The Census Bureau helpfully puts out data (see 690) on household income distribution by state, but unfortunately the highest category they include is households making over $200,000 a year. However, this is the group that will face higher rates if Obama’s tax proposal succeeds, so it’s worth examining.
About 3.96 percent of American households make over $200,000 a year. Thirty-eight states have lower percentages than that, and twelve and the District of Columbia have higher ones. Seven states have a percentage of less than 2 percent (West Virginia is lowest with 1.36 percent), 21 have a percentage between 2 and 3 percent, 11 have one between 3 and 4 percent, and four have one between 4 and 5 percent. New York and Virginia are both at about 5.6 percent, and California and Massachusetts are around 6.2 percent. Maryland is at 6.8 percent, New Jersey at 7.46 percent, Connecticut at 7.95 percent, and D.C. tops the list with 8.37 percent
The states with the highest proportion of wealthy households tend to be large (New York, California) or suburban (Virginia, Maryland, New Jersey, Connecticut) while large plains states and most of the South fall on the very low end; both of the Dakotas and Montana are under 2 percent, as is Mississippi, with Alabama just over. Perhaps surprisingly, only two Republicans — Judd Gregg and Scott Brown — were elected from the 12 states above the national average, which would benefit the most from GOP-backed efforts to extend the Bush tax cuts in their entirety.
One thing that is crucially important for people to understand is the importance of the changing demographic composition in households in increasing household income dispersion. As Scott Hodge of The Tax Foundation observed in a 2007 report, the rise in the number of single taxpayers has had a predictable effect:
(1) There are vastly more single taxpayers than ever before and they comprise the majority of the populations of the first three quintiles.
(2) Because of the rise in dual-earner families, married couples are mostly found in the two highest quintiles.
(3) A greater percentage of taxpayers in the top two quintiles are married couples without dependents; no doubt many are “empty-nest” Baby Boomers nearing their peak earning years.
The landscape Hodge describes is the impetus for Rob Stein’s family-friendly reform of the income tax, which promises to dramatically reduce the tax burden on households with dependent children.
The $200,000 plus set is disproportionately composed of dual-earner families living in high cost metropolitan areas.Assortative mating plays a crucial role as well: in the age of consumption complementarity, high-earners are more likely to marry other high-earners.
Check out this wonderful map from CNNMoney, which I found via a Gothamist post by Jen Carlson. The lifestyle that would cost $250,000 in Salt Lake City would cost $545,000 in Manhattan, $261,750 in Miami-Dade, and $405,250 in San Francisco.
To be sure, there is a reason that Manhattanites aren’t moving in Utah. They are consuming what they consider to be a valuable amenity. Yet when we’re talking about upper-middle-class taxpayers, it is important to have a sense of what headline income numbers actually mean. I’d submit that there is a tremendous value to having economic agglomerations of talented workers, and that we want people to choose cities and neighborhoods on the basis of their preferences and needs, not tax arbitrage. This is a big reason why I’m opposed to beggar-thy-neighbor state industrial policies.
Jen Carlson at Gothamist:
Those buzzkills at CNNMoney created a Google Map that shows what it really means to have $250K/year—which the White House says is a mark that someone is wealthy. Since cost of living is different in various cities, however, that is a sweeping generalization. In some parts of Texas and Florida it may be accurate, but here in New York City (and more specifically, in Manhattan) the local equivalent is $545K. Meaning that is how much you’d have to make to maintain the same lifestyle as someone living in, say, Missoula, Montana. On the upside, you don’t live in Missoula; their fresh air is so overrated anyway.
Regardless, all of this shows how complicated gauging relative wealth is when dealing with a diverse, continental country. We have not only very different costs of living and rates of taxation but also very different economies and cultures. And compounding this by looking at “households,” and thus comparing dual earners with single earners, only further obscures the issue.