading the whole report, let me share with you some of their charts, and my own thoughts on the subject for your review.
The EPI is a liberal, non-profit think tank based in Washington DC, which has been around since 1986. The entire goal of their report is to highlight the rising income inequality between the rich and poor over the decades. I think they’ve succeeded in making a point that the government should do more to redistribute wealth to make society more equal. We all know the wealthy have gotten really wealthy during this bull market given they hold the majority of stocks and real estate in our country. The middle class and poor have fallen behind because income growth has gone nowhere over the past 45 years.
Let’s have a look at the top one percent income levels by state and discuss five key takeaways.
HOW MUCH DO YOU HAVE TO MAKE TO BE IN THE TOP 1% BY STATE
Key Takeaways From The Top 1% Map:
1) The top five highest one percent income states all reside on the East Coast! Connecticut ($678K), DC ($555K), New Jersey ($539K), Massachusetts ($532K), and New York ($506K). Connecticut, New York, and New Jersey are explainable due to Manhattan being one of the largest financial centers in the world. Massachusetts has top tier universities, research centers, and large money managers. But MA is somewhat surprising given real estate is so much cheaper than in many parts of New York, New Jersey, DC, and California. DC is also explainable because there are so many private industries just feeding off tax payer money. If you want to make big money, move to the northeast.
2) The most beautiful state in America, Hawaii, is also one of the lowest top one percent income states at $279K. Other states at the bottom of the top one percent include Arkansas ($228K), New Mexico ($241K), West Virginia ($243K), Mississippi ($263K), Alabama ($272K), South Carolina ($275K), and Idaho ($280K). One can take the low end range of the top one percent incomes as a positive in that one’s dollar goes much farther in these states. But given I am keenly aware of how much everything costs in Hawaii, since I’ve been going back home for 37 years, one’s dollar definitely does not go farther in Hawaii vs. the majority of other states. If you want to make big money, consider going to school and finding a job in other states with larger industries.
3) North Dakota has an incredible $502K income for the top one percent due to its oil boom. But given oil prices have collapsed by 50% in one year, the $502K figure is probably going to decline. There are many six figure jobs in commodity industries because they are tough jobs, which may be dangerous as well.
4) Texas, despite its brutal heat, looks like a fantastic place to live and earn money. With no state taxes, Texas and its $423K top one percent income is tops among all the no income tax states. The other no tax income states are Nevada ($306K), Alaska ($369K), Florida ($378K), Wyoming ($388), Washington ($306K), and South Dakota ($404k). A good plan is to make your money in the northeast, transfer to one of the seven no income tax states, or retire in one of the seven no income tax states.
5) The national average for the top one percent income earner is roughly $380,000 according to the IRS and yours truly. Looking at all the top one percent income earners by state, $380,000 – $400,000 looks about right for the nation. The Republicans won the income tax increase standoff by raising taxes to 39.6% on singles making over $400,000 and couples making over $450,000 from President Obama’s desired $200,000/$250,000.
Related: The Top 1% Wealth Amounts By Age
SHARE OF INCOME HELD BY THE TOP ONE PERCENT
This chart shows that the top 1% really began to soak up all the income growth starting in 1980. The top one percent got slaughtered during the dotcom collapse, but not as much in the housing collapse, given housing is a smaller percentage of the top one percent’s wealth. Housing is the majority of the middle class’s net worth in comparison.
I highly recommend you take a look at my post on the recommended net worth allocation mix by age to get an idea of how to diversify your wealth. It’s important that we all diversify our net worth so that no one event can take us down.
Going from 10% to roughly 23% of all income by the one percent is pretty aggressive in 35 years. The rise coincides with the rise in technology that has made gathering assets so much quicker and easier than ever before. One should therefore consider working in a career that leverages technology, or use technology to build wealth in as many avenues as possible.
BIG DIFFERENCE BETWEEN TOP 1% AND TOP 0.1%
It’s nice to make top one percent income, but it’s not sustainable for an entire career because top one percent income is generally made up of working income. When I was working in finance, I was putting in 60-70 hour weeks. I was constantly stressed about my revenue production. You don’t get paid if you don’t produce on Wall St. In fact, you’ll probably get fired in one of the most competitive industries on the planet.
There are plenty of occupations that allow for people to earn top one percent income with a tremendous amount of education, longevity, and hard work. But the real money is not in being a working class citizen. Take a look at the chart below of the difference between the top 1% income threshold and the top 0.01% income threshold. The top 0.01% income threshold is outrageous!
I have a friend who is the CEO of a mid-cap publicly traded company who makes a reasonable $250,000 a year salary. But he pulls in over $15 million a year due to the recurring Restricted Stock Units he receives. He works just as hard as any doctor, lawyer, or banker, but he makes 30X more than a $500,000 a year income earner. Entrepreneurship or inheriting money from an entrepreneur parent is the only real way to make the mega bucks.
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Updated for 2017 and beyond.