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Rich, poor, middle class: Where are you on the income scale?

May 18, 2014

My personal measurement of wealth usually depends on how close (or far) it is to payday.

Hand-dollar signs image by Pong via FreeDigitalPhotos-dot-netNot that the hubby and I live hand to mouth. We're doing pretty well, both in meeting day-to-day expenses and in saving for unexpected costs and our retirement.

We basically consider ourselves securely part of the U.S. middle class. Or we did until recent stories informed us that the middle class no longer exists in America.

Instead, we've become a more economically polarized country. And the great middle class goal, popularly known and the American Dream, is rapidly vanishing.

It's been derailed, writes Nicholas Kristof in the New York Times, "partly because of growing inequality."

Kristof cites data from the Organization for Economic Cooperation and Development (OECD), as well as a recent report in his own newspaper, detailing the decline of middle class American hopes and, yes, dreams.

We spend more time at our jobs than workers in other countries. Canadians and Europeans live longer, on average, than we Americans. And U.S. young people are dead last among rich countries in numeracy and technological proficiency.

Extreme concentration of wealth: Much of the problem, according to Kristof and those he cites in his article, is U.S. income inequality.

He points to a recent speech by Joseph Stiglitz in which the Nobel-winning economist noted, "America has become the advanced country not only with the highest level of inequality, but one of those with the least equality of opportunity."

Recent OECD studies underscore the same point of view.

In its Focus on Top Incomes and Taxation in OECD Countries for May 2014, the global economic group found:

"The share of the richest 1% in total pre-tax income have increased in most OECD countries in the past three decades, particularly in some English-speaking countries but also in some Nordic (from low levels) and Southern European countries. Today, they range between 7% in Denmark and the Netherlands up to almost 20% in the United States.

This increase is the result of the top 1% capturing a disproportionate share of overall income growth over the past three decades: up to 37% in Canada and even 47% in the United States. This explains why the majority of the population cannot reconcile the aggregate income growth figures with the performance of their incomes.

At the same time, tax reforms in almost all OECD countries reduced top personal income tax rates as well as rates of other taxes affecting the highest income earners."

The OECD's May report contains a lot of data. Heck, just its summary reprinted above contains a lot of numbers.

But the finding that income growth of the wealthiest 1 percent of Americans has increased dramatically over the last 30 years — by 47 percent — is striking. That earns it this week's By the Numbers honors.

Some wealthy agree: CNBC's first-ever Millionaire Survey conducted in March found that 51 percent of American millionaires believe inequality is a "major problem" for the United States.

And nearly two-thirds of that group support higher taxes on the wealthy, i.e., themselves (Really!), as well as a higher minimum wage as ways to narrow the wealth gap.

Image courtesy of Pong via FreeDigitalPhotos.net

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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