Wednesday, January 2, 2013

How Much Do You Have To Make To Be "Rich"?

Last night our nation's "leaders" debated a measure on the floor of the House of Representatives aimed at ameliorating the effects of the so-called "fiscal cliff" that America went over yesterday when Congress failed to act by midnight on December 31, 2012.1  Since technically taxes went up for all of us yesterday, one of the sticking points to this debate was whether or not to allow the Bush tax cuts to sunset for the "rich."  Begging the question of how we define "rich."  How much money does an individual or a couple need to make in a year in order to be classified as "rich."  Initially, President Obama set this threshold at individuals making over $250,000 a year.  During the course of the fiscal cliff negotiations, the President raised this threshold to $400,000 a year for individuals, and $450,000 a year for couples.  The Senate adopted this threshold and the House voted in favor of the $400/$450k threshold last night 257 to 167.  But I don't really care to talk about the fiscal cliff.  I'm sure the news pundits will explore the ramifications of that issue over the coming weeks.  I'm more interested in exploring our collective perceptions of what we consider financially "rich" in America.  Does earning $250,000 a year make you rich?  $300,000?  $500,000? A cool million?  At what magic number can most of us point to you and agree that you are, in fact, "rich"?

The answer, of course, depends on where you live.
Midtown West in Manhattan
I live in New York City.  Here in the "Big Apple" if you make $250,000 a year then you are by no stretch of the imagination considered "rich."  In fact, in New York that makes you slightly below average.  Earning $250,000 here means you probably have a 1, possibly 2-bedroom apartment in a "decent" part of Manhattan, Brooklyn or Queens that has somewhere around 800 to 1,000 square feet of floor space.  You rent this apartment.  You do not own it.  Your monthly bills are paid and you likely have a little extra left over for modest savings each month, but an unexpected car repair or doctor's visit could very easily have you reaching for the credit card - or worse, have you reaching into your savings.  You eat out a few times each month but most of your meals are made at home.  You probably take a trip maybe once or twice a year to a nice vacation spot.  If you have children then they probably attend a decent public school or a semi-decent private school, depending on your connections of course.  You commute on the subway for $100 bucks a month and you probably do not own a car.  Like I said, for New York you're about average.  You're not poor by any means, but you're certainly not "rich."

Kansas City BBQ spot
Prior to becoming a New Yorker, I used to live in Kansas City.  Now if you make $250,000 a year in Kansas City then the entire scenario changes.  Earning $250,000 a year in Kansas City means you own a home next door to an NFL player.  This home has at least 3 bedrooms, an equal number of bathrooms, has 3 levels, and probably has around 3,000 to 4,000 square feet of space and a yard large enough to play golf on.  And your mortgage is less than what the New Yorker above pays in rent.  All of your bills are paid.  Your monthly savings is substantially higher than most Americans.  You own at least one car.  It is probably some type of luxury vehicle.  You can afford to eat out every day of the month if you are so inclined.  Your children attend the best private schools the town has to offer and your vacation options are limited only by your work schedule.  You are, for all intents and purposes, considered "rich."         

Why does earning $250,000 a year make you rich in one town yet mediocre in another?  Three words: cost of living.  In short, certain parts of the country are simply more expensive than others.  The New York Times ran an article last year which actually did the math on what it would take to be among the top 1% of earners in your respective part of America.  The results, as you might expect, were largely driven by geography.  For example, in the two cities I mentioned above, you would have to earn at least $359,000/yr and $609,000/yr in order to be among the top 1% of wage earners in Kansas City and New York, respectively.

The Top 20 Cities and what you have to make in order to be in the top 1% of each respective City:
1. Stamford, CT - $908,000/yr
2. Danbury, CT - $668,000/yr
3. Bridgeport, CT - $659,000/yr
4. New York, NY -  $609,000/yr
5. Long Island, NY - $607,000/yr
6. Newark, NJ - $590,000/yr
7. Trenton, NJ - $584,000/yr
8. Paramus, NJ - $578,000/yr
9. San Francisco, CA - $558,000/yr
10. Boston, MA - $529,000/yr
11. Red Bank, NJ - $522,000/yr
12. San Jose, CA - $517,000/yr
13. Washington, DC - $513,000/yr
14. Lawrence, MA - $503,000/yr
15. Santa Ana, CA - $488,000/yr
16. Naples, FL - $486,000/yr
17. Chicago, IL - $480,000/yr
18. Oakland, CA - $469,000/yr
19. Los Angeles, CA - $467,000/yr
20. Ventura, CA - $461,000/yr

Notice the geography.  With the exception of Chicago, every city on this list is either on the East Coast or the West Coast.  In fact, the top 8 are all exclusively located within the New York City metro area alone.

On the other end of the spectrum, if you make the following salaries then you are in the top 1% of wage earners in each respective city:

1. Pueblo, CO - $258,000/yr

2. Terre Haute, IN - $241,000/yr
3. Decatur, AL - $240,000/yr
4. Johnstown, PA - $237,000/yr
5. Brownsville, TX - $233,000/yr
6. Youngstown, OH - $229,000/yr  
7. Laredo, TX - $228,000/yr
8. Jackson, MI - $227,000/yr 
9.  Clarksville, TN - $201,000/yr
10. Flint, MI - $179,000/yr 

Conversely, all of these cities are located within the Midwest or the South, far far away from either the West Coast or the East Coast.

While making $179,000 a year will put you in the top 1% of wage earners in Flint, Michigan, that same salary won't even put you in the same zip code as New York City's top wage earners.  Unfortunately for Congress, the Taxing & Spending Clause of the Constitution requires that all federal taxes must be uniform throughout all 50 states so as not to show favoritism to any one state.  So they can't raise taxes on people making over $600,000 a year in New York while only raising taxes on people making over $200,000 in Kansas.  Due to this Constitutional restriction, it is virtually impossible for the federal government to come up with a universal definition for what may be considered "rich" in all 50 states.  As we can see above, being financially "rich" is certainly a relative term, and that relativity is largely determined by geography.

1. What do you consider "rich?"
2. What will $250,000/yr get you where you live?
3. Is $250,000/yr an appropriate threshold for raising taxes on the "rich"?
4. How about $400,000/yr?

1 - The House of Representatives passed the "Fiscal Cliff Deal" proposed by the Senate by a vote of 257 to 167.  The 257 included 175 Democrats and 82 Republicans.

The House of Representatives just passed the Senate fiscal cliff bill with 82 Republican votes and 175 Democratic votes. - See more at:
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