Ever wonder how much money do the top income earners make? Once you know how much the top income earners make, then you can better shoot to be a top income earner yourself. After all, everything is relative when it comes to money.
Americans are rich by world standards. With a median household income of roughly $70,000, America consistently ranks in the Top 20 richest countries in the world. Many of the world’s top income earners live right here in our great country.
Other rich countries that have a higher GDP per capita than America include Liechtenstein ($139K), Qatar, Monaco, Macau, Luxembourg, Bermuda, Singapore, Isle of Man, Brunei, Ireland, Norway, Falkland Islands, UAB, S. Maarten, Kuwait, and Gibraltar. Countries with similar GDP per capita to America include Hong Kong, Switzerland, and Saudi Arabia.
If at birth, you had the mental capacity to choose where you’d like to live for most of your life, living in a top 20 richest country will more than likely help you become a top income earner as well.
Even if you end up being the most mediocre producer, you are still miles ahead of much of the world. Too bad many of us can’t pick where we want to grow up and earn a living. As such, it’s nice to understand how we compare against the rest of the world to give us some perspective.
Let’s take a look at what the top income earners make in America. Once you know the income figures, you can then strategize on how to get there.
What The Top 1%, 5%, 10%, 25%, and 50% Income Earners Make
Based on the Internal Revenue Service’s database, here’s how much the top Americans make for 2022. These are estimates due to rising inflation. Since the previous financial crisis in 2008 – 2009, the top 10% have significantly widened the wealth gap.
- Top 1%: $500,000+
- Top 5%: $180,000+
- Top 10%: $130,000+
- Top 25%: $80,000+ $67,280
- Top 50%: >$40,000
The rich have gotten much richer during the pandemic. Therefore, the top income earners are making even more than ever before. Sadly, the wealth gap has widened as we continue through a K-shaped recovery.
Summary Of Top Income Earners Tax Data
Here is data from the IRS that highlights what the top income earners made back in 2015. A top income earner is considered someone who makes a top 10%, top 5%, and top 1% income. Notice how much the top income earners are making today, partially thanks to inflation.
There is not a lot of data about the mega-rich, those in the top 0.1%. However, I also write a huge post highlighting people who make over $1 million a year and how.
Based on a previous 1000+ survey study on Financial Samurai in Fall 2020, about 80% of readers are in the Top 25% income earners ($67,000+). Good to know that many of you are doing well.
The table also tells us a number of things about equality or inequality, namely that the top 1% of tax payers pay 38% of all income taxes yet only have a 20% share of total AGI.
Further, the top 50% of tax payers pay practically all of the nation’s federal taxes (97.3%) while commanding 87.25% of total AGI. This table from the IRS is the source for the often politically bantered argument that 47% of American income earners pay zero federal income taxes.
If you do another little exercise and compare the top 25% of American income to the Top 10 per capita income countries in the world, you can once again see how lucky most of us are.
Broaden Tax Collection Beyond Just The Top Income Earners
If only we could get all American wage earns to pay some taxes. It would go a long way to help shoring up our budget. Congress constantly holds the nation hostage by bickering over whether to cut $10 billion here, $50 billion there. All we have to do is encourage those who earn above the poverty line to pay some tax. We’d raise billions a year right there for example!
Let’s have everyone contribute to the welfare of our country. We are all in this together! For those who are just struggling to keep their heads above water, let’s lend them a helping hand.
The top 1% income earner in 2022 is now earning at least $500,000 a year. But in some states, like Connecticut, the top income earners make over $580,000 a year.
Who Are The Majority Who Pay No Federal Income Taxes?
Back around 2015, roughly 47% of Americans pay no income taxes. In 2022, roughly 60% of working Americans didn’t pay any federal income taxes, largely due to the pandemic. As the pandemic becomes endemic, the likelihood is that more Americans go back to work, make more money, and pay more taxes.
The Americans who pay no income taxes fall into three groups:
The working poor. The earned income tax credit and the child credit can help families making $50,000 or more pay no taxes or get money back. About 60% of those not paying income taxes do contribute to payroll taxes. Meaning they must have some source of earned income.
