Rise of the 'new rich': 1 in 5 Americans reach affluence

http://www.dallasnews.com/business/business-headlines/20131209-rise-of-the-new-rich-1-in-5-americans-reach-affluence.ece

by tokenadult • 13 years ago

51 98 13 years ago

dallasnews.com

wavefunction• 13 years ago

Income maybe, but not wealth.

001sky3• 13 years ago

Fascinatingly fleeting..."for one year or more"

Huge difference between annuity and perpetuity cash flows.

sokoloff2• 13 years ago

I'd like to see how many households are earning over $250K total where that household has less than $100K in net wealth.

I guess it's a majority (over 50%) but even with that, I fear that I'm underestimating. Real affluence is wealth-based (and living within means), not just income based.

noname123• 13 years ago

If you are talking about liquid net wealth, you might be right.

However, I think most people who are married and have a family will most likely have their wealth tied up in a house, 401(k)/IRA or college fund; since most of the tax incentive is geared to saving money in these relatively illiquid accounts.

So I think for most Americans earning that income bracket def. has > 100K in net worth but they are just not liquid.

velodrome2• 13 years ago

I'd like to see how many households are earning over $250K total where that household has less than $100K in net wealth.

You might find this useful: http://www.census.gov/people/wealth/

sokoloff2• 13 years ago

Thanks for the data link! That paints a far less dire picture.

If I look on Table 4 of 2011 Excel sheet, the highest quintile incomes (still far under $250K/year median I'd presume) have a 74% chance of having a net worth over $100K. That isn't a perfect apples-to-apples invalidation of my premise, but it's close enough to give me comfort that I was being too pessimistic.

hkmurakami5• 13 years ago

Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at some point during their working lives. That puts them, if sometimes temporarily, in the top 2 percent of earners. Even outside periods of unusual wealth, members of this group generally hover in the $100,000-plus income range, keeping them in the top 20 percent of earners.

This range gets hit the hardest by personal income taxes, so sibling commenter's observation of income, not wealth, is astute. 20% of the population may be in the top 2% of earners in income for one or more years, but they'll be hard pressed to sustain it AND overcome taxes.

Also, I noticed that those interviewed in the article have inherently volatile earning profiles. Stock brokers, day traders, art gallery owners... And early startup employees are a part of the cohort too, with spikes one time payouts.

nostromo• 13 years ago

Right. Calling someone that makes 250k a single year of their life rich (likely from selling a house, a small business, or some stock options) is as silly as calling someone who was unemployed for one year of their life poor.

The same article could be written in reverse: "Rise of the 'new poor': 5 in 5 Americans earn $0 at some point in life"

patmcguire2• 13 years ago

You can generally exempt $250,000 of profit from a house, $500,000 if you're married

midas0072• 13 years ago

Yup. There's balance sheet affluence and then there's income sheet affluence... two often orthogonal properties in most cases. On one extreme, is the cliché stock broker: always broke despite high income... high marginal propensity to consume (MPC) combined with income sheet affluence, which does not necessarily lead to balance sheet affluence. The other extreme is that are some folks lead thrifty lives and aren't income sheet affluent by any measure, but because of prudent investing, are easily characterized as balance sheet affluent. (Example: I know a guy that has investments exceeding 7 digits that makes 40k USD/year and spends no more on average than 2 USD/day.)

midas0072• 13 years ago

There are many, many levels of "rich." In essence, a small amount of wealth reveals how poor someone was and how poor they still are by comparison. Note: comparisons lead to insecurity and unhappiness, by definition.

It's as stupid as the rich lists, because the definition of rich is an inability to count one's net worth (due to illiquid valuation of investments and assets).

minikites• 13 years ago

They actually get hit less hard because we don't have enough tax brackets and the tax rate at the upper brackets is way too low: http://i.imgur.com/gogxtbv.jpg

jlarocco2• 13 years ago

The article isn't talking about the ultra-rich making millions a year - it's talking about people making >$100k.

I'd guess that most people making >$100k per year are making less than $353k, where the taxes start decreasing. So they would, in fact be getting hit hardest by taxes, according to your graph.

encoderer2• 13 years ago

For people earning over $350k yes you're right. But no sir, even by the link you posted, those in the $100-350k range are certainly hit the hardest.

First, based just on the data, you see that at these income levels, many many credits and deductions are fully phased-out. AMT becomes a real issue. Etc.

