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 ($379K), 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 2018 and beyond.
Income comparison table: Average is generally (but not always) is misleading (e.g. if 1 person has 100 billion income, this would bias the whole average), rather should be used median. If the population is harmonized and normally distributed then average can be taken as reference but top 0.01% is a thick tail population. (Says financial risk modeler)
Overall looks quite good article though. Thanks for this.
Regarding bullet point 4 of your “no-income tax states,” you forgot to include Washington. I know, I’m a resident :)
Look again. It’s there ;)
But New Hampshire isn’t. They don’t have sales tax either. Prop tax is pretty high tho.
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What the hell is going on in Wyoming for that kind of income to the top .01%?! That means whoever is making it is killing all sports figures, hollywood, Wall street, etc. in other markets. WOW!
Someone has to be richer to pay the $18 million max salaries in the NBA! You want to be the one writing Lebron James’ checks.
Correct me if I am wrong but I believe Wyoming is one of the best states to set up your entity in to protect your welth. You can set up an entity in wyoming to hold all of your other welth (regardless of what state your welth is in) in and it will be much more safe from litigation.
People with welth are concerened about getting their paints sued off… So they Move it to Wyoming.
I wonder if this has anything to do with these odd numbers of the .01%
I be super happy when i reach 0.8% .. i probably make half now so i need work to do. If everything goes about the same as last 5 years i make it less than 5 yrs :)
I am also guessing that top .08% you have to make anywhere from 700k to 900k a year.
Kinda random to shoot for 0.8%, but more power to you Andy!
I don’t think you’ll be any happier after you make about $250,000 AGI per individual.
The information provided in this chart is designed to appeal to “Jealousy.” If there were a way to commoditize emotions, we would all be in the top 0.1%.:-)
The top 1% of earners pay 35% of Federal Income Taxes. The top 10% pay 68% of Federal Income Taxes. The top 40% pay 107% of Federal Income Taxes. Here are a few links that might provide a little more perspective on what it takes to get and stay employed. There is a huge swath of the population that is not producing anything of value to the economy, not valuing education or improving their skillsets, and yet being subsidized by those who do produce economic value. That swath votes that count 1-to-1, bases their votes on emotions (like “Jealousy”) and there are a lot more of them than 10%. One more factoid: most of the taxes are paid by people over age 45. There are many ways to slice-and-dice who pays what, and the links below will help those interested.
Being in the top 1% or 0.1% is beyond most of us, but I do like the Casey Kasem quote noted earlier in the thread. One of my old coaches used to tell us, “reach for the stars, maybe you’ll get the moon!”
Earnings and Unemployment by Educational Attainment
Employment, Hours, Earnings from the Current Employment Statistics
Top 1%, and what they earn and pay in Federal Income Taxes
It’s been a popular mantra by some to say that half the US population pay no taxes. Let’s look at the composition of the half of Americans shall we?
WHO ARE THE 47% WHO PAY NO FEDERAL INCOME TAXES?
The Tax Policy Center’s Donald Marron said they fall into three main 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 $27,000 of 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, so let’s give them a pass too. This leaves us with a low-income group that may have made some suboptimal decisions such as having children while not being able to support themselves. Children are estimated to cost anywhere from $100,000 to $500,000 from the ages of 1-18. Perhaps having multiple children on a low income is not ideal. But, how do you deny passion?
– See more at: https://www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/#sthash.HascWD5N.dpuf
Come on, Sam. You know who I am talking about.
And that Tax Policy Center (a joint project of the Urban Institute and Brookings Institution) response, like the EPI (both liberal institutions), has a pretty tight three categories.:-) Serious question, does Obamacare cover “meth teeth”?
Hmmm, what are the conservative institutions that get highlighted in the media?
“Hmmm, what are the conservative institutions that get highlighted in the media?
Hmmmm. Exactly!
Very good post Sam.
Interesting data. That North Dakota number did catch my eye. Hardly anyone lives there, so most likely the oil boom….. But maybe not. Maybe that data point represents a handful of households?
The graphics always tell an interesting story. Thanks for sharing, Sam.
I’d love to see more data on earned income vs. investment income. They tell different stories about how money (esp. the big money) is being earned.
We’re also a no income tax state up in Washington state. I actually moved here from Nevada many years ago, so I actually thought that was the norm.
Looks like that WA number might be in reach some day! Of course, the goal posts will have moved by then.
