Thresholds for top x% of income and wealth

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Thresholds for top x% of income and wealth

Postby richard » Sat Dec 29, 2012 12:26 pm

There have been a few threads on how much income or wealth it takes to be in the top 1% or 5% or 10% in the US.

An article in The Wall St Journal includes: "Overall, the top 1% of U.S. households have a net worth above $6.8 million or at least $521,000 in income, according to data from the Federal Reserve and the Tax Policy Center in Washington. The cutoffs for the top 5% are $1.9 million in net worth, or $209,000 in income."

http://online.wsj.com/article/SB1000142 ... 73348.html Also see http://www.ritholtz.com/blog/2012/12/wh ... n-america/
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Re: Thresholds for top x% of income and wealth

Postby zapper » Sat Dec 29, 2012 12:47 pm

So, if I have net assets of about $2.6M and income of about $33K, am I rich... or poor?
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 12:58 pm

I don't think those are thresholds. Perhaps medians or means. The last data I saw from the IRS placed the income threshold at about 380k in 2009, and 410k in 2007. I have not seen good data on wealth distribution, that would be difficult to collect.

Be careful about the definition of income. Some include unrealized gains on investment and imputed income of property. Again, besides being misleading, these are exceddingly difficult to get reliable data.
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Re: Thresholds for top x% of income and wealth

Postby richard » Sat Dec 29, 2012 1:05 pm

afan wrote:I don't think those are thresholds. Perhaps medians or means. The last data I saw from the IRS placed the income threshold at about 380k in 2009, and 410k in 2007.

Please link to the source for your statement.
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Re: Thresholds for top x% of income and wealth

Postby jeffyscott » Sat Dec 29, 2012 1:28 pm

zapper wrote:So, if I have net assets of about $2.6M and income of about $33K, am I rich... or poor?


Since the standard meaning of "rich" is having wealth, you are rich.

We don't have a nice simple term for "high income", so as a shorthand terms like "rich", "wealthy", and "millionaire" are often applied to income.

If I have an annual income of $2.6 million and net assets of $33,000, am I rich or poor? :)
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Re: Thresholds for top x% of income and wealth

Postby stan1 » Sat Dec 29, 2012 1:30 pm

zapper wrote:So, if I have net assets of about $2.6M and income of about $33K, am I rich... or poor?


My guess is about 96-97% of the population would consider you rich, and the remainder would consider you poor (you might be part of the 3-4% who consider you to be poor because the definition of rich seems to be "someone who has a lot more money than I do.")
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 2:30 pm

Source: I can provide the link when I get home. You can find it yourself at the tax foundation site, direct from IRS data, or, I think, from the tax policy center.

TPC is left-leaning and pushes expanded definitions of income. TF is right-leaning and uses AGI as reported by IRS.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 2:35 pm

Search for "summary of latest federal individual income tax data" and "tax foundation".

The report comes out in the fall, but the last one I saw was Oct 2011, with data through 2009.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 2:41 pm

The 2012 report is out. The AGI threshold for top 1% was $369,691 for 2010 returns. Threshold peaked in 2007 at 426k.
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Re: Thresholds for top x% of income and wealth

Postby Padlin » Sat Dec 29, 2012 2:47 pm

afan wrote:The 2012 report is out. The AGI threshold for top 1% was $369,691 for 2010 returns. Threshold peaked in 2007 at 426k.


That's income as opposed to wealth, does it have both?
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 2:53 pm

For me "rich" means "able to live a luxurious lifestyle without generating earned income, dipping into capital, or having any plausible risk of running out of money." I call "luxurious" spending $1M per year. This requires pretax income of $2M. Assume it is in intermediate term treasuries at 2%. Then you need $100M to be rich.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 2:58 pm

People are not required to report wealth to the IRS, with elaborate checks and enforcement. So I don't know how one gets this data. People try to estimate, but that requires a lot of guesswork about who owns what financial investments, real estate values, and such things. Interesting reading, but take with a mountain-sized grain of salt.
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Re: Thresholds for top x% of income and wealth

Postby KyleAAA » Sat Dec 29, 2012 3:04 pm

afan wrote:For me "rich" means "able to live a luxurious lifestyle without generating earned income, dipping into capital, or having any plausible risk of running out of money." I call "luxurious" spending $1M per year. This requires pretax income of $2M. Assume it is in intermediate term treasuries at 2%. Then you need $100M to be rich.


This leads to some rather ridiculous conclusions, such as somebody with a net worth of $50 million isn't rich. Were you to poll a million people, I doubt even one would say $50 million isn't rich. In fact, even if everybody you polled happened to be a billionaire, I STILL doubt even one would say $50 million isn't rich.
Last edited by KyleAAA on Sat Dec 29, 2012 3:40 pm, edited 1 time in total.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 3:12 pm

For a nice discussion of the wealth data challenges, search for "how much money does it take to be in the top 1% of wealth".

