30 April 2016

Income Inequality and Living in the Top 1%

Whether it offends you or delights you, consider for a moment the political debate about the top 1%. They should be taxed more, the argument goes, and more of their income should go to those at the bottom. Let's say for a moment that you agree and that you think - for example - that the top 1% should pay another 5% of their income in taxes.

If you make $32,400 a year, you are in the top 1%. That's $16 an hour, working full-time. In some parts of the US, $15 will soon be the minimum wage. $16 an hour may not seem like a lot but it makes your income higher than 99% of the world's population. Do you feel an obligation to pay 5% more of your taxes to help those at the bottom? Would you send another $1,620 a year to help the world's poor?

Now you might argue that you have to live in a place where $32,400 barely covers your expenses. Housing alone would eat up a big chunk of your income