6 ms·

I know this is wealth and not income, but I get sick of the media (and politicians) using the "top 1%" or "top 5%" label. When it comes to income, the top 1% i

I know this is wealth and not income, but I get sick of the media (and politicians) using the "top 1%" or "top 5%" label. When it comes to income, the top 1% includes an attorney making $250K and a hedge fund manager making $10M. I imagine its similar for wealth. My guess is that distribution curves spike somewhere past the 1% mark. Maybe I'm biased because I barely make the cut and don't want to pay more taxes, but it seems odd to use such an arbitrary cutoff for reporting and (especially) policy decisions. And please tell me if I'm wrong or off here–I'm geniunely interested in this. EDIT: downvoted? Seriously?

jfruh 15y ago
I think one of the problems of wealth distribution and attitudes about it in the U.S. is that it does shoot up so rapidly in the upper 1%. We're a very upward-looking society so it's easy for someone making $250K a year to say "I'm not rich, I still have a mortgage, I have to work for a living I can't just spend whatever I want, whenever I want -- I know there are people further up the latter than me who have so much more money, I must be middle class." Absolute percentiles are useful because they do show you where you stand in relation to the rest of society. Families making $250K may not be Scrooge McDuck-style super-rich, but they're indisputably in the top few percent of the nation in terms of income. It's hard for those folks to claim to be middle class when 90+ percent of their fellow citizens make less. It's also worth noting that people's lifestyles and "necessities" expand to fit their income, particularly if their income goes up relatively gradually. I've literally heard people say, "Well, I make $400K a year but I'm not rich because it costs a lot of money to pay mortgage and taxes in Westchester County and send my kids to private school and drive a nice car." They think that "rich" means "disposable income I can spend a whim," when in fact living in Westchester and sending the kids to private school is part of being rich.
- jfruh 15y ago
  I should add that I'm not definitely not exempting myself from this set of attitudes. When I was in grad school in my early 20s (in the mid-late '90s, so it's not like inflation makes a huge difference here) I made less than $17K a year for several years, but I never felt particularly deprived and don't particularly recall not doing things I wanted to do because of money worries. Now my wife and I make more than $100K combined (putting us in the top 25 percent of US workers) and yet we are constantly bumping up against the limits of our income, particularly because we enjoy travelling. I don't feel rich but I know I'm better off than a significant majority of Americans.
hammock 15y ago
Income distribution is relatively uniform - there are no "spikes" - but it is uniform according to a power law distribution[1][2]. Due to the uniformity practically every division could be called "arbitrary." [1]http://en.wikipedia.org/wiki/Pareto_distribution http://en.wikipedia.org/wiki/Pareto_distribution [2]Unless you look at the bottom end where you may find welfare trap effects http://en.wikipedia.org/wiki/Welfare_trap http://en.wikipedia.org/wiki/Welfare_trap
- rudiger 15y ago
  Although income (and wealth) distributions are pretty smooth in dollar terms, there's an extreme social stratification somewhere in the the top 1%. The lower half of the top 1% consists of doctors, lawyers, managers, and successful small business owners. The upper half (or upper .1%, or upper .01%) form a very different group. http://news.ycombinator.com/item?id=2844059 http://news.ycombinator.com/item?id=2844059
Volpe 15y ago
top 5% you are earning more than 95% of society... you are rich (relative to the rest of society). Stop complaining, and pay more taxes.
- callmeed 15y ago
  I initially dismissed your comment, but I think I'll counter it instead and see if you have any actual reasoning behind it. I don't disagree with your first 2 statements. Here's my beef with "pay more taxes": - The top 5% of earners already pay 53% of the nation's income tax revenue. The top 1% pay 33% of it. Exactly how much would you like it to be? - Those in the top 5% are in a higher tax bracket already (usually 33 or 35%). - 40-50% of americans pay no federal income tax (only payroll tax) and 10% receive more cash from the IRS than they contribute in federal income taxes and payroll taxes. So, please, tell me what those in the top 1%/5% should be paying?
  - timtadh 15y ago
    I am going to argue for as a straw man... If you believe theologically, ideologically, or otherwise that "all men (and women!) are created equal" then it follows they should pay equally. I would argue equally means normalizing their income against their position on the income scale so the taxes "hurt" them the same as it they "hurt" everyone else. It is well known that 10% of the income of someone below the poverty line is a serious hardship, but 10% in the top 1% of earners is not (although it still hurts). If you normalize the taxes based on the income distribution you can cause the amount of economic "hurt" to be equalized across society. This means that the top %1 will pay much more in taxes than perhaps the bottom 90% or even 95%. However, the "hurt" they endure will be equal.
    - callmeed 15y ago
      First, I'm doubtful that a family at the poverty line ($22K for a family of 4) pays 10% in income tax. I could be wrong, however. >> If you believe theologically, ideologically, or otherwise that "all men (and women!) are created equal" then it follows they should pay equally. On this, I'm not sure how you can come to that conclusion. I'm assuming (possibly wrongly) that you're referring to the DOI, which states: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." This seems to refer to equal starting points, equal liberties, and equal opportunities–not equal amounts of wealth or income throughout life. I think "pursuit" is a key word here. We should all be free to pursue what makes us happy, but there are no rights or guarantees that we will get it.
samfoo 15y ago
If you only barely make the cut, you'll only be paying barely more in taxes. Only your income above the cut is taxed at the higher rate. It's not like if you make $239,999 and you get one more dollar in income you lose money. Only that dollar is taxed at the higher rate.
- sage_joch 15y ago
  This isn't something that's communicated very well in our society. I didn't realize it until I actually did the math on the tax tables.
  - roel_v 15y ago
    It's not about being communicated imo, it's about most people not being numerically literate enough to be able to understand (not saying you aren't, just in general). I'm convinced that more than half of the population simply isn't capable of truly understanding progressive taxation, just like they cannot comprehend time value of money or similar things. When you spell it out on a sheet of paper most people will say 'oh yeah', but they cannot really internalize it, and never will. Of course this is a problem, because how can you expect people to abide by law they cannot understand? Worse, how can you communicate to people that they're incapable of understanding without being (or even just 'coming across as') condescending? I don't know, I don't have an answer. But when people like this: http://www.nytimes.com/2009/05/03/magazine/03european-t.html?pagewanted=all http://www.nytimes.com/2009/05/03/magazine/03european-t.html... show being absolutely oblivious to the mechanism (people who are for the rest presumably quite intelligent, and who - professionally - spend quite a bit of time on a piece like this), how can we expect the average citizen to really understand? I guess it's a recent problem too - just 50 years ago people just listened to their banker about financial things and their doctor on medical things, and believed whatever they said, but we've long passed that point.
  - libraryatnight 15y ago
    Yes, once I thought about it I had a greater appreciation for the "This isn't class warfare, it's math" Obama quote that's being tossed around.
keithnoizu 15y ago
If you barely make the cut you would only be paying taxes on a very small portion of your entire income.
spenrose 15y ago
Upvoted. I disagree with your perspective, but your comments are entirely relevant and appropriate.