The elderly. An increased standard deduction for those over 65, and an exemption on part of Social Security earnings, means that many older Americans pay no income taxes. Please remember though that the elderly have paid their dues through decades worth of federal taxation during their careers.
The low-income. A family of four claiming only the standard deduction and personal exemptions pays no federal income tax on its first ~$26,000 of income. The standard deduction per person is now $12,550 in 2021. Further, each family gets a $500 child tax credit.
Not Everybody Has The Ability To Make A Top Income
As you can see, being poor or elderly likely means you don’t pay net federal income taxes. We’re all going to grow old one day, so let’s give this group a pass. The elderly paid into the system, so let’s take care of them. I don’t think any of us would rather be poor so we can pay no federal taxes. Therefore, let’s give them a pass too.
This leaves us with a low-income group that may have made some suboptimal decisions. Some of these decisions include having children while not being able to support themselves. Children are estimated to cost roughly $250,000 from the ages of 1-18. Perhaps having multiple children on a low income is not ideal. But, how do you deny passion?
Living In America Is Rich
If you work in America, you can see from a top down and bottoms up perspective you’re doing fantastic. If you are in the bottom 50% of Americans who earn less than $33,048 a year, know that you can earn more if you want to.
Part of battle to making more money is moving to areas where there are more opportunity. Earning a top one percent income for your age is a numbers game that also requires a lot of luck.
Billions of dollars are flowing through cities like San Francisco due to technology innovation. It’s not like you have to brave the high seas to reach America to get rich. It’s not like you need to ride a horse for three months to get from New York to California. All you’ve got to do is hop on a bus or a plane to be where the action is.
25 years ago, I remember making $550 a month working at McDonald’s for $3.75/hour. With wages 3X higher now, I’d be pulling in $1,650 a month or $20,000 a year! Heck, tack on driving for Uber for 20 hours a week part-time at $36/hour. You’ll make another $2,000 a month and be in the top 50% of income earners no problem.
There’s an entire gig economy out there for freelancers to make extra money after work, or freelance full time. Why not take advantage to become a top income earner yourself?
Please Put In The Work To Grow Your Income And Wealth
If you are only working 40 hours a week or less and complaining why you can’t get ahead, you need to seriously re-evaluate your work ethic and expectations. Anybody can do it. You just can’t be delusional enough to think that you’ll be able to compete when everybody in the world who wants to get ahead is working 60+ hours a week and getting paid much less to boot!
Spend some time online understanding global wages from our biggest competitors in China and India. In order to maintain our incomes, we must constantly be updating our skills.
There are plenty of six figure jobs out there for the taking. You just need to have the desire, motivation, work ethic, and perseverance to get there. Did you know the San Francisco police chief makes $320,000 a year? Further, when he retires, he’ll get a $200,000 a year pension for life! It’s not just doctors, lawyers, venture capitalists, bankers, movie stars and athletes who make healthy sums of money.
A Variety Of Jobs Pay Well
Even my friend who is a union electrician makes $120,000 a year. He also gets a $5,000 a month pension when he retires at 55. What’s more, he isn’t allowed to work more than 35 hours a week. Let’s not count the $30,000 a year he makes doing side jobs with all that free time. There are six figure earners in practically every single industry, including the non-profit industry!
Back to my point where if everybody earns a million dollars a year, nobody is rich. Living in San Francisco, it certainly feels like most are in the top 5% of income earners ($159,619). Train janitors and elevator technicians in the Bay Area can make over $250,000 a year with overtime.
I’m sure many who live and work in Manhattan, and potentially LA and Chicago feel the same way. The cost of living is expensive out here, and that’s predominantly driven by high wages.
Combine two income earners with these amounts, and you can really start understanding why surpassing what the government deems as wealthy ($250,000) is not too difficult. Thankfully in 2022+, President Biden only wants to raise taxes on households making over $400,000 a year.
In fact, I argue that in many of the larger cities in America, you’ve got to earn closer to $300,000 a year just to live a middle class lifestyle. It sounds crazy. But it’s true if you take a careful look at the budget I put together. A middle-class lifestyle means owning a home, being able to raise two kids, and save for retirement.
