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Who’s Rich? Who’s Middle Class?


Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to “Encore.”

The recently released Census publication Income, Poverty, and Health Insurance Coverage in the United States: 2010 revealed startling increases in poverty since the beginning of the Great Recession.  The publication also contains fascinating information on the level and distribution of income.  The numbers go to the heart of conversations about the “middle class” and the “rich.”

The table below presents the thresholds for being in different parts of the income distribution.  For example, a household with income of $49,445 is at the 50th percentile mark – right in the middle of the income distribution.  A household with an income of $138,923 is at the 90th percentile point, or in the top tenth of the income distribution.  Even more amazing, a household with an income of $180,810 is at the 95th percentile, or in the top 5 percent.

Household Income at Selected Percentiles, 2010

Percentile Dollar limit
10th $11,904
20th $20,000
50th (median) $49,445
80th $100,065
90th $138,923
95th $180,810
Source: U.S. Census Bureau. 2011. Income, Poverty, and Health Insurance Coverage in the United States: 2010. Washington, DC.

The thresholds must be interpreted with caution because households include old and young, urban and rural, coastal and midland, and small and large.  Yet, many of those with $138,923 of household income would be quite surprised to know that they are among the richest 10 percent.

These thresholds come into play in general conversation and in policy debates.  When people refer to the middle class, are they really thinking of households with incomes of $49,445?  When financial service providers characterize their target market as the mass affluent, are they referring to the 20 percent of households with incomes over $100,065 or are they thinking of a much smaller portion of the population?

In terms of the Social Security debate, many proposals suggest reducing benefits for the “affluent.”  Since the maximum taxable earnings for 2011 are $106,800, presumably such reductions would kick in for those with household incomes between the median and the 90th percentile.  Do we really believe that households with incomes below $138,923 are so rich that they don’t need current levels of Social Security benefits?

The other issue is the personal income tax.  Here the debate has focused on those with incomes above and below $250,000.  Clearly, given the Census data, this break occurs somewhere in the top five percent of the income distribution.  A progressive tax system in which the high income pay a higher percent of their income in taxes is a laudable goal.  But to the extent that higher taxes are going to be part of any budget solution, money is going to have to come from a much broader swath of the population than the top 2 or 3 percent of households.  Thus, the President should allow the entire package of Bush 2001-2003 tax cuts to expire at the end of 2012.

Regardless of where people stand on the policy issues, they should cut out this little table that appears in the recent Census publication so when they talk about the rich, the middle class, and the poor they have a common household income figure in mind.


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    • This is like the kid who cheated on his exam because he did not do his homework last semester. Is it any wonder that corporate America has record cash on their balance sheets. Since 2007-2008 companies have utilized efficiencies and cost cutting measures to reduce spending and create lean balance sheets that has led to record operating earnings and earnings growth. Although investor sentiment does not reflect it, corporate America can teach the government a lesson in fiscal responsibility.

      Corporate shareholders vote daily and politicians get a longer time for their review of fiscal responsibility. So why start with cheating on the exam? Government has not done their homework on cost cutting, so the easiest solution is to make the people fight over social status amongst themselves. Nothing is more powerful than creating a divided country through jelousy and hatred of the have and have nots. I am not in the 1 or 5pct. Groups, but wake every morning with the respect for the opportunity to improve on myself.

      I do not want anything that I have not earned and am concerned the society is seeing that view as “acceptable”. beyond life, liberty and the pursuit of happiness; I am not “ENTITLED” to anything.

    • “A progressive tax system in which the high income pay a higher percent of their income in taxes is a laudable goal.”

      Really? What about the 49% that pay NO federal taxes. Lends a whole new meaning to “pay their fair share”. And, I don’t mean just the “rich”.

      Higher taxes on higher earners? Careful Ms. Munnell, your socialist colors are showing.

    • The problem here is our perspective. We have 300 million people in the US. That means the top 10% consists of 30 million people. Even the top 1% represents 3 million people. You can form hundreds, even thousands, of communities with those numbers. If all you ever see is your situation, or your community’s situation, then you don’t have perspective on the larger problem, which is that we are losing touch with each other, both individually and as a nation.

    • Holy cow, these percentiles actually came out of 2010 Census and a $180,810 household income is in the 95th percentile? Something is terribly wrong. Employees making $100,000 or more are common place these days and they are now called rich people?

      The problem with our economy is over-taxing, over-spending and over-regulation by our governments. Businesses are afraid to hire because they don’t know what could cost them to hire with all these uncertainties up in the air, national health care, hiking taxes and more draconian regulations. Still wonder why unemployment rate now stands firmly at 9.1% (actually U6 is 17+%)?

      Taxing the citizenry to death retards economic growth, Alicia. Lowering the taxes is the solution as evidenced in the ’80s and the ’90s and even during the Bush Administration. Unfortunately, Bush did not rein in spending and let the deficit mushroom.

      Let’s Occupy Government (the White House, the House of Representatives and the Senate) including Fannie Mae and Freddie Mac now taken over by our government instead of just the Wall Street.

    • is to imprison or kill …

      “Oh, ALL OF US in the CIA know ALL ABOUT the concentration camps in America and their purpose! We ALL KNOW that their purpose is to TERMINATE ‘RESISTERS OF THE NEW WORLD ORDER’ UNDER MARTIAL LAW!” – Michael Maholy, 20 years Naval Intelligence/CIA under BUSH SR)

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.