That’s pretty funny that you thought no state income tax is the norm. Less than 20% of the US has states with no income tax. Enjoy the perk!
Tennessee is also no state income tax.
Thanks. Almost no state income tax right?
Tennessee
Tennessee has no income tax but does have a “hall tax” — that is, a 6% tax on interest and dividends, which is specifically allowed by the state constitution. Tennessee also has a 7% sales tax. Income taxes are a contentious issue in Tennessee. The state constitution gives the government the right to tax property as well as income from stocks and bonds, but it does not mention personal income. Every so often lawmakers try to institute an income tax, as the constitution does not specifically bar this. This November, Tennesseans will vote on an amendment to the state constitution to ban any future taxes on payroll or personal income.
While Tennessee has no income tax on wages, if you are a retiree living off of dividends and interest income, you should think twice before moving to Tennessee for the tax benefits. In 2011, the average per-capita state and local tax paid was $2,777, according to the Tax Foundation — the second-lowest in the U.S.
Making it into the top 1% in California, where I call home seems doable. Don’t think I will ever make it into the top 0.01% though. If I did, it would be one hell of a windfall. I don’t know what I would do with that kind of money…but I am sure I could find ways to spend and invest it.
My ultimate goal is to be producing $600K/year, which is a very healthy sum of money.
However, I wouldn’t mind landing a gig that paid $15M a year in stock like your friend. The good news is that I will start getting options next year and maybe stock the year after. You never know, I am in a growing company and there is lots of opportunity. But I won’t count my chickens before they hatch.
Cheers to those that have already made it to the 1%, wait for me at the finish line because I am coming :)
Oh and to the 0.01%, I am happy for you too!
THIS is the mindset of a winner. No envy, no jealousy, no “the pie isn’t big enough for all of us so I want some of yours.”
Just, “I’m gonna do better and better and yet still, if YOU’RE doing better than me, I salute you.”
We need more of this type of mindset in our country. HOO-RAH!
Indeed. Good attitude Gen Y!
Too many people in this world have a scarcity mindset. I personally have an abundance mindset. To me everyone can have their own pie and it can be as big as they want it to be.
Sam – Sorry for the second post. Do you know of an authoritative and current source for the level required to reach top one percent-hood by net worth — and preferably by liquid net worth?
According to marketplace.org, the top 1% for net worth is roughly $8.4 million.
Wow! I’m a physician and in top 1% for income in my state (TX) at roughly $500k which nets to $380k post tax. I’m not poor by any stretch but even if I saved 100% of that income for 20 yrs I still wouldn’t be in top 1% net worth of $8.4 mill. I hate when docs are demonized as the rich when many docs make much less than I. We are closer to the 99% than the 0.1% and we’re regular Schmos in net worth. Most people roll their eyes if you try to explain this. Thanks for making it clear in this post Sam
Have you ever read this post on how bankers, doctors, and techies will never be rich working for anybody else? Your comment touches upon my thesis:
https://www.financialsamurai.com/bankers-techies-and-doctors-youll-never-get-rich-working-for-someone-else/
That’s true…if your rate of return was 0%. If your rate of return was 8%, you would need to save about $185k per year for 20 years to build $8.4m.
Massachusetts:
–Biotech
–Tech
–Financial Services
–Old money
This is why MA is ranked so highly, and almost all of the money is east of the 495 corridor, i.e., greater Boston area.
Is this household income or individual income? I wonder how much Buffet increased the Nebraska’s overall wealth level.
Should be household income, which can include individuals and households.
Warren Buffet most likely does not have a high income. He has a $1 salary at BH from what I remember and his net worth comes from his shares of Berkshire Hathaway which doesn’t pay dividends. Also he would only earn income when he sells shares which I don’t think he does often and as he gives a lot of them away. So I would assume his 1040 income today is extremely low compared to his net worth.
I have two quick observations:
1) Obviously, setting Federal income thresholds for taxes based on regionally predicated incomes is codified inequality and ignorance
2) It’s striking how some of the most ‘liberal’ [Blue] states, are home to some of the highest earners at the 1% level, while at the .01% level the correlation appears much weaker.
My two cents:
This nation is currently guided by a ‘YOU [not me] should pay more taxes’ mentality, that can’t possibly finance all the programs of the current Democratic ideal, at least responsibly anyway.