The Top Income Earners Pay The Most Taxes
The top 1% of income earners will likely continue to pay a higher percentage share of overall income taxes than their share of income justifies. If things were fair, the top 1% would only have to pay 20% of total income taxes since 20% is their share of total income. Alas, the rich pay almost double what they owe.
Therefore, it’s not worth constantly demonizing the rich for “not paying their fair share.” The rich donate the most and employ the most people.
On the flip side, the bottom 50% who earn 12.75% of total earnings only pay 2.7% in total taxes. But, as we learned above, most of the bottom 50% are elderly or poor. Nobody is asking the bottom 50% to pay more taxes.
It’s impossible to create a fair tax system that everybody will agree on. But we can look at the data to understand who is making the most and least income. We can see who is paying the most and least in taxes.
It’s great to be a top income earner. However, it’s even greater to be happy. Find your balance!
Here are three things top income earners do below.
Top Income Earners Invest In Real Estate
Real estate is one of the favorite asset classes to build wealth by top income earners. Real estate is tangible, provides utility, and generates valuable income. With mortgage rates staying at record-lows and more people working from home, the growth of real estate will likely be strong for years to come.
Top income earners invest in rental properties for cash flow. Given interest rates have plummeted, the value of rental income has gone way up because it takes more capital to generate the same amount of income. Top income earners who really cherish their time also invest in real estate crowdfunding to earn income 100% passively.
Best Real Estate Platforms
Fundrise is the best real estate crowdfunding platform where investors can invest in private eREITs that invest in hundreds of properties across America. By investing in a diversified fund, investors gain real estate exposure in a low volatility way. Fundrise is free to usign up and explore. With inflation picking up, it’s a good idea to invest in real estate to ride the inflation wave.
For accredited investors who like to invest in individual deals, take a look at CrowdStreet. CrowdStreet focuses on commercial real estate opportunities in 18-hour cities. 18-hour cities have higher growth rates, lower valuations, and higher cap rates than 24-hour cities. Think Charleston, South Carolina versus New York City, New York.
Due to demographic shifts to lower cost areas of the country, the closely vetted CrowdStreet deals in 18-hour cities look attractive as well. CrowdStreet is also free to sign up and explore. With CrowdStreet, you can build your own select real estate fund.
Personally, I’ve invested $810,000 in 18 real estate deals across the heartland of America. The income is completely passive. Further, I get to diversify my real estate holdings away from expensive San Francisco.
Top Income Earners Own Businesses
We are in the technology and internet age now. If you really want unlimited earnings potential, you might as well be your own boss someday. It costs so little now to just start your own website so you can brand yourself online.
You will connect with like-minded people, find new jobs and consulting opportunities, and potentially make a healthy living online. Take a look at this income statement example of a friend with a simple personal finance blog.
I started Financial Samurai in 2009 as a hobby to help make sense of the financial destruction back then. Today, Financial Samurai is one of my most valuable assets.
You can start your WordPress site like this one with Bluehost for as little as $2.95 a month. Come up with a unique and memorable domain name. Find a free website theme. Then connect your hosting and you’ll be up and running in 30 minutes.
The best thing you can do while you have a job is work on your side hustle during off hours. You never know what might happen if you just start.
Top Income Earners Track Their Net Worth
Finally, top income earners religiously track their net worths. You can only truly optimize your wealth if you know where all your money is going. Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances.
I’ve been using them since 2012 and have made much wiser financial decisions since. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool. The tool will show you exactly how much you are paying in fees. Further, it will give you insights into your asset allocation. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible. Your financial future is too important not to take it seriously. You don’t want to end up old and not have enough money because there is no rewind button!
Join 50,000+ others and subscribe to my free weekly newsletter. Since 2009, the newsletter has helped people achieve financial freedom sooner, rather than later. If you want to be one of the top income earners, you need as much actionable advice as possible.
To be a top income earner, you’ve really got to want it! And to help you get there, pick up a hard copy of my new book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. The book is your unfair advantage for getting rich and making optimal decisions.
It’s easy to forget, but there really are opportunities abound for those who want to make more money.
In my industry alone (security), the standard seems to be six figures. If you’re willing to move to some of these high cost of living areas, that figure can jump quite a bit.
At what point do you think it’s worth it to live in these high cost of living areas when compared to the more average American city? The raises, while enticing, don’t seem to make up for it. At that point is it just preference?
