Americans are rich by world standards. With an average per capita income of ~$48,000, America ranks in the Top 10 in the world. The other nine include Qatar ($88,300), Luxembourg ($80,000), Singapore ($57,230), Norway ($52,230), Brunei ($47,500), Hong Kong ($45,000), Switzerland ($41,800), Netherlands ($40,800), Australia ($39,632), and Austria ($39,100). The data comes from the IMF (2015), and the World Bank and CIA World Factbook collect and corroborate similar data.
If at birth, you had the mental capacity to choose where you’d like to live for most of your life, one of these 10 countries should probably be on your list thanks to proper infrastructure which allows for opportunity. Even if you end up being the most mediocre producer, you are still miles ahead of much of the world. Too bad many of us can’t pick where we want to grow up and earn a living. As such, it’s nice to understand how we compare against the rest of the world to give us some perspective.
If everybody earns $1 million a year, being a millionaire isn’t very special anymore. At the same time, if everybody earns under $20,000 a year, the income level for poverty must be redefined. Everything is relative. Let’s learn about each others’ incomes shall we?
What The Top 1%, 5%, 10%, 25%, and 50% Make In America
Based on the Internal Revenue Service’s 2010-2014 database below, here’s how much the top Americans make:
Top 1%: $380,354
Top 5%: $159,619
Top 10%: $113,799
Top 25%: $67,280
Top 50%: >$33,048
SUMMARY OF FEDERAL INDIVIDUAL INCOME TAX DATA
Based on a previous 1000+ survey study on Vse dolmeny in Fall 2014, about 80% of readers are in the Top 25% ($67,000+). Good to know that many of you are doing well. The table also tells us a number of things about equality or inequality, namely that the top 1% of tax payers pay 38% of all income taxes yet only have a 20% share of total AGI. Furthermore, the top 50% of tax payers pay practically all of the nation’s federal taxes (97.3%) while commanding 87.25% of total AGI. This table from the IRS is the source for the often politically bantered argument that 47% of American income earners pay zero federal income taxes.
If you do another little exercise and compare the top 25% of American income to the Top 10 per capita income countries in the world, you can once again see how lucky most of us are. If only we could get all American wage earns to pay some taxes, it would go a long way to help shoring up our budget. Congress constantly holds the nation hostage by bickering over whether to cut $10 billion here, $50 billion there. All we have to do is make those who earn above the poverty line who pay no federal income taxes pay just $43 a month and we’d raise $60 billion a year right there for example!
Let’s have everyone contribute to the welfare of our country. We are all in this together! For those who are just struggling to keep their heads above water, let’s lend them a helping hand.
Who Are The 47% Who Pay No Federal Income Taxes?
The Tax Policy Center’s Donald Marron said they fall into three main groups:
The working poor. The earned income tax credit and the child credit can help families making $50,000 or more pay no taxes or get money back. About 60% of those not paying income taxes do contribute to payroll taxes, meaning they must have some source of earned income.
The elderly. An increased standard deduction for those over 65, and an exemption on part of Social Security earnings, means that many older Americans pay no income taxes. Please remember though that the elderly have paid their dues through decades worth of federal taxation during their careers.
The low-income. A family of four claiming only the standard deduction and personal exemptions pays no federal income tax on its first $27,000 of income.
As you can see, being poor or elderly likely means you don’t pay net federal income taxes. We’re all going to grow old one day, so let’s give this group a pass. The elderly paid into the system, so let’s take care of them. I don’t think any of us would rather be poor so we can pay no federal taxes, so let’s give them a pass too.
This leaves us with a low-income group that may have made some suboptimal decisions such as having children while not being able to support themselves. Children are estimated to cost anywhere from $100,000 to $500,000 from the ages of 1-18. Perhaps having multiple children on a low income is not ideal. But, how do you deny passion?
No Reason To Ever Complain
If you work in America, you can see from a top down and bottoms up perspective you’re doing fantastic. If you are in the bottom 50% of Americans who earn less than $33,048 a year, know that you can earn more if you want to. Half the battle is just moving to a vibrant location such as the San Francisco Bay Area where billions of dollars are flowing in due to technology innovation. It’s not like you have to brave the high seas to reach America. It’s not like you need to ride a horse for three months to get from New York to California. All you’ve got to do is hop on a bus or a plane to be where the action is.
