NEW YORK (MainStreet) — How much money do you think it would take to make it into the top 1% of income earners in the United States? A million? A billion?
Actually, your annual income would have to be approximately $385,000 to be granted the honor of being part of the nation’s wealthiest elite. At least, these are the findings of a recent report by the Economic Policy Institute.
If that figure sounds like less than what you would guess, consider that as of 2010, an estimated 43% of Americans did not pay federal income tax because their annual incomes were too low to qualify, according to the Tax Policy Center. Additionally, census data released in 2011 revealed that one in two Americans is either living in poverty or barely surviving on low incomes. The low wages received, or complete poverty suffered, by nearly half of American adults, skews the ratio for what qualifies as being part of the 1%.
The annual income bar for entering the 1% can also vary widely by state, with many Southern states requiring a much lower income threshold as opposed to states in the Northeastern region--particularly those that have or are in close proximity to large metropolitan areas.
For instance, it would take an annual income below a quarter of a million dollars--or $228,000--to make it into the 1% of income earners in Arkansas. In Kentucky and West Virginia, the bar is in a lower range when compared to other states--$263,000 and $243,000, respectively. By contrast, one would need to make $678,000 a year to be in the 1% in Connecticut. The District of Columbia, New Jersey, Massachusetts and New York round out the top five of top income-earning states, all requiring roughly a half-million dollars per annual household income--or $555,000, $539,000, $532,000 and $506,000, respectively. Three Western states--California, Colorado and Texas--follow shortly behind at $438,000, $405,000 and $423,000, respectively. Meanwhile, Maryland comes in at tenth place at $419,000 required as the minimum threshold of annual income to enter into its 1%.
But what do these numbers actually mean?
It would seem that having higher thresholds for making it into the 1% doesn’t necessarily depend on having a larger proportion of lower-income earners in contrast to higher ones, so much as does having a minority of very wealthy people in a state with a relatively small population--as in the case of Connecticut.
“[T]aking the ratio of one average to another has some limitations — a few super rich people, particularly in a small state, can pull that top 1% average way up,” writes Danielle Kurtzleben for Vox. “Of course, a high (or low) threshold for entering the top 1% doesn't say much about how far those rich people are from the rest of the state.”
In other words, the income threshold for making it into the 1% in a given state doesn’t necessarily determine the rate of income inequality in that state, though it can in certain instances. Connecticut and New York have the largest income gaps between the top 1% and the bottom 99% of income earners--with the former out-earning the latter by an average of 48 times as of 2012. In the case of these states, the wide disparity in incomes between the states’ wealthiest and the rest of its citizens is largely due to the concentration of the financial sector in the greater New York City metropolitan area.
Other states with the large income disparities between the highest and lowest earners include Nevada (44.1 times), Florida (43.3), California (34.9), Massachusetts (34.5), Texas (32.5), Illinois (29.7), New Jersey (27.0), and Washington (26.8). In those states, with the smallest gaps between the top 1% and bottom 99%, the top 1% earned approximately between 14 and 19 times the income of the bottom 99% and include Delaware (18.5 times), Kentucky (18.5), New Mexico (18.3), Mississippi (18.2), Vermont (18.1), Iowa (17.6), Maine (17.2), West Virginia (16.2), Alaska (15.3) and Hawaii (14.6).
So, though Connecticut and North Dakota both have a high bars for making it into the 1%, the disparity between the highest and lowest income earners varies dramatically.
“That doesn't mean all of the 99 percenters in North Dakota are doing well by any means, but it does at least mean less concentration of income in just a few hands,” writes Kurtzleben.
Despite this range, the 1% are still capturing most of the wealth in a majority of the states--as in, between half and 100% of all income growth from 2009 to 2012 in up to 39 states--according to IRS data. This share of income captured by the top 1% has increased dramatically over the past several decades--from 9.9% in 1979 to 23.5% in 2007. Though the Great Recession slightly compromised this growth in the highest section of income earners, the top 1% still earned 22.5% of all income earned in the U.S. in 2012. During the economic recovery, the average income of the bottom 99% in the U.S. actually fell by 0.4%, while that of the top 1% climbed 36.8%.
The EPI points to socio-political changes as part of the blame for this increase in income inequality. This includes historic lows in unionization and collective bargaining to pre-Depression era levels, as well as a stagnant minimum wage that purchases fewer goods and services as compared to its value in 1968.
The EPI contrasts these lows experienced by middle and working class households to the exorbitant salaries now received by CEOs and those in the financial industries, which is at an all-time high. According to the EPI, one of the largest risks this atmosphere of increased income inequality has created is to threaten the ability of those born into lower income households to become upwardly mobile.
“More than in most other advanced countries, in America, the children of affluent parents grow up to be affluent, and the children of the poor remain poor,” notes the EPI report. “Today’s levels of inequality in the United States raise a new American Dilemma.”
However, this doesn’t mean the problem is beyond a solution.
“While inequality and stagnant wages are often chalked up to forces beyond our control, our research shows that we can jumpstart wage growth by reversing…policy choices—raising the minimum wage, taking steps to strengthen unions, and so on,” Dan Crawford, media relations director at the EPI, told Main Street. “At the same time, we can enact more progressive taxation to expand the social safety net and blunt or even reverse the effects of growing inequality.”
--Written by Laura Kiesel for Main Street