Thanks Sam. This blog is amazing.
I have a question: do all the top 10% income earners pay most of the tax amount they actually earn?
These are great résumé examples were getting jobs. I’m thinking about getting a new job in 2021 as the economy opens up.
Supporting the idea that working over 40 hours a week is a good way to live life is at the least misguided and at the worst wrongheaded.
Please take time to review what happened to the majority of those who have choose to work 40 plus hours. Many of them have shortened life expectancy, more chronic illness not even to mention their relationship outside of work are quit poor. This holds in other countries as well. Modern work environment is not a healthy place to spend huge swaths of our time.
Agree and disagree. 40 hours a week isn’t that long IMO. But I did burn out working 60+ hours a week for 13 years and as a result, left my day job in 2012 at age 34.
See: The Ideal Age To Retire Early And Minimize Regret
Liz, you work for what you want. Although this is 2020, and we should expect some comments about health and wellbeing, it’s also 2020; a time when opportunities to hustle have never been greater.
I’m working three jobs. Not because I have to, because I want to improve myself and the life of those around me.
I’ll be extremely likely to retire early as a result.
Thanks Sam. Your financial blog is amazing, I highly recommend it.
This is why I think it’s unfair. And the rich don’t pay enough, My easy way to look at it. All math. Use a roll of toilet paper. Each square is $25,000 in income. after 9 squares the 1st 6 brackets are covered. Yes that covers all the way to $204,102 and these people pay 35% in taxes, So they pay 71,435 in taxes and keep $132,666. go 13 more squares and the finial 7th bracket is covered $510,301 and they pay 37% taxes they pay $188,811 and they get to keep $321,489. so this is when taxes are not fair. But lets go on because if that is screwed up. Then check this out. we have just reached the 22 sheet. these rolls has 350 sheets in 2017 Bill gates made over 4 billion. You make sure you taxed the poor 10% and the middle class 22% so what about bill gates will lets look. it will take 114 more rolls to hit his income he made. But he only paid 37% on 4,000,000,000 and the disabled vet paid 10% on that $1,000 over the $24,000. then you have the nerve to say you need to work harder. how many people get rich stealing from others. How many ran a scam to get rich quick. you rich always want to raise our taxes. and lower yours. I don’t care what you pay but it should be like in the 1970’s at 80% you know Bill Gates would still make $80,000,000 after taxes. how much does a person need. Just enough to buy the congress right.
You did not look at the figures. Otherwise, you wouldn’t have that rediculous example. Half of tax filers don’t pay federal taxes yet they benefit. The ultra rich will always have avenues to mitigate liability, but they still pay a large share. Errbody needs to pay A share.
regardless of whether I agree or disagree that rich people pay too much or too little, I am disappointed in the question “how many people get rich stealing from others”. Perhaps we differ on the definition of stealing, but I just don’t see it that way.
But even still, just because someone might have done something wrong, you argue we should punish everyone similar to them. By that logic, we should cut all medicare, medicaid, social security, and other social services because “how many people steal from these programs” Your logic is divisive and flawed.
I think the fundamental question is what is equal, proportionate, or equitable, and what goal are you trying to achieve? Is it a balanced budget, fairness, encouraging income or wealth, etc. And rather than calling out extreme examples (i.e. Bill Gates or the vet) look to people in the middle of each bracket and what each policy would mean for them. With such varying costs of living, many people in these brackets, would struggle with increased burden. At the same time, many would face economic challenges if we cut back on spending. I think many people believe there can be more brackets, and higher taxes as we go up, but we also have to balance that with the reality that taxing the top fractions of a percent of earners won’t solve the budget challenges. While it may make people feel better, and could be argued as more equitable, it is certainly less equal and proportionate.
The top 1% don’t make $360K.
That is the split point, i.e., the minimum for that tax bracket.
Because it is not readily provided by the press, the Progs always imply that you need to make millions to be in the Top 1%.
And economics is not taught in schools anymore.
They are teaching islam instead.
Can you please share one example of a public school in the U.S. “teaching Islam”? I mean, outside of a Comparative Religion class, which would usually be at the college level.