But in an anecdotal sense, my experience of people (like myself and my wife, 2 professionals living in a high CoL area) earning in this $100-350k range, this is often the product of 2 people with "normal" jobs. So most of my income is earned income. But those out in the stratosphere above $350k earn more and more of their income from capital gains and receive favorable tax treatments.

hkmurakami5• 13 years ago

I think you're conflating ordinary income tax rates with long term capital gains tax rate, dividend tax rate, tax free muni bond yields, etc that the 7 figure wealthy and above use.

walshemj• 13 years ago

This is a obviously a study that has been designed to influence politicians on tax.

AsymetricCom• 13 years ago

Volatile, high-profit incomes more closely matches a market based on nature or real progress. It makes sense that high-earners who do real work are doing work that is risky. What is concerning is the 'old rich' who've managed to make obscene profits by market manipulation such as regulatory capture, or removing risk from their operations and moving it to the employees.

The irony is that the 'old rich' are required to create the more real-market-representative positions artificially, and as a result a large percentage of the new rich's work goes to keep the old rich in their current positions.

i.e. the old rich (who were once the new rich) are keeping the new rich from being the new old rich. Often this is done by keeping the new rich from using strategies and tools outside the power of the old rich, thus impeding real progress. Real progress would be outside of the control of the old rich, who, let's face it, are just too old and stupid to make good returns on new things. The general populous does this best, and if the general populous is out-innovating the oligarch, then that would be socialism and socialism is scary because informed markets don't buy sugar water and red labels.

clarkm• 13 years ago

This is why basing tax brackets on yearly income has always struck me as flawed. Imagine you're an author that spends a couple years writing a book. For the first three years you make no money, but the forth you make a million. You'll be taxed at a much higher rate than if you had made a consistent 250k a year.

This might be a simplistic model, and the outcome may be avoidable by sufficient tax planning, but I'm sure some entrepreneurs have lost money this way.

textminer• 13 years ago

Employ rolling averages above historical inflation?

jpmattia• 13 years ago

For the first three years you make no money, but the forth you make a million. You'll be taxed at a much higher rate than if you had made a consistent 250k a year.

Ancient History Item: Before the tax reform act in 1987, you had the ability to do income averaging across tax years to address this situation. It was reformed away.

icambron4• 13 years ago

The worst category for this is star professional athletes. They make huge amounts of money their first few years, but then they retire at age 30 and spend the rest of their lives earning far less.

In the author's case, you could imagine a fix; the author could somehow amortize the income over previous years and pay all the money at the appropriate rate. (Though I can imagine a number of fraud- and incentive-related issues there.) But you can't really do that with the pro athletes because a) you don't know when they'll actually stop making money and b) in the future they may not actually have it.

grecy6• 13 years ago

I've been getting around this lately...

While I'm working, I contribute the max I can to retirement savings (RSP, 401k, whatever it's called in your country) so I reduce my taxable income by that amount.

In the years I'm not working (don't want to, travel, etc.), I take money out of those retirement savings. If I take out less than the tax-free threshold ($10k/yr in Canada) I pay no tax on that money. If I take out more, it will be less than I earned in my working years, so I'll be in a lower tax bracket anyway.

In this way I'm averaging out the taxes I pay over many years, and it takes out the spikes and dips from working/not-working years.

The only downside to this is that once you've taken money out, you can't get that money back again onto your yearly contribution cap, so when I'm old and grey, my retirement savings likely won't be as high as they otherwise would be (but I don't believe in that anyway, so for me, it's not valid)

hkmurakami5• 13 years ago

This is why you have wealthy families doing weird year end selling of investments. Lock in capital losses to reduce tax exposure, sell holdings this year rather than next year for one reason or another, etc

mjn• 13 years ago

sibling commenter's observation of income, not wealth, is astute

In the U.S., at least, income and wealth are highly correlated, so there isn't a huge distinction to be made. There are indeed some wealthy people with low income, and high-income people with low wealth, but it isn't the norm. See table 5 (pg. 36) in this whitepaper, which shows both net worth by income percentile, and income by net worth percentile: http://www.federalreserve.gov/pubs/feds/2009/200913/200913pa...

Example numbers: the top 1% of 2007 income-earners held 26% of U.S. wealth, and the top 1% of households by net worth in 2006 earned 16% of the year's income. Meanwhile, the bottom 50% of income-earners held only 14% of U.S. wealth, and the bottom 50% by net worth earned only 22% of U.S. income. The general trend holds in the in-between categories as well: the 95-99th percentile of incomes hold about twice as much wealth as the 90-95th percentile, etc.

