January 19, 2018

What Defines “the Rich”?

Discussions about the distribution of income taxes in the United States usually focus on what shares are paid by the rich, the middle class, and the poor. But before we can determine how much each group pays, we must better define these vague terms.

According to the US Census, 7 percent of households earn over $200,000 annually, 14 percent earn over $150,000, and 28 percent earn over $100,000. It is interesting that, for each additional $50,000 earned, the proportion of Americans earning that much or more drops by half.

Taking the top quarter of households as “rich,” the cutoff would be near $100,000 per year. This definition would include a married couple in which each spouse earns $50,000 per year, despite not meeting most stereotypes of “the rich.”If we define the rich as those households earning at least $100,000 per year, the poor as those households earning less than $25,000 per year, and the middle class as the 51 percent of the population in between, then, as shown in the figure below, more households in America are rich than poor by 7 percentage points (this also happens to equal the percentage of households earning over $200,000 per year). In fact, in 2017, the number of households earning between $100,000 and $200,000 equaled the number of households earning less than $25,000.