Correct, that’s the minimum amount to be considered a 1% for that year. Even among the 1% there is a big divide of the working class doctor and. millionaire business owner.
You had me until your racist comment about Islam. It’s the largest religion in the world and does teach fiscal responsibility. Don’t judge the 1.8 billion Muslims in the world by a fraction of a percent of violent extremists and corrupt oligarchs who corrupt the religion. Otherwise it would be sound to judge all Republicans In the US by neo Nazi and militia violence, the majority of domestic terrorism in the US in recent years being perpetrated by white males preaching conservative allegiance.
FS,
Great article.
The IRS data is (for certain) very accurate but I wonder if it paints a picture that there are *less* well-off people than there actually are. If so, your point is proven even further.
Here is why I think the incomes reported to the IRS are lower than we realize:
* Small business owners are notorious for avoiding taxes by making everything a business expense
* Many high-paid freelancers such as hairstylists, makeup artists, photographers, painters, roofers, etc prefer to be paid in cash and also receive cash tips. This doesn’t apply to all their contracts, but they may receive a share of their income in cash.
* The “landed” well-off tend to derive their income from their assets. They only pay taxes when they realize gains on these assets, whether it is stocks/business income/real estate…
Almost all of these high earners come from the self-employed and entrepreneurial corner.
Anecdotally, there is a large number of expensive houses in US cities. Far more of these “wealthy” houses than there are high income earners if you go by the IRS definition.
What do you think? Is the income data skewed downward?
Not sure actually. There’s a lot of stealth wealth in America because of populist angry towards the wealthy.
Also, the average net worth in America is pretty huge now at $693,000 according to the Federal Reserve.
Actially adjust gross income is a bad way to tell. The main complaint is the wealthy have so manyloopholes available to them to get out of paying taxes. Those loopholes and breaks get applied BEFORE agi is calculated. It seems alll the info on gross income of the 1% has been censored but the last data I saw was in 08′ the 1% make 80% of the income before deductions. By 2018 they had 90% of the total income before deductions. So if that 90% gets adjusted down 80% I would say thete is an issue. Comapre that to the average earner at 63,000 who gets adjusted down to 38,000.
It’s crazy how poorly the top income earners are treated in our country. They are the job creators and the biggest tax payers in the entire nation. I believe there will always be resentment from the middle class toward the rich.
This resentment is exactly what makes it hard for the rich to want to have a healthy dialogue with the middle class. It’s definitely an issue to keep an eye on as wealth/income inequality continues to grow.
It’s demand that creates jobs. People can become rich by meeting that demand, but people that are already rich are better situated to more quickly exploit the opportunities.
And, while the top income earners may pay the majority of taxes (debatable for many of the richest), the one percenters pay proportionately less. If you and your wife earn 200k in wages, and pay 30k to the IRS, is it fair to see a couple next door, that is making 600k per year, and paying 60k to the IRS? Yes, they are bigger tax payers if you go by dollars, but is that really the way to measure it?
And, of course, you probably won’t see it because it considered socially unacceptable (and possibly even a bit dangerous) to discuss personal wages and income in this country. And, even if you knew how much they were taking in, through wages and investments, and you are emphatically not allowed to see their tax returns. The only reason these numbers ever emerge on this forum is because most of us, including Sam, are anonymous.
I get tired of hearing that the wealthy don’t pay their fair share. I ask my left leaning friends what is a “fair” income tax rate. Almost none of them have an answer or if they do it is less than the effective tax rate that my wife and I pay(44.1% last year on our gross income). My tax rate if I would have stayed in California this year would have been 37% federal and 13.3% state. My wife is an executive at a fortune 100 company so all of my income is taxed at the highest marginal rate. If you add social security(on most of my income) and Medicare taxes, my effective income tax rate would be about 59%. Is it right or “fair” that I have to work for the government for 7 months every year before I get to keep any of my income?
We made the decision for me to retire this year and move to another state with lower taxes. It was no longer worth my time to go to work when most of my labor was going to pay the government. We no longer employ a gardener, pool service, or nanny which amounts to about $1900 per month in savings. Along with the income tax saving and lower property taxes, our take-home pay is nearly identical to when I was working(My salary and bonus put me in the top 5% of income earners) Many on the left don’t realize that as you increase the marginal income tax rates people will work less or like me, stop working altogether. I’m guessing now that the SALT deduction is capped at $10,000, the high tax states will find out that a lot of their citizens will be moving out of state like we did to escape the exorbitant taxes.