20 years ago, I remember making $550 a month working at McDonald’s for $3.65/hour. With wages 3X higher now, I’d be pulling in $1,650 a month or $20,000 a year! Heck, tack on driving for Uber for 20 hours a week part-time at $36/hour and you’ll make another $2,000 a month and be in the top 50% of income earners no problem. There’s an entire gig economy out there for freelancers to make extra money after work, or freelance full time. Why not take advantage?
If you are only working 40 hours a week or less and complaining why you can’t get ahead, you need to seriously re-evaluate your work ethic and expectations. Anybody can do it, you just can’t be delusional enough to think that you’ll be able to compete, when everybody in the world who wants to get ahead is working 60+ hours a week and getting paid much less to boot! Spend some time online understanding global wages from our biggest competitors in China and India. In order to maintain our incomes, we must constantly be updating our skills.
There are plenty of six figure jobs out there for the taking. You just need to have the desire, motivation, work ethic, and perseverance to get there. Did you know the San Francisco police chief makes $320,000 a year? Furthermore, when he retires, he’ll get a $200,000 a year pension for life! It’s not just doctors, lawyers, venture capitalists, bankers, movie stars and athletes who make healthy sums of money. Even my friend who is a union electrician and is not allowed to work more than 35 hours a week makes $120,000 a year and gets a $5,000 a month pension when he retires at 55. Let’s not count the $30,000 a year he makes doing side jobs with all that free time. There are six figure earners in practically every single industry, including the non-profit industry!
Back to my point where if everybody earns a million dollars a year, nobody is rich. Living in San Francisco, it certainly feels like most are in the top 5% of income earners ($159,619). I’m sure many who live and work in Manhattan, and potentially LA and Chicago feel the same way. The cost of living is expensive out here, and that’s predominantly driven by high wages. Combine two income earners with these amounts, and you can really start understanding why surpassing what the government deems as wealthy ($250,000) is not too difficult.
Thank The Rich For Always Paying More Taxes
As the economy continues to recover in 2016, it’s likely that the top 1% of income earners will likely pay an even higher percentage share of overall income taxes than their share of income justifies. If things were fair, the top 1% would only have to pay 20% of total income taxes since 20% is their share of total income. Alas, the rich pay almost double what they owe.
On the flip side, the bottom 50% who earn 12.75% of total earnings only pay 2.7% in total taxes. But, as we learned above, most of the bottom 50% are elderly or poor. Just how protesters wrongly group together the top 1%, who make over $380,000 with the ultra rich, who make millions of dollars a year, is baffling. Zealots are also grouping together those earning ~$30,000 a year with the most destitute!
Inequality is wrong. Whether you are being terrorized by the IRS or being protected by the nation’s military from nuclear war, you should pay taxes. If you get to drive on interstate highways, you should pay taxes. Discrimination is not OK, just because you aren’t being discriminated against. In other words, it’s not right to always go after a group of earners, who already pay the most federal income taxes, if you don’t pay any taxes or aren’t willing to pay more taxes yourself!
Be Your Own Boss If You Want To Be Rich
We are in the technology and internet age now. If you really want unlimited earnings potential, you might as well be your own boss someday. It costs so little now to just start your own website so you can brand yourself online, connect with like-minded people, find new job and consulting opportunities, and potentially make a healthy living online. Take a look at this income statement example of a friend with a simple personal finance blog.
I started Vse dolmeny in 2009 as a hobby to help make sense of the financial destruction. Two and a half years later I negotiated a severance because I was making roughly $80,000 a year from this hobby. Nowadays, I’m earning more than I was making as an Executive Director at a large financial firm while working 90% less and having 100% more fun!
You can start your WordPress site like this one with Bluehost for as little as $2.95 a month. Bluehost is optimized for WordPress and has great service and speed. Come up with a unique and memorable domain name, find a free website theme, connect your hosting and you’ll be up and running in 30 minutes. Everybody should start something on the side. The key is to adopt an abundance mentally and just try. The things you do now could change your life forever! Here’s my step-by-step guide on how to start your own website in less than 30 minutes.
Track Your Net Worth For Free
The other action item wealthy people do is track their net worth. You can only truly optimize your wealth if you know where all your money is going! Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. I’ve been using them since 2012 and have made much wiser financial decisions since. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Input various expense and income variables to see how you stand. Your goal should be to get to a 90% probability of achieving your goal. Try it out yourself for free. Your future is too important not to take it seriously. You don’t want to end up old and not have enough money because there is no rewind button!
Updated for 2017 and beyond
Photo: President Obama and His Dog, Public Domain.