What’s Rich?

by on August 17, 2008 · 4 comments

in Uncategorized

Last night, Rick Warren asked both Barack Obama and John McCain to define the income level that makes someone rich. Neither candidate gave a precise answer. Obama pointed out that families making under $150,000 would benefit from his tax plan, while McCain offered up the absurd figure of $5 million dollars.

This is actually an interesting question since there is widespread confusion (particularly in the media) about the distribution of income in the United States. Here are the facts according to the Census Bureau:
—In 2006, the median household income was $48,201. That means half of all households made less than this amount and half made more.
—For family households, the median was just shy of $60,000. For married couples households, the median was $69,716.
—Households making over $133,000 were in the 90th percentile.Households making over $174,000 were in the 95th percentile. This means that Obama’s line of $150,000 probably hits the top 7-8 percent of household incomes.
—The data on those making above McCain’s line of $5 million dollars aren’t readily available, but those making over $1.6 million are in the top 0.1 percentile (that’s the top one-tenth of one percent). Overall, there are only 146,000 households making over $1.5 million and only 11,000 with incomes over $5.5 million.

{ 4 comments }

Noni Mausa August 17, 2008 at 10:36 am

We might do better by measuring people’s incomes in a new unit, the Nuf. If you earn one nuf per year, your family will be doing okay, in the absence of mishap or illness.

The nuf value for a four person family in most parts of the USA is roughly $48,000. By the nuf standard, someone earning $1.5M is making just over 31 nufs.

“…11,000 with incomes over $5.5 million…” or 114 nufs. Those 11,000 incomes could support about 1.25 million four person households, five million people, at the nuf level.

Bill Gate’s salary in 2004 was just under a million, but with stock dividends, that brought his income up to 7333 nufs – about 30,000 people.

I’m not trying to be goofy, though I may be succeeding. But it is so hard once the zeros add up to get a handle on the scales involved here. It is worrisome, or ought to be, to notice that half of American households don’t have a nuf.

To get a sense of scale, I find this helpful:

A million seconds is 12 days.
A billion seconds is 31 years.
A trillion seconds is 31,688 years.

Noni

Dubi Kanengisser August 17, 2008 at 11:01 am

I kinda think we need income per capita in the household to determine anything – a single person earning 40K is richer than a couple earning 60K.
Children, of course, make it more difficult to calculate, especially since the expenses on children change so drastically between infancy, early childhood and teenage years…

Tony August 18, 2008 at 11:41 am

Not necessarily, Dubi. Housing is the largest single expenditure category for the vast majority of American Households. A cohabiting couple consumes only marginally more housing than a single person, but with twice the earning potential. There are also a number of other opportunities for expense sharing like sharing a single automobile.

When you take into account the economies of scale that come with cohabitation, the couple making $60 K is starting to look better off than the single making $40 K.

Shag from Brookline August 19, 2008 at 8:27 am

The media often identify a person as a millionaire without providing a definition. Going back to the late 1940s, I thought of a millionaire as a person who earned at least $1 million a year. Today, a person who bought a home for under $100,000 back in 1973 that today is assessed for $2+ million such that he is described as a millionaire. Net worth may be one measure of whether one is a millionaire. If that is the case, there are a lot of millionaires out there, including me. But I don’t feel like a millionaire. Earning (including passive income) $1+ million a year looks pretty good to me. But how many generate such income? I guess one can marry well and become a millionaire jointly with his loaded spouse.

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