Your first point is very important. Different states have different costs of living. A blanket federal income tax rate to aggressively tax the higher tax income earners who live in places like San Francisco, NYC, LA hurts more.
The surprise one is Hawaii to me only coming at $279. Average house probably upward $700K (80 degree years round, who wouldn’t want to live in Hawaii?), and I had a friend who has just moved back from Hawaii, she said the 1% inland would drive all the local out. The local are in the lowing paying job of food, entertainment and hotel services. :(.
Indeed. Hawaii is a very expensive place to live, and a lot of the truly wealthy there are not from Hawaii. Think about Steve Case from AOL who bought the most amount of real estate in the islands. Then there’s Larry Ellison who bought Kauai.
The good thing about Hawaii is the strong focus on family.
Are these numbers for individuals or households?
I find myself getting unduly angry when I read “income inequality” stats. Those stats would look a /lot/ different if they were post-tax instead of pre-tax. My household counts as 1%ers, with a combined income of ~$600K, but after we finish paying ~$180K in taxes (who knows what the bill will really be this year, with all the extra 2% taxes on this, 3.8% taxes on that, deduction phaseouts, etc….), our net income is cut by about 30%. Meanwhile, the lower-end of the spectrum sees their income increase substantially post-tax.
Now I’m not expecting any sympathy here, my wife and I have been fortunate (read: intelligent about career choices, hard-working and, productive). But by focusing on pre-tax income inequality the liberal talking-heads can always claim that we aren’t “paying our fair share”.
Congrats on all your good fortune (hard work, good decision etc, etc)
One comment stood out to me though.
“Meanwhile, the lower-end of the spectrum sees their income increase substantially post-tax”
May I ask what you think substantial is and if it is so substantial why doesn’t everyone do it?
I mean if you have a household income of 80,000 – 100,000 how much post tax do you think they gain?
Paying $180,000 in taxes is definitely kinda painful, but I guess still having $420,000 after tax is still pretty sweet.
My only wish for the tax system is that there is an increase in breadth of income tax payers.
Well…… I’m very sure that 99% of the U.S. population would enjoy having your tax problems!
There is an entire industry of accounting professionals (whom charge nice fees) set up to help you reduce your tax bill. Just be careful not to stray too far outside the normal envelope. Perhaps one of those 529 plans?
“You don’t get paid if you don’t produce on Wall St.” – exactly.
Small edit… You don’t get paid if you don’t produce… *anywhere*
It would be fun to interview all the top 1% people. Certain that the guys above the 1% in their state generate actual dollars and most people using those net jet accounts work in… Sales.
It would be much more interesting to see top 1% by city becuase the high numbers in say texas are probably concentrated in a few cities. Similar to california (primarily LA, SF, San jose)… New York would be Manhattan.
Long story short? Follow the money gents! Don’t try to start a career in Arkansas!
Ah, but actually, I’ve noticed a lot of positions where pay is good, and you don’t have to do anything. It’s an amazing thing to witness, and also one of the reasons why I’m so bullish for those who actually hustle. I’ll write a post about this someday. It is a counter to the post, “If You Produce Nothing How Do You Expect To Make Any Money?”
There are some CRAZY salaries out there for people who do very little but direct traffic.
You don’t get to keep much as an employee though. Government takes more.
What the heck is going on in Wyoming for the top 0.01%? Is there only 1-2 people and one makes +$300,000,000 per year?!?
There’s a saying in Jackson Hole that the billionaires have kicked the millionaires out. If I was a billionaire, I’d definitely buy a ranch in the Tetons. This was not surprising to me.
I think Ted turner lives there.
Cool info! Now I have another goal to shoot for. Lol
I work downtown in Chicago and thought it was the funniest thing when a few of the guys in the Board put up a sign that said “We are the 1%”, but at the time I didn’t really know how much that meant….now I know
I’m surprised they’d be so brazen!
You may as well replace the “Share of All Income Held by the Top 1%” graph with just a standard graph of the S&P 500. They look exactly the same.
Eric
Ill do it, although pre 1980 doesn’t stack up. And that’s because the Internet wasn’t born then.