jfruh 15y ago

I think one of the problems of wealth distribution and attitudes about it in the U.S. is that it does shoot up so rapidly in the upper 1%. We're a very upward-looking society so it's easy for someone making $250K a year to say "I'm not rich, I still have a mortgage, I have to work for a living I can't just spend whatever I want, whenever I want -- I know there are people further up the latter than me who have so much more money, I must be middle class." Absolute percentiles are useful because they do show you where you stand in relation to the rest of society. Families making $250K may not be Scrooge McDuck-style super-rich, but they're indisputably in the top few percent of the nation in terms of income. It's hard for those folks to claim to be middle class when 90+ percent of their fellow citizens make less. It's also worth noting that people's lifestyles and "necessities" expand to fit their income, particularly if their income goes up relatively gradually. I've literally heard people say, "Well, I make $400K a year but I'm not rich because it costs a lot of money to pay mortgage and taxes in Westchester County and send my kids to private school and drive a nice car." They think that "rich" means "disposable income I can spend a whim," when in fact living in Westchester and sending the kids to private school is part of being rich.

jfruh 15y ago
I should add that I'm not definitely not exempting myself from this set of attitudes. When I was in grad school in my early 20s (in the mid-late '90s, so it's not like inflation makes a huge difference here) I made less than $17K a year for several years, but I never felt particularly deprived and don't particularly recall not doing things I wanted to do because of money worries. Now my wife and I make more than $100K combined (putting us in the top 25 percent of US workers) and yet we are constantly bumping up against the limits of our income, particularly because we enjoy travelling. I don't feel rich but I know I'm better off than a significant majority of Americans.