The other fact that gets overlooked is very income level are fluid throughout someones life and very, very few stay in the top 1% for very many years. 73% of Americans get to the top 20% of income for at least 1 year of their lives. Only 0.6% will stay in the top 1% for 10 consecutive years. Many view the 1% ers as a group that is born that way and stays there their entire lives and that is the exception rather than the rule.
except you still are working. Your wife is essentially paying you to do all the work she was paying the gardener, the nanny, the pool guy, etc
Whilst I agree with everything you’ve written some people don’t want to make more money, although they do want to complain about not earning enough! There are two types of people in this world – the talkers and the doers. It’s the doers who make shit happen – most people reading this are doers -> go and get everything you deserve!
Hi,
Lord’s blessings to you, your family, friends and colleagues.
Profanity and colorful language is
painful to me.
I usually stop reading and listening when I hear & read it.
I automatically assume the person is not literate/ well read.
I gather they are not reading books and they do not have the words to describe their point or feelings. I could be wrong.
People like me who avoid profanity and colorful language stop reading/ listening when they experience it.
I hope my feedback was helpful.
In recovery meetings there is a saying, take what you like, leave the rest.
Blessings,
Sam
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FullyFreeFilms.com
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Romans 3:1-25
I love this blog! I am in the 94th percentile in terms of net worth, according to the online calculators, but I certainly don’t feel “wealthy.” Reason is that I was talking to a buddy of mine that has also done well, and we conclude that when you make it, you are even more protective and appreciative of what you have and what it took to get there. I think that many times folks need a win, a boost if you will, to give them some confidence. It pays to to walk the line in every regard (e.g., don’t drink or do drugs, don’t get into debt, get a lot of education, always retool your skills, network, etc.). Any know that one thing can bring down an entire lifetime of work in an instant. Boring makes wealth, and that often means spending more time in school and staying up late working on your moneymaker instead of hanging out at the local bar all night.
Hi Sam,
Great post. I agree with you; if you want to be rich be your own boss. Luckily, blogging helped me to become a full-time blogger and be my own boss!
Thanks for sharing!
Just noticed Joes comment about “lazy zionists”, whom probably went to Harvard and out earn him 20:1, but whom, probably, aren’t even Jewish.Most Billionaires, Gates, Buffet, Slim, Trump aren’t. Some, like Zuckerberg, are. None are lazy. You sir, are lazy.You blame others for your own troubles.
You are a also a bigot, and I’m so glad you will never be prosperous.
If I could take away the Salk vaccine(damn Zionists), lasers and GPS (damn Einstein), the atom bomb that won the war (damn Einstein Slizzard and Oppenheimer) from your life I would, but alas, you benefitted and ignore it. Over a third of US nobel winners were jewish, hardly lazy eh?
To Financial Samurai: read the comments. While religious bigotry probably isn’t contagious to anyone with an IQ over 100, leaving those comments up is like forgetting to flush the toilet.
Bob
I love that phrase “forgetting to flush the toilet”.
Bigotry is just wrong and here, inexcusable
Most comments are fair enough and there are anecdotes for every reason why someone can or cannot get ahead. I believe there are simply not enough opportunities in the USA for well qualified people to get a paying job that is reasonable to their potential. Rather in my world, I’m often seeing lesser qualified people (for many reasons) running the show and making most of the money. Let’s not forget about luck. There are some people whom are just lucky to have been given the opportunities they have. Not saying these folk are not hard working, just saying they were more than likely not the best in many ways to get a great paying job, they were just lucky……Working 50+ a week may be needed at times, but I don’t think people competing in that or standardizing that is good for our society, nor should it be necessary just to get ahead in life.
Money goes to people’s heads. Everyone can discuss all the anecdotal evidence they want, but the concern is the distribution. Yes, if you work hard, you have a chance of succeeding, and some people do. But more of the people that work hard should succeed.