So the relationship is not perfect, but taking the groups in aggregate, higher-income-earners control considerably more wealth than lower-income-earners. Some of the later figures in the document explicitly plot some ratios.

Progressive taxation also has relatively little impact here. If you converted the income tax to an implied wealth tax (i.e. take tax paid in a year divided by wealth held at that time), U.S. income taxes are in aggregate roughly equivalent to a flat tax on wealth.

hkmurakami5• 13 years ago

I hear you, but you have to discount that for income derived from investments and the wealth and count only wages earned.

LukeWalsh• 13 years ago

It's hard for me to take seriously an article that uses yearly salary to measure wealth. Beyond the fact that money is an extremely poor indicator of wealth due to cost variance across the country, simplifying someone's liquid assets into a direct relationship with yearly income is absurd.

pjscott• 13 years ago

It's actually worse than that: the article measures wealth by the maximum salary that someone is paid in any year of their life. So, if you made over $250,000 for one year back in 1999, and are now jobless, you're considered part of the New Wealthy.

ilaksh• 13 years ago

$200k for a household is not affluent. Its just two people with good jobs.

The way the economy is, that often doesn't last. Then you have one person with a good job, and you better hope you saved. But you can easily eat up all of that previous income with things like urban housing which can be very expensive, an extra car, or a child's college tuition.

So anyway suggesting this situation occurring at some point for someone today is 'affluence' is not very realistic.

Maybe a few decades ago with less inflation those numbers would indicate 'affluence'.

encoderer2• 13 years ago

$200k for a household is not affluent. Its just two people with good jobs.

Yes, and 2 earners with good jobs makes one affluent :)

Affluence is one of those words, it all matters of perspective. But I try to use the test of "would an average guy on the street" consider a HHI of $200k affluent. I think yes, they would.

Remember, that income level puts a couple in the 96th percentile.

natrius2• 13 years ago

It's illustrative of the wealth divide in our society that engineers think 96th percentile wages are middle class.

asmithmd1• 13 years ago

Charles Hugh Smith does a quick calculation and comes up with an income of $111k to have what the middle class of the last generation took for granted:

http://charleshughsmith.blogspot.com/2013/12/what-does-it-ta...

ehmish• 13 years ago

It depends, where I live, $200k a year is extremely affluent. I'd be interested to see the figures for those salaries adjusted for cost of living.

rayiner4• 13 years ago

These are just the fattest cows in the herd. Being able to afford "luxury" versions of mass-manufactured crap isn't wealth. Wealth requires means a measure of financial independence and security. Dual-income professional couples who manage to get into the $100-250k range don't really have these, although they're in a better position than the rest of the middle class. Between student loans, school expenses, childcare expenses, saving for college, saving for retirement, etc, they can afford some toys but that's about it. Comparing them to the wealthy and saying they wield power in the economy is utterly ridiculous.

Also, does anyone understand the chart? Does it mean that 76% of 60 year olds will make > $100k at some point?

Crito6• 13 years ago

The typical student loans for people graduating today is only 30k USD. Now that will be much higher for some people, particularly lots of people on the higher end of the income scale (doctors, surgeons, etc), but if we are talking about the 30-60+ age bracket then their school debt straight out of school will likely be lower than you could expect for the same school/program today.

What I am getting at is that I doubt student loans are a significant consideration for most people in the age ranges the article is talking about (from what I understand they are for doctors).

Also, most young people in the SF/tech scene sort of deal are likely looking at the typical school debt (~30k), but are looking at the low range of these salaries (100k+) starting at a much younger age. I know people that are obliterating their student loans with the starting bonuses from their first jobs out of college. (That's what I did, albeit several years ago, and only 5 years worth of tuition.)

These sort of scenarios won't get you "country-club rich", but will certainly get you into the elusive "traditional middle-class security" range. The kind of wealthy where you can tell your kid they can go to any college accepts them, can take your whole family on 1-2 week long holidays every year as a tradition, buy your kids a shitty car when they turn 16, etc. It is this sort of wealth that can prove troublesome politically. People in this range are relatively isolated from true hardship; they don't have to worry about making rent or worry about how to feed their family. They are much more susceptible to pseudo-concerns like "is my corporate chain coffee fair trade" and "what if I become properly rich, then get taxed a lot?".