hammock 15y ago

Income distribution is relatively uniform - there are no "spikes" - but it is uniform according to a power law distribution[1][2]. Due to the uniformity practically every division could be called "arbitrary." [1]http://en.wikipedia.org/wiki/Pareto_distribution http://en.wikipedia.org/wiki/Pareto_distribution [2]Unless you look at the bottom end where you may find welfare trap effects http://en.wikipedia.org/wiki/Welfare_trap http://en.wikipedia.org/wiki/Welfare_trap

rudiger 15y ago
Although income (and wealth) distributions are pretty smooth in dollar terms, there's an extreme social stratification somewhere in the the top 1%. The lower half of the top 1% consists of doctors, lawyers, managers, and successful small business owners. The upper half (or upper .1%, or upper .01%) form a very different group. http://news.ycombinator.com/item?id=2844059 http://news.ycombinator.com/item?id=2844059

Volpe 15y ago

top 5% you are earning more than 95% of society... you are rich (relative to the rest of society). Stop complaining, and pay more taxes.

callmeed 15y ago
I initially dismissed your comment, but I think I'll counter it instead and see if you have any actual reasoning behind it. I don't disagree with your first 2 statements. Here's my beef with "pay more taxes": - The top 5% of earners already pay 53% of the nation's income tax revenue. The top 1% pay 33% of it. Exactly how much would you like it to be? - Those in the top 5% are in a higher tax bracket already (usually 33 or 35%). - 40-50% of americans pay no federal income tax (only payroll tax) and 10% receive more cash from the IRS than they contribute in federal income taxes and payroll taxes. So, please, tell me what those in the top 1%/5% should be paying?
- timtadh 15y ago
  I am going to argue for as a straw man... If you believe theologically, ideologically, or otherwise that "all men (and women!) are created equal" then it follows they should pay equally. I would argue equally means normalizing their income against their position on the income scale so the taxes "hurt" them the same as it they "hurt" everyone else. It is well known that 10% of the income of someone below the poverty line is a serious hardship, but 10% in the top 1% of earners is not (although it still hurts). If you normalize the taxes based on the income distribution you can cause the amount of economic "hurt" to be equalized across society. This means that the top %1 will pay much more in taxes than perhaps the bottom 90% or even 95%. However, the "hurt" they endure will be equal.
  - callmeed 15y ago
    First, I'm doubtful that a family at the poverty line ($22K for a family of 4) pays 10% in income tax. I could be wrong, however. >> If you believe theologically, ideologically, or otherwise that "all men (and women!) are created equal" then it follows they should pay equally. On this, I'm not sure how you can come to that conclusion. I'm assuming (possibly wrongly) that you're referring to the DOI, which states: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." This seems to refer to equal starting points, equal liberties, and equal opportunities–not equal amounts of wealth or income throughout life. I think "pursuit" is a key word here. We should all be free to pursue what makes us happy, but there are no rights or guarantees that we will get it.

samfoo 15y ago

If you only barely make the cut, you'll only be paying barely more in taxes. Only your income above the cut is taxed at the higher rate. It's not like if you make $239,999 and you get one more dollar in income you lose money. Only that dollar is taxed at the higher rate.

sage_joch 15y ago
This isn't something that's communicated very well in our society. I didn't realize it until I actually did the math on the tax tables.
- roel_v 15y ago
  It's not about being communicated imo, it's about most people not being numerically literate enough to be able to understand (not saying you aren't, just in general). I'm convinced that more than half of the population simply isn't capable of truly understanding progressive taxation, just like they cannot comprehend time value of money or similar things. When you spell it out on a sheet of paper most people will say 'oh yeah', but they cannot really internalize it, and never will. Of course this is a problem, because how can you expect people to abide by law they cannot understand? Worse, how can you communicate to people that they're incapable of understanding without being (or even just 'coming across as') condescending? I don't know, I don't have an answer. But when people like this: http://www.nytimes.com/2009/05/03/magazine/03european-t.html?pagewanted=all http://www.nytimes.com/2009/05/03/magazine/03european-t.html... show being absolutely oblivious to the mechanism (people who are for the rest presumably quite intelligent, and who - professionally - spend quite a bit of time on a piece like this), how can we expect the average citizen to really understand? I guess it's a recent problem too - just 50 years ago people just listened to their banker about financial things and their doctor on medical things, and believed whatever they said, but we've long passed that point.
- libraryatnight 15y ago
  Yes, once I thought about it I had a greater appreciation for the "This isn't class warfare, it's math" Obama quote that's being tossed around.

keithnoizu 15y ago

If you barely make the cut you would only be paying taxes on a very small portion of your entire income.

spenrose 15y ago

Upvoted. I disagree with your perspective, but your comments are entirely relevant and appropriate.