This doesn’t square up with our taxes. Under $300000 and paying 28% as homeowners. Working 60 plus hours. We would love to pay 23%.
Start a side gig and deduct the losses until profitable, then the operational expenses. Refinance tour mortgage at 3% and invest your savings. So many ways to gain an edge fairly but we don’t really h finance well enough. That said, most bankruptcy is medically related. Im all for opportunity and a stronger safety net.
Excellent article. I will add that living your life being grateful for what you have and counting your blessings is a surefire way to be happy. You can always be worse off, and if you complain too much, the universe might teach you that. Love your life!
Thanks Sam. Your thoughtful insight is always appreciated. Got some new financial goals to strive for!!
I think there is a flaw in this logic here, the top income earners at 380k, this figure is probably only taxable income for a year, there are many other ways this group gets rich that aren’t accounted for here.
the gap between the wealthy and poor is huge, much more so than its made out to be here. Its obvious when the owners / majority shareholder / CEO’s etc have personal jets and multiple houses but the people who clean their buildings make minimum wage.
there is also the problem that minimum wage puts you in the “poor” category
I agree with the statement that we are doing better than most of the world even in the poor category, it beats living in Saudi Arabia or Iraq etc, and there are many more 3rd world countries than 1st world ones. However that doesn’t mean there isn’t room for improvement
I also agree that the working poor and the elderly have a completely legitimate reason for their taxable income.
I do not agree that people who cannot afford children and have them anyway should be given a free pass, this is a policy that creates more financially dependent people by not being a financial burden on this group, however this statement is only true if we start providing health services like abortions and such and stop letting religious extremists prevent us from doing so. if abortion is available to this group, they should suffer a higher financial burden for each child they have rather than getting more credits and everything. I hate to say this but we need incentives to make this group of people think twice before creating more burden on our financial situation
I also don’t agree that we should thank the rich, yes the American economic system has provided us with so many technical advancements, but these 1% or .5% etc. have many lawyers and tax professionals at their disposal to help them exploit every tax loophole possible where the average American with mere basic knowledge of how this works and files on turbotax does not. Much of this money is not treated as personal income either since its tied to business. say a CEO is the majority shareholder also in a company that does not pay him dividends, his company grosses 1 billion dollars in a calendar year, have of this in foreign banks and so forth due to outsourcing jobs, where is this money accounted for? its not shown here to really show you the gap in income.
I have two problems with an otherwise informative article. The author declares that people shouldn’t have so many children yet conservatives scream about providing birth control or abortions for those with low incomes. The author also states that to move up in income, the poor can simply work more hours in their regular or a part-time job, yet again, conservatives scream about the poor not spending time with their children and their lack of parenting skills. I also don’t see the moneyed class helping to provide decent child care so the poor can improve the job status. This article simply shows the hypocrisy of the wealthy and conservatives in our society and provides an alibi for their “I’ve got mine and to hell with the rest of you” philosophy.
Hi Lee,
Don’t give up! I’m the author of this article and here are some articles that can help you forge forward:
How To Make Six Figures At Almost Any Age
Spoiled or Clueless? Trying Working A Minimum Wage Job As An Adult
Abolish Welfare Mentality: A Janitor Makes $271,000 A Year, So Can You
I don’t mind getting torn up in the comments as I realize a lot of people are frustrated and angry about something. The comment section helps alleviate that stress. But at the end of the day, it’s YOUR LIFE you’ve got to take control over. After the venting is done, take action to change it if you are not happy.
Best,
Sam
I graphed the income distribution data for 1967, which is within the range from 1960-67 in which we had the most balanced economy in terms of not having swung overly far toward a government induced equality. Yet it was still within the years with relatively high equality, that is, not nearly the extreme inequality we have currently. 1967 was the first year for which I could find solid data for the 1960-67 range.
I also graphed the data for 2012, a year in which inequality was fairly extreme. Both sets of data were graphed on the same chart and the income represented logarithmically so that we could get salaries ranging from $1,000/yr to a million/yr on the vertical scale. The horizontal scale represents percentile linearly from 0 to 100 so you can see exactly how the income distributes across the total population. The 1967 graph was significantly kinder to the lower 20% of the population than the 2012, despite being in the days before there was much reduction in the earlier intense economic and educational repression of minorities, including repression of opportunities even for well qualified minorities.
