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Research Desk: Where are all the high earners?

By Dylan Matthews

jackie_chiles asks:

What's the geographic distribution of the top one percent of wage earners across the U.S.? What about the top .01%? I suspect that when people in, say, Nebraska hear that Democrats want to tax the top 0.1% they think of the wealthiest in their own community without realizing that the vast majority who make that kind of money are located in a few major metropolitan areas.

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. Here's a handy map showing where states fall:

income_by_state.gif

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.

Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

By Dylan Matthews  |  August 24, 2010; 2:30 PM ET
 
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Comments

Interesting story! If you want another perspective on current events, politics, international relations, and even just some cultural commentary check out my blog called “Power Walk.” Here is the link to check it out: http://wwwstangblog.blogspot.com (no dots after the www). I hope that it doesn’t disappoint!

Posted by: PowerWalkBlog | August 24, 2010 2:52 PM | Report abuse

Ah, Montana. We sure have a lot of those 1% buying land here even if they don't want to live here.

Posted by: CaptainNoble | August 24, 2010 4:19 PM | Report abuse

"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."

Perhaps, but the states above the national average probably have voters with better than average educations.

Posted by: dlk117561 | August 24, 2010 4:28 PM | Report abuse

People might be surprised to find Delaware, The Headquarters State™, in the same boat as Pennsylvania. Most of the people who make money there don't live there.

Posted by: kpidcoc | August 24, 2010 5:18 PM | Report abuse

The statement " this is the group that will face higher rates if Obama's tax proposal succeeds," is false.

First, Obama proposes not extending the cuts for families which make over $250,000. Notably $250,000 > $200,000. I am surprised to find such an arithmetic error on this blog.

The limit of $200,000 for extending the cuts applies to single individuals filing tax returns. It is entirely possible for a household to have income over $200,000 even though no single individual in the houshold has income over $200,000.

Finally, taxes are paid by families not households. An unmarried couple living together are one household (for the Census) but two families (for the IRS). If each makes $180,000 their household has income over $250,000 but they will not pay higher taxes next year under Obama's proposal.

The fraction of families which would pay higher taxes under Obama's proposal is far lower than 3.96 %. It is much closer to 2% than to 3.96%. The assertion in this post is simply false. I think it should be corrected.


It is very impressive how there is an almost perfect correlation between higher than average number of households with income over 250,000 and Senators' willingness to vote to increase the taxes of families with income over $250,000.

It even adds some information beyond party affiliation as Kent Conrad is very eager to temporarily extend the tax cut for the very few rich families in N. Dakota.

Posted by: rjw88 | August 24, 2010 8:17 PM | Report abuse

I really don't like to pick on someone who mans the research desk for someone who is half my age. I note that the last of my points (households vs families) is not clear to www.whitehouse.gov.

WWW.whitehouse.gov tends to try to lead the careless reader to think that taxes will be increased only for individuals who make over $250,000 per year. A detailed pdf explains that the proposal is to not extend the cut for families which make over $250,000 per year "the President supports allowing those tax cuts that affect families earning more than $250,000 a year to expire ..." (so clearly $250,000 not $200,000.) The document does not contain the text "200,00" or "200000" and the only appearance of "200 " is in the phrase "200,000 billion"

The paragraph header is "Allow the Bush Tax Cuts for Households Earning more than $250,000 to expire." Yep I just scolded you for making Obama look bad by making (among one other) a mistake that his own communications staff made.

The author approximates this as 2% of households which is fine, but fewer than 2% of families make that much. In 2008, less than 2.12% of housholds had income over $250,000 per year. http://tinyurl.com/yz7s858

Some of them contain more than one unmarried adult income recipient none of whom makes over $250,000 so their tax cuts would be extended under Obama's proposal as stated in the pdf.

I repeat there is no hint of a reference to income of $200,00 per year in the document.http://tinyurl.com/36nwhky

I have no idea what is the current status of the proposal to not extend the cuts for individuals with income over $200,000 but under $250,000. I find it in a document dated Feb 2 2010, but don't know if the proposal has been changed or if that part is just not mentioned. http://tinyurl.com/2vewaev

Posted by: rjw88 | August 24, 2010 9:10 PM | Report abuse

oops link to the longish pdf here http://tinyurl.com/36nwhky

Posted by: rjw88 | August 24, 2010 9:13 PM | Report abuse

oops link to the longish pdf here http://tinyurl.com/36nwhky

Posted by: rjw88 | August 24, 2010 9:13 PM | Report abuse

The distribution is even more pronounced if you look at numbers, as the questioner requested, instead of percentages by state.

Of course, it is somewhat meaningless to look at it by state. If you look at it by locality, which is more indicative of cost of living, you see places like Arlington with a median family income of $130k. The progressive tax rates mostly hit people that live in more expensive places.

Interesting points by rjw88. Wondering if I should get divorced for tax purposes...

Posted by: staticvars | August 24, 2010 9:31 PM | Report abuse

dlk117561,

I would somewhat disagree with your reasoning using my state of NJ as an example. NJ votes blue (IMO) because of its heavily populated urban areas (Newark, Trenton, Camden) because the sheer numbers in those areas outweigh the numbers of fiscal conservatives in the suburbs. Even the more amazing that Christie won the election last year.

Posted by: visionbrkr | August 25, 2010 8:19 AM | Report abuse

I know I'm a day late so it's down the comment hole, but I'm amazed that it hasn't been pointed out that when you say NY, NJ, CT you are basically saying "New York City Region" DC is DC Region, CA is LA & SF - the high earners in this country are really concentrated. I suspect if you sliced it, things would get even more concentrated the higher in income you go.

Posted by: wah718 | August 26, 2010 10:48 PM | Report abuse

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