In short, you can measure reported AGI, but you can only guesstimate wealth.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 3:48 pm

Kyle,

The wonderful part about a free country is that everyone is entitled to an opinion. I walked you through my reasoning. You may be right that many people would simply pick a number, often smaller than mine. But that hardly provides a basis for what is reasonable or ridiculous.
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Re: Thresholds for top x% of income and wealth

Postby BHCadet » Sat Dec 29, 2012 3:49 pm

zapper wrote:So, if I have net assets of about $2.6M and income of about $33K, am I rich... or poor?

If you're over 60 and single, you're rich.
If you're under 60 and have a family with two kids in college or younger, you're not there yet.
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Re: Thresholds for top x% of income and wealth

Postby KyleAAA » Sat Dec 29, 2012 4:10 pm

afan wrote:Kyle,

The wonderful part about a free country is that everyone is entitled to an opinion. I walked you through my reasoning. You may be right that many people would simply pick a number, often smaller than mine. But that hardly provides a basis for what is reasonable or ridiculous.


How not? What other basis would be more reasonable? If 1 million out of 1 million people all agree, that seems as water-tight a case as any I can think of.
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Re: Thresholds for top x% of income and wealth

Postby jeffyscott » Sat Dec 29, 2012 4:52 pm

afan wrote:Source: I can provide the link when I get home. You can find it yourself at the tax foundation site, direct from IRS data, or, I think, from the tax policy center.

TPC is left-leaning and pushes expanded definitions of income. TF is right-leaning and uses AGI as reported by IRS.


AGI excludes far too many things to be considered a valid measure of income. Perhaps TPC includes more than they should in their definition of "Cash income", but AGI is a really poor measure. TPC includes:

wages and salaries, employee contribution to tax-deferred retirement savings plans, business income or loss, farm income or loss, Schedule E income, interest income, taxable dividends, realized net capital gains, social security benefits received, unemployment compensation, energy assistance, Temporary Assistance for Needy Families (TANF), worker’s compensation, veteran’s benefits, supplemental security income, child support, disability benefits, taxable IRA distributions, total pension income, alimony received, and other income including foreign earned income. Cash income also includes imputed corporate income tax liability and the employer’s share of payroll taxes.

http://www.taxpolicycenter.org/numbers/ ... ?DocID=574
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Re: Thresholds for top x% of income and wealth

Postby arcticpineapplecorp. » Sat Dec 29, 2012 5:29 pm

richard wrote:The cutoffs for the top 5% are $1.9 million in net worth, or $209,000 in income."


Doesn't it also depend upon where you live? If you live in NY or Cali, you might be considered not poor but no rich. If you're living in a third world country, you'd definitely be considered rich.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 5:31 pm

Well, like "reasonable", "valid" is very much a matter of opinion. In the case of AGI vs other measures AGI has history on its side. When some people discuss tax rates in terms of broader income measures they compare to older AGI stats, which is all that exist for longer term evaluation. It concerns me that I can tell someone's political leaning by their preferred income stat.

Kyle,

If you are correct on your "everyone but afan" claim, then that is called a minority opinion, which is different than "wrong." cf Galileo.

To me, "rich" recalls Gilded Age cottages at Newport, Rockefellers, Carnegie, and Vanderbilt. Ellison, Milken, and Cohen. Not people who are very well off, but people who are rich. Your $50M person could have a nice boat and sail out to watch the America's Cup, but she could not sponsor a team or own a mega yacht. She could have a very nice mansion, but not a string of them in NY, San Francisco, Geneva, Paris, and Tahiti. She could have a Bentley, but not dozens of exotic cars. A private jet, but not a 727. She could patronize the arts, but not collect Old Masters.

Hey, I would be thrilled to have $50M, but that does not mean I would be rich. As I said, I take an operational definition with a high level of very safe spending in perpetuity. If one wants to come up with a larger number of rich people, then I agree one can define down what that means.
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Re: Thresholds for top x% of income and wealth

Postby William4u » Sat Dec 29, 2012 6:10 pm

This will tell you how rich you are...

http://www.globalrichlist.com/
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Re: Thresholds for top x% of income and wealth

Postby EternalOptimist » Sat Dec 29, 2012 6:14 pm

zapper wrote:So, if I have net assets of about $2.6M and income of about $33K, am I rich... or poor?