I then assumed that equality is not a natural goal. We all have different levels of both ability and motivation to earn. So for me, the famed Gini Index is based on perfect equality as an ideal. In my view, this is fundamentally unnatural and therefore fundamentally misinformed. This and the assumption of zero-sum game economics is the mistake of the far left as well as Marxist thinking in many respects, although they are usually not quite the same thing.
The graphs of 1967 and 2012 were both similar to the way a normal distribution would look in this graphic format, with income represented logarithmically. Both these sets of real data look essentially linear as plotted on the vertical logarithmic income scale versus horizontally linear percentiles between the 30th and 70th percentile. In this format, that translates to a straight line that multiplies income by the same factor for the same distance we move horizontally anywhere along the line representing an increasing percentage of the population with less income.
So I decided to postulate an ideal distribution that was similar, but with a slope that was as much less steep than the 1967 graph as that graph was to the 2012 graph. Put another way, I hypothesized an ideal situation in which the distribution would be as much better than the 1967 as 2012 was worse. Just like a normal distribution of IQ or the length of our noses, I hypothesized that the combination of ability and motivation to earn in a homogeneous population that had no repressed minorities would also be normally distributed.
I therefore made the slope of the linear section lower than 1967 by the same amount the 2012 was higher with the income distribution perfectly normal under this condition and in this format. This ideal consequently represented a true normal distribution instead of approximately normal as in the real data. All the data were modified in a manner that reproduced exactly the same distributions as the original data, but which assumed equal total income for equal populations. This is the only way to compare apples to apples.
It was amazing how much better off the lower 50% in the ideal distribution was while the upper 20% hardly sacrificed a thing. There was even an inflection point at the 70th percentile at which all three graphs were at the same income. Nevertheless, the very bottom still had people who were earning less than would be necessary to live on. I assumed that this will always be so, just as there are always people with very short noses or very low IQs. We need to do something about that if we’re going to be a gentle, compassionate society without our heads stuffed way up somewhere very unrealistic.
Then I looked into the question of how much the top 30% would have to sacrifice to allow the lowest 30% to live in minimal but adequate comfort. These populations are outside the middle linear section on all three graphs This also made no assumptions about how to implement the distribution; no assumptions about government or any other kind of involvement. I merely looked at income distribution with no tax assumptions or any kind of specific safety nets. The question was simply how much raw, untaxed income would the top 30% have to sacrifice to create livable conditions for all in the lowest 30%. On the hypothetical ideal distribution I found that only about 7% of the average income from the top 30% would provide a 24% boost in the average income of the lowest 30%. Of course, in practice it would be more sensible for these average results to be progressively distributed on both ends.
Now if you’re going from around $25K/yr to over 31K/yr, that makes a huge difference in your potential quality of life, assuming you’re not addicted to alcohol, gambling, crack, or heroin. The difference is still greater for the extremely low incomes assuming a graduated relief scheme. If you’re going from 100K/yr to 93K/yr, that has enormously less impact on your quality of life. This is even morally justifiable in that those on the high end of the income distribution typically use a lot more public infrastructure than those on the low end. It is only right that they pay for it accordingly. I found this to be a very interesting and informative Gedankenexperiment (i.e., thought experiment, a term first made famous by Einstein, who used Gedankenexperimenten to develop his theories of relativity, not that what I’ve done is anything comparable in case there is anyone silly enough find the motivation to assume I think so).
Fantastic response, Robert. Your Q-Q plot analysis adds some valuable perspective to the income disparity conversation. I also appreciate the log-transformation on income levels, while noting that the linear form may demonstrate right-tailed skewness in the distribution due to a some exceptionally higher earners. Nevertheless, the scaling is beneficial for comparison purposes and allows for the discovery of potential solutions to the growing gap between social classes.
I think the major challenge is finding a workable method to pass 7% of top-bracket income to the bottom third in a sustainable manner. Tax legislation and other governmental intervention strategies have not yielded the best results. Perhaps the change needs to come from a general culture shift towards more socially responsible economic behavior.
Again, this is a great post with a thoroughly constructed analysis. You let the data speak, and we’re listening.