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Where Does the $250,000 Income Divide Come From?

It seems as though no one reads the Census 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.”

Both President Obama and Governor 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.  Governor 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 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 percent.  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. 2012. 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 like both candidates have a mental picture of the very rich and everyone else.

The “very-rich-versus-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 percent – earn more than the bottom four quintiles combined (see Table 2).  That is, the top 20 percent receives more income than the bottom 80 percent.

Table 2. Shares of Household Income by Quintile, 2011

Quintile Share
Lowest quintile


Second quintile


Third quintile


Fourth quintile


Highest quintile


Source: U.S. Census Bureau. 2012. Income, Poverty, and Health Insurance Coverage in the United States: 2011. Table A-2.

And a recent study by Emmanuel Saez shows that within the top quintile the distribution is also very skewed, so that the top one percent receives about 20 percent 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 percent.  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.


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    • We have a progressive tax system whereby those with the higher incomes payer a higher percentage of their income in taxes. It was set up that way on purpose to be fair. And the article is right, the argument now is abouth whether or not the amount paid by all is what it should be. But regardless, this kind o a system is far better than a flat tax system whereby all income levels pay a fixed percentage in tax. This really screws the low wage earners.

    • Indeed it was an interesting end to the article. But I would conclude that who pays to fix our fiscal problems is the wrong approach. There aren’t enough “rich” people out there to keep up with politicians spending our money. Without spending control, taxes are irrevalent.

    • Are you kidding me??????????? 250,000 middle income. That is just ridiculous. I wish I had that income. I guess we are in the poverty level. What is wrong with Obama and Romney and their thinking??????????????

    • @Hoggrun: I’m pretty sure if you filed separately you’d be treated the same as if you divorced. Granted only one could use mortgage deduction and other things, but as for the 200 vs 250k for a family rate I think you’d be okay. Consult an accountant

    • The more the Government collects, the more it spends. There is no such line in practice. Many middle class family’s income fluctuates and is almost never the same from year to year.
      Example, if I sell assets this year my income tax bracket goes up, if I buy tax exempt assets next year my income goes way down so are the tax liabilities.
      My point is that, if you classify people in the ability to earn money, they will find way to circumvent the tax liabilities, no matter how hard the new tax law will be. I for example will pay myself with stock shares and cash just enough stocks to cover my cost of living expenses, making me a tax dodger, while I still keep my money piling up in the company. And if I like to ever cash out, I can buy another company and declare tax loses in the transactions and cash my new stocks for free.

      Obama is misguiding the people and is only fooling himself by demanding such tax brackets, it will never work.

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