Other factor people ignore is tax rates. Marginal tax rate was 70% until Reagan. (capital gains was in the mid 30’s I believe). Technology, globalization, and financialization all played a role but so did tax policy. I am not a huge fan of bigger govt., but overall its important to give credit to policy where it applies and tax policy certainly applied to the very wealthy and their incomes growing so much over the last 35 years. (haven’t read piketty but he talk about the pro-cyclicality and higher returns on capital and I think this is part of his argument)
I’ve always thought a great kick start to someone’s financial freedom is to live your working years in a high earning/COL area like the Northeast, and then retire to a lower COL area like the South. But this is easier said than done as a lot of people would be leaving their known environments, friends, and families.
Also something to note is that the states with no state income tax have to make their revenues somewhere else. Which usually leads to higher sales tax and property taxes in those states.
I concur with this line of thought, or come to SF where VC and PE money is robust.
Go where the money is folks! It’s only logical.
It’s the law of small numbers talking for the top 0.01%. Take NJ for example, the population is around 9M people. The top 1% is a pool of 90K people and the top 0.01% is only the top 900 people. Wyoming is even worse- with 560K people the top 0.01 number an astonishing 50 people. You are looking at the tail of the tail of income distribution here.
“Keep your feet on the ground and keep reaching for the stars”
-Mike
Casey Kasem?
Great points about the 0.01%. Jackson Hole, WY rocks!
I think that the biggest take away is that if you want to make a lot of money you usually don’t accomplish it with one big thing ala “A big deal, lottery, etc… (which is what most people believe). Your best bet is to provide a service or product that is superior or niche and provide it to scale.
You highlight one of the top reasons I think much of the anger at the 1% is misdirected. The 1% includes doctors, high-powered lawyers, small business owners, etc. Whenever anyone wants to blame our economic woes on a subset of the population, the 1% comes up. But really, everyone should focus on the top .01% That’s where all the money is.
I also get annoyed when people say things like “anyone in the top ten percent in this country should pay more taxes.” The top ten percent extends down to people making a minimum of $145,000. That’s not a difficult income to reach if you have two college-educated adults in one household. It’s also not nearly as much money as people think.
Indeed. The middle class in San Francisco make around $80,000 – $150,000 according to our dear mayor, Ed Lee, and I believe him with the median house priced at $1-$1.1 million here.
Let’s go after the 0.01%! Too bad there aren’t enough of them to make a difference in our government bloated budget. But, props to the billionaire mega donors out there!
Don’t know you, and don’t want to come off to aggressive, but this is a common, but unfortunately mistaken point I think. The main argument for higher taxes is to support more governemtn services. If that is the argument you take (not necessarily one I take), then you need to increase taxes on pretty much everyone in the top 20-30% (above say 75k). That is simply because that is where most of the income is. The top .01% only control 6% of income annually, and it is also the most mobile money. So by all means increase taxes on the .01%, but you are just not being serious / honest / realistic if you don’t raise taxes more broad based (if your goal is honest government services). If you think the govt. should provide more, then somebody earning lets say $75k probably would need to pay between $3-10k more in taxes to get to similar rates that western Europe has. Its simply ridiculous to only raise money from the top .01% as they have less than 6% of the income. Its just not a grown-up point. No offense is intended, and I assume you are a well meaning person, but its really important to point out the factual analysis in this and I welcome any rebuttal.
It’s always misleading when comparing DC figures to those of states. DC is a big city whereas states are comprised of urban/small town/rural areas. As a result, it would make much better sense to compare DC to other cities (NYC, Boston, LA etc) rather than states.
I’m interested in how close Colorado ($405) and Kansas ($358) are in the top 1% graph. Denver is such a huge metropolis compared to anything in KS… I’d expect the 1% to be doing better there than they actually are.
Well, actually Kansas City metro (yes I know that is in MO) is 2.3m vs Denver 2.7m
Many people that work in Kansas City live in Kansas. In fact much of Kansas City metro is located in Kansas.
May be a factor…
I work in the healthcare industry. I know a lot of hospitals the 2nd back up servers are located in Kansas city. It is not a coincident for google to pick kansas city as the first city to have the lightening cable speed.
You can also see how big of a city is from how many professional sport teams they have Kansas city Chief (football), royals (baseball), sporting Kansas city (soccer)
There is also the aerospace industry in Wichita, KS. That city is well over half a million.
I lived in KC for close to 10 years and I agree that a very large percentage of high earners work in MO, but live in KS (Olathe, Overland Park, Lenexa) that are very nice suburbs.
Fascinating. I’ve learned more about Kansas City in this thread than I would have in years of random conversation. Thx!