I'd say you are rich. What if you made $2 million and had no investable assets and lost your job...ain't rich no more
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Re: Thresholds for top x% of income and wealth

Postby EternalOptimist » Sat Dec 29, 2012 6:16 pm

William4u wrote:This will tell you how rich you are...

http://www.globalrichlist.com/



Doesn't take into account investable assets or home value
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Re: Thresholds for top x% of income and wealth

Postby chicagobear » Sat Dec 29, 2012 6:41 pm

To me rich means that you have enough assets to generate income that allows you to live an upper middle class lifestyle without having to work for the rest of your life. "Independently wealthy" I guess.
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Re: Thresholds for top x% of income and wealth

Postby jeffyscott » Sat Dec 29, 2012 6:59 pm

afan wrote:In the case of AGI vs other measures AGI has history on its side. When some people discuss tax rates in terms of broader income measures they compare to older AGI stats, which is all that exist for longer term evaluation.


But the topic here has nothing to do with taxes or past data. It is what level of income puts you in the top X% for income at the present time. There is no reason to exclude things such as income from muni bonds in determining that, just because the government has arbitrarily determined that they are not included in AGI. There is also the problem that when people think of their income, they do not typically think of AGI, they will tend to think of gross income, so they may have a distorted view of where they fit in. A couple with gross income of $100,000 could have AGI ranging from $56,000 to $100,000 just from varying contributions to 401Ks.

It is also seems problematic to include both contributions to and distributions from retirement accounts as TPC does and including employer payroll tax is a problem in that it is not something people think of as part of their income when looking at where they fit in to to distribution.
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Re: Thresholds for top x% of income and wealth

Postby Beagler » Sat Dec 29, 2012 7:22 pm

Isn't it amazing how two people with identical incomes can end up with dramatically different household wealth? A Boglehead who "pays herself first," diligently invests in the workplace 401(k)/403(b), etc., her IRA, low-ER taxable account funds, and is generally frugal, is going to end up with a lot more wealth when she retires than the spendthrift who thinks only of today, preferring to frequent restaurants and clubs rather than open up an IRA or contribute to the company's qualified retirement plan.
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Re: Thresholds for top x% of income and wealth

Postby afan » Sat Dec 29, 2012 10:50 pm

you have enough assets to generate income that allows you to live an upper middle class lifestyle without having to work for the rest of your life. "Independently wealthy" I guess.


Well, I would call that "independently upper middle class". To be distinguished from rich.

But the topic here has nothing to do with taxes or past data.


With respect, we have been discussing both topics. I reported IRS data on the distribution of AGI. But this does not let one conclude who is "rich." You can define the top x% as rich, but what is the basis for that? If one were to ask "is everyone in the top 0.1% of income or networth rich?" I gather your answer would be "yes." my answer would be "I don't know, how much money is that?" I don't have the data, but I am pretty sure I would be in the top 0.1% in Somalia or Haiti. But that does not make me rich, here or there.

when people think of their income, they do not typically think of AGI


I do. In part because I can compare this over the years to IRS data. But my wife constantly tells me I do not think like other people.

AGI is a good, standard, and quite reliable measure of income. You can calculate precisely. People have to report it and the IRS audits it. One may debate whether it is comprehensive enough, but everyone can agree what it is. Any income measure that includes imputed income is immediately suspect because you have to decide how much income to impute. To pretend that this is actual income received by any individual is fanciful. No one knows the real value. This means you have to be very careful in claiming to know where someone sits on such a measure. The broader "economic income" used by the TPC includes "returns to capital", which they simply declare to be 6% of networth.

One could use the broader measures of income if you could find one that was as reliable as AGI. AGI also has the advantage that each individual calculates his/her number every year. I can look up my history of AGI, and I can compare my AGI trajectory to that of the nation as a whole. I cannot do that for "cash income". Not only do I not trust their imputed figures, but I have no way to reproduce them. So I cannot know what my cash income might be.
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Re: Thresholds for top x% of income and wealth

Postby Munir » Sun Dec 30, 2012 2:36 am

[Political comment removed by admin LadyGeek]


Blatant politcal propoganda that needs to be deleted.
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Re: Thresholds for top x% of income and wealth

Postby Levett » Sun Dec 30, 2012 7:48 am

I entirely agree, Munir.

Eventually, the mods will catch it.

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Re: Thresholds for top x% of income and wealth

Postby z3r0c00l » Sun Dec 30, 2012 8:39 am

zapper wrote:So, if I have net assets of about $2.6M and income of about $33K, am I rich... or poor?


Considering the threshold for poverty is well below 33,000 a year and zero net assets... you certainly would not be poor!

It is worth taking a global perspective as well, if you earn more than about 32,000 a year, with zero net worth above that, you are in the global 1%.

This kind of perspective is important, people in the US should realize how wealthy they are. If you can afford food, shelter, and a comfortable life, you are better off than more than a billion people who can't.
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Re: Thresholds for top x% of income and wealth

Postby LadyGeek » Sun Dec 30, 2012 9:36 am

Levett wrote:Eventually, the mods will catch it.

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