Remember that HN is an echo chamber. While we can talk about 250k and pretend like it is normal, the median household income is in the general neighborhood of 50k. Most Americans will never see this sort of income. For most Americans, 250k is wealth.

I think we have the tendency to define "wealth" as "something that is beyond our grasp". The more money you have, the more money it takes to become "wealthy".

chongli• 13 years ago

Who says they have to have kids? Earn a combined $250k a year, live frugally and invest the money early. Build a huge retirement nest egg in a decade! Then go travel the world and enjoy life.

What gets expensive is if you get caught up in the keeping up with the Joneses mentality. Why do people want to live in a suburban sprawl nursery and spend all their life raising kids?

rayiner4• 13 years ago

The question isn't whether you can live comfortably on $250k/year. Obviously you can. But that doesn't make you wealthy.

Trading off having kids to be able to afford travel and luxury goods is prole. People who are actually wealthy don't have to make compromises like that.

auctiontheory• 13 years ago

"Wealth" is assets, not income.

transfire• 13 years ago

What I imagine this study totally glosses over is the fact that many middle class families do make over $250,000 once in their life b/c they sell a home. That is far from making them "rich".

codezero• 13 years ago

The percentages for each group seem to include everyone in the higher groups as well.

I'm making this assumption based on the percentages of the 60-year old graph: 76.8%, 50.9%, 32.2%, 20.6%

I guess I was thinking about this plot like a histogram which makes more sense in a bar chart like this. Read like that, the percentages in each bucket are: 25.9%, 18.7%, 11.6%, 20.6% for the age 60 chart and 17.7%, 7.4%, 2.1%, 2% in each range for age 30

jlarocco2• 13 years ago

I think the data's being presented in a strange way.

Since it's "people who make over $100k at least one year of their life", it makes sense that older people would have higher numbers.

They've been working more years, and because of that they usually have higher paying jobs due to having more experience or moving up to management positions.

narrator• 13 years ago

Looks like someone is busy setting up the narrative for raising taxes on "the rich" who earn more than 100k. This is how it starts. A whole bunch of "studies" come out, then the talking heads roll it out 24/7 on the news media and then Obama makes a speech and a bunch of people pound the table and ta da... brand new taxes for you "rich" people making 100k a year.

untog• 13 years ago

The average income is $60k. $100k IS rich, even if it doesn't feel like it in Silicon Valley.

dmd• 13 years ago

And, to be clear, that's the average household income, not the average personal income.

blisterpeanuts4• 13 years ago

It sure doesn't feel rich to me :(

At the end of the month, after taxes and FICA and health insurance and Medicare and retirement are withheld, and after paying for housing, food, transportation, insurance, utilities, sundry expenses, and student loans--there's not a whole lot of that $100K/12 left!

Raising taxes on $100K would be almost intolerable. I could probably part with a couple thousand more a year, but it would be difficult, and I have very little faith that they'll invest my money wisely....

chaostheory• 13 years ago

I agree. This is a joke. $250,000 a year is not rich (unless you've been saving for years - houses don't count until you pay off the mortgage) and $100,000 is easily achievable in a two income household even in the Southern US.

This is a better list (of liquid assets though and not income):

$1.6m – $3.2 million The comfortably poor

$5m – $6.5m The comfortably off

$8.2m – $24.6m The comfortably wealthy

$26.2m – $64m The lesser rich

$65.6m – $121.5m The comfortably rich

$123.1m – $162.5m The rich

$164.2m – $326.8m The seriously rich

$328.4m – $655.2m The truly rich

$656.8m – $1.64bn The filthy rich

Over $1.6bn The super rich

velodrome2• 13 years ago

How did you determine this list? Just curious.

sowhatquestion• 13 years ago

Looks like "someone" doesn't understand income inequality trends very well. Increases in inequality have been especially pronounced at the top end of the distribution, well above the $100k threshhold. Long story short, the income distribution has such a steep curve now that we can implement much more redistributive social policy without raising taxes on people making $100k or even $250k/year. I'm sure that more has been written about this since then, but Matt Yglesias made the case really well in an old blog post entitled "Mobilizing the Lower Upper Class":

"[W]hile I have no sympathy with the idea that making the lower upper class return to Clinton-era tax rates is too hard on them, I think you could have some sympathy with the idea that your person earning $250,000 shouldn’t pay the same marginal rate as much as someone making $1.25 million or $6.25 million. Why not add additional marginal brackets?" ( http://thinkprogress.org/yglesias/2009/03/10/192079/mobilizi... )

I found this post via an old bookmark to some insightful commentary on it by Nate Silver: http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-b...

