Just Taxes Blog by ITEP

What Do We Mean By “The Rich” — and Does it Matter?

January 29, 2024

Does an income of $250,000 make someone “rich?” Does $400,000? Those are the floors set by Presidents Obama and Biden on who would be affected by the tax increases they proposed.

Whenever that kind of floor is set we hear the same thing from a small, but loud and influential, contingent: “that’s not rich!” Pundits say it, people affected by the tax increases say it. Members of Congress and their staff, usually more quietly, say that in their district or state that income level doesn’t make someone “rich.”

One can address the question with math of course. The ITEP model reports a starting point for the “richest” 20 percent of the population at about $138,000 as of 2023. The cutoff for the richest 5 percent is $298,000 and for the top 1 percent is $737,000. It’s different in higher-income states, but not by as much as many people believe. In California the starting point for the top 5 percent is $352,000 and for the top 1 percent is $862,000. In New York, the top 5 percent starts at $335,000 and the top 1 percent at $881,000.

Those are statistical measures of “being rich” that different people might pick from. Math is usually a better basis for policy than feelings—and it is in this case—but feelings matter in political debates.

One reason people resist being labeled as “rich” is that a lot of them, even if their incomes are high, do have to work for a living. They don’t have such wealth that they can quit their jobs and maintain what they consider a reasonable lifestyle. Some of them may define “reasonable lifestyle” differently than I do—it might include private school for their children (or at least the high cost of living in a good school district), two weeks in Europe every year, someone who cleans their house, and lots of dinners out. But they think the way they think and throwing numbers at them is not going to change many minds about something so personal.

For tax policy purposes though, whether people meet an arbitrary cutoff for being “rich,” or the people who are affected by a tax increase consider themselves “rich,” is the wrong debate. For one thing, for people with incomes right at the cutoff level, which is what people often focus on, the tax increases are almost always tiny. More broadly, though, the right debate is not who’s “rich” but who can afford to pay more in taxes.

It doesn’t matter if someone with a family income of $800,000 per year thinks they aren’t rich because they can’t quit their jobs and retire to a luxury home on the beach in Malibu. They can call themselves what they want. The point is that they are richer than 99 percent of the population and can afford to pay more.


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