Friday, October 7, 2011

What the "Lesser Rich" Do: Create Jobs

My wife and I are among what I've heard one economist call "the lesser rich." We are in the top ten percent of households, but we are not wealthy. We don't drive luxury cars, live in a McMansion, or even own a big screen television. My computer is several years old, our phones are not "smart phones," and we've never been on a cruise. Yet, according to the statistics, we are "rich." I'm sure that explains why my last clothing purchase was a $9.99 pair of store-brand Khakis from Target.

Where do you fall in the eyes of political leaders (and the public to whom they are pandering):
http://www.census.gov/compendia/statab/2012/tables/12s0694.pdf

Less than $10,0007.3%
$10,000 to $29,99923.3%
$30,000 to $59,99927.5%
$60,000 to $74,99910.1%
$75,000 to $99,99911.5%
$100,000 to $149,99911.9%
$150,000 to $199,9994.4%
$200,000 to $249,9991.8%
$250,000 and More 2.0%

More than half of U.S. households (58.1%) have combined incomes of less than $60,000. Two-thirds fall under the $75,000 per-year income cap the Internal Revenue Service recognizes as the top of the "middle class." Traditionally, the top quintile to quarter of households are considered the "upper class" and the top ten percent are the "wealthy." The top ten percent starts at approximately $130,000, combined annual household income.

Unsurprisingly, most of the households in the top ten percent are married couples. The bottom of the income distribution is dominated by single individuals. The bottom quintile is also younger and less educated. This makes sense: you tend to earn more later in life, and education doesn't hurt. The odds of two college graduates being in the top ten percent? More than 90 percent of married graduates (four-year degrees or better) are in the top quintile. Naturally, they also dominate the top half of that quintile.

So, what do my wife and I do with this amazing income? Like most of the lesser rich, those slightly outside the middle class using the IRS standards, we create jobs.

My wife and I are renovating an old house, as we did in Minneapolis before moving. This improves a neighborhood by keeping older homes habitable. We maintain the tax base by not letting our home fall into decay.

New appliances (washer, drier, range, refrigerator), new flooring, new windows, and even the paint we have purchased all represent money circulating through the economy. Our house was built in the mid-1950s. It needs some TLC. The house consumes most of our "extra" income. Still, I have a little bit extra most months.

The money I spend on my one or two meals eaten out each week? Most of that goes to a family-owned restaurant I love. That money has been spent on an expansion. The family bought an old location and is renovating the interior.

We do save some money, too. That money goes into banks that make loans to other people and small businesses, so even our saving helps the economy.

I wonder if that would shock the Occupy Wall Street crowd? My students don't realize many among them are from the "rich" families they dislike. It is interesting how hard it is to recognize your own place in the income scale. Of course, you can't live like a billionaire on $80,000 in New York, Chicago, Los Angeles, or San Francisco. Yet, those cities and others are where most of the "rich" live. Even $150,000 isn't extravagant in many urban areas.

Yes, there are two percent of households over $250,000 — which is precisely why "taxing the rich" cannot and will not generate the revenues people imagine. Take every dime from the top two percent and you barely fund three months' of federal spending. That doesn't include the state and local taxes these families pay, from sales taxes to local property taxes. Also, I always remind readers that "income" is not "wealth." The wealthy often have no incomes at all so any changes to the income tax won't matter to them.

My professorial colleagues at the university don't consider themselves rich. Most will swear they are middle class. I know where my wife and I fall in the income distribution. I started near the bottom and am now near the top, statistically. It was a lot of work, and we had some stumbles along the way to this point. But, the work was worth it. I plan to keep working, too, to take a step or two higher.

I love what I do, and that happens to generate a good income. I tell my students they need to do what they love, so they do it better than anyone else. Making money isn't about being dishonest, mean, cruel, or anything else. Most of the rich in this country are hard-working people. They went to college, a substantial number of them going into debt and taking risks, all for a secure life.

That secure life means contributing to the economy. Turns out, we need to buy a new heater. We're doing our part to help the economy struggle ahead. And next year, I'll have to replace my Jeep before it hits 200K miles. I won't be buying a BMW or Lexus, either. I'll be buying another mid-range, decent, practical vehicle for a family. That's how you save money for a better retirement. Yep, we greedy lesser rich with our extravagant lives.

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