The problem is, while these "new rich"--the "petty bourgeoisie," as Marx called them--are all too eager to declare themselves "not rich" for tax purposes, they are just as eager to see themselves as being like the rich. They see themselves as the truly productive class, the ones who really keep the economy going. It's ultimately for ideological reasons, moreso than pragmatic ones, that they end up opposed to redistribution (even in the face of increasingly sickening, 1920s-esque levels of inequality).

Recently, my dentist and dental hygienist tried to strike up a conversation with me after a routine cleaning. My dentist was just so dismayed that unemployment benefits were still being extended when the recession had "ended" years ago (which is true only in terms of GDP growth, not in terms of the effects on employment and income). But in response, the hygienist--who probably makes one-third what the dentist does, for doing three times the work--upped the ante, approvingly quoting her fiance's suggestion that "the unemployed shouldn't be able to vote until they find a job." Of course, the dentist was delighted by this proposal!

The point is, progressives have plenty to offer the petty bourgeoisie: more customers for their small businesses, via boosting aggregate demand; a better educated and healthier workforce "below" them, via treating education and health care as public goods--but what we could never offer is the feeling of saintly victimhood they get from libertarianism. Not only do they nurture this spirituality in themselves, they evangelize it to every promising young worker (e.g., the hygienist) who might someday join the fold.

was8309• 13 years ago

thank you. it's Sun Tzu ~saying 'first know the lines of battle'. map resource control per capita as 1000 people on a football field. there are like 3 people who control 110 yards and the other 997 in the remaining endzone. on the goal line are people worth tens or hundreds of millions, convinced that they wouldn't be squished like a bug if they dared to step on to the field

a5seo2• 13 years ago

Not sure I agree that this is a narrative for raising taxes... if being "rich" is so transitory, it's harder to vilify "the rich" as some permanent class deserving of limitless soaking.

thaumasiotes• 13 years ago

my comment from the last time this was submitted:

Because they spend just 60 percent of their before-tax income, often setting the rest aside for retirement or investing, he says their capacity to spend more will be important to a U.S. economic recovery.

As a salaried employee at less than $100K, my tax withholding in california was 35%. Spending 60% of your before-tax income doesn't seem to leave much room for any "capacity to spend more".

commentor12• 13 years ago

This article makes the critical mistake of implying that affluence has anything to do with salaried income.

The people who are actually wealthy are too busy laughing to rebuke this notion.

akuma73• 13 years ago

These are also known as HENRYs. http://www.investopedia.com/terms/h/high-earners-not-yet-ric...

Investment firms and luxury brands are well aware of this phenomena.

Notice that they are not-yet-rich :)

jennyjenjen• 13 years ago

Kind of sickening that this misleading headline gets more attention than "1 in 5 American children live in poverty."

Now that's something to chew on.

Crito6• 13 years ago

Think of it this way: This headline is telling 1 in 5 Americans that they should consider how badly they think they have it, then consider that there are many people who have it much worse. There are people here talking like 200k/yr/household is no big deal... meanwhile that is four times the national average. This article is an opportunity for people to stop worrying about the luxuries they do not have, and reflect on the luxuries they do have which most Americans do not get to enjoy.

Headlines about the extent of poverty do not offer much in terms of sudden realizations. Everyone knows that there is poverty, and most people think that there is significant poverty. What most people don't seem to stop and realize is that the poverty that many Americans experience is nothing like their "I can only put a few thousand into savings every month" problems. This headline gives meaning to your headline. The two stories compliment each other.

ars_technician3• 13 years ago

People that are actually wealthy love this kind of misinformation. If they can get the society focused on hitting people that happen to have an upper-middle-class income hard, it takes the heat off of people that are actually wealthy. Screw people with incomes trying to get ahead, but keep capital gains tax low to favor the wealthy.

driverdan• 13 years ago

Other commenters have pointed out many of this article's fallacies but there's one good thing that's being overlooked: the upper middle class is growing. The author skews this as if it's a bad thing. Quite the opposite. There are two stories here, one about the upper middle class growing and one that the middle class gap is growing.

samspenc• 13 years ago

"Now a senior vice president for a private equity firm specializing in the marijuana business..."

Did anyone else notice this line in the article?

Rise of the 'new rich': 1 in 5 Americans reach affluence

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