A while back, the Fiscal Times sparked a controversy by publishing an article arguing that a family with an income of $250,000 per year is not really rich. When taxes, housing costs, college costs for children and so on are accounted for, even those with an income five times the median family income are just barely getting by, it said.
Subsequently, The New York Times published an article sympathizing with the plight of those making only $250,000. They are certainly not poor, but neither are they rich in any meaningful sense of the term, it said.
In December, the Times reported that many rich people have seen a sharp drop in their income during the recession. Since then, there has been a steady stream of reports that financial institutions based in New York City have significantly reduced bonuses for their top executives – a major portion of their yearly compensation. New York City government officials have even expressed concern about the economic impact.
Last week, Bloomberg News reported that one Andrew Schiff, who makes $350,000 a year working for his brother’s investment firm, lamented that he can’t afford to upgrade his family’s Brooklyn duplex and may have to give up his summer rental in Kent, Connecticut.
And this week, The Fiscal Times reported that a WSL/Strategic Retail study recently found that a middle class family needs at least $150,000 of income just to cover the basics.
Lastly, Ann Romney, wife of Republican presidential hopeful Mitt Romney, whose net worth is estimated to be in the range of $250 million, told Fox News this week that she does not consider herself to be wealthy. I bring all this up to show that there is no generally accepted definition of who is rich in this country today, at least among those that most people would consider to be rich. There are many reasons why this is the case.
Those that are seriously rich by any standard don’t seem to be as different from the rest of us as they used to be.
One is that inflation and real economic growth are constantly moving the goal posts. For example, according to the Economic History Association, it only took somewhere between $23,400 and $119,000 to be as wealthy the year I was born as $1 million would today. Conversely, it would take between $8.4 million and $42.8 million to be as wealthy as a millionaire was in 1951.
On the other hand, even the richest person on earth wouldn’t have access to computers, the Internet, cell phones or all of the life-saving drugs that have been invented over the last 60 years. In short, even for poor people the standard of living has increased enormously. Meanwhile, those that are seriously rich by any standard don’t seem to be as different from the rest of us as they used to be.
Having known a few billionaires over the years, I’ve never seen one who had a butler or lived anything like rich people appear to have lived in 1930s movies with hoards of servants everywhere. To be sure, they indulge themselves, but not in ways that make them so different from the rest of society.
Rich people can take a private jet to Hawaii any time they want to, but there are many people who could afford a coach class ticket to Hawaii if they really wanted to go there. Not too many years ago, a place like Hawaii was only accessible as a vacation spot to those with yachts. In that sense, many luxuries of the past are within reach of ordinary people and not just the rich.
This method means that households with just over $100,000 would be considered rich, according to the Tax Policy Center
When analyzing the distribution of wealth and income, economists often use ad hoc definitions for who is rich and who isn’t. For example, they often assume that those in lowest income quintile (20 percent of households) are poor, those in the middle three are the middle class, and those in the top quintile are rich.
But using this method means that households with just over $100,000 would be considered rich, according to the Tax Policy Center. It would take about twice as much income to get into the top 5 percent.
Looking at polls, in January The New York Times and CBS News asked people what social class they thought they belonged to. One percent put themselves in the upper class, 15 percent in the upper middle class, 41 percent in the middle class, 34 percent in the working class, and 8 percent in the lower class. These responses are identical to those given the last time the question was asked in 2005.
In December,Gallup asked people how much money they would need to consider themselves rich. The answers were surprisingly varied. Some 18 percent of people would need less than $60,000 per year of income; 12 percent said between $60,000 and $99,999; 23 percent said between $100,000 and $150,000; 18 percent said between $150,001 and $299,999; 11 percent said $1 million; and 4 percent said more than $1 million.
The median income, the exact middle of the distribution of responses, was $150,000. Women, the elderly, non-college graduates, those with no young children, those presently making less than $50,000, and those living in rural areas gave lower responses. College graduates, those now making more than $50,000, those with young children, and those living in urban or suburban areas needed more to be considered rich. When this same question was asked in 2003 the median response was $120,000.
Gallup also asked about wealth. More than 20 percent of people would need a net worth of $100,000 or less to consider themselves rich; 27 percent would need between $100,001 and $999,999; 24 percent would consider themselves rich with $1 million in net worth; 12 percent would require between $1 million and $5 million; and 14 percent would need more than $5 million. The median response was $1 million, the same as it was in 2003.
The conclusion is that who is rich is a purely subjective matter with no commonly accepted definition. People are as rich or poor as they feel they are, given their circumstances.