The Way We Are

It’s been a few years since I’ve posted about this but maybe it’s time to revisit the distribution of incomes in the United States. The graph above is the most recent I could find. It’s five years old but things haven’t changed much over that time. Basically, the entire graph has moved right a few bars.

Let’s also take this opportunity of thinking about statistics. The distribution isn’t the typical bell curve in which mode = mean = median for a number of reasons the most important being subsidies and regulations. The mode (the most commonly occurring income) is around $30,000, i.e. two people working full-time earning minimum wage. The median, the point at which half of households earn more and half earn less, is now around $62,000 rather than the $53,000 it was just a few years ago. That’s a welcome improvement. The mean, the arithmetic average, is around $75,000 which tells us that there are quite a few people earning significantly more than the median income.

Here’s one definition of “middle class”. People who earn a middle class income are earning one standard deviation from the median, plus or minus. I won’t trouble you with the mathematics of it. That means that a middle class income is from around $30,000 to $90,000. If you earn $90,000 or more and you think of yourself as poor, you’re living in the wrong place. 7/8s of people earn less than you do.

To find the top 1% of income earners in the graph above, count six blocks right from the 95th percentile. That’s 1.27 million households. They earn around $400,000 or more. The greatest number of those are professionals, the middle management of large companies, or the upper management of small companies. To find the ultra-rich, the top 12,700 households in the country, you’ve got to go way to the right.

Let’s add one more wrinkle. 44% of households pay no federal income tax. Those are the leftmost six bars on the graph above. That includes most of the lower middle class and a good chunk of the middle middle class.

In reality there are only two ways to provide a large middle class tax cut. One way is by cutting property taxes but that’s the responsibility of state and local governments. The only practical way to accomplish that at the federal level is to cut payroll taxes. I will bet a shiny new dime that not one presidential candidate, Democrat or Republican, calls for that.

Consequently, if anyone calls for a large middle class tax cut, they are either lying or misinformed. Their hearts may be in the right place but their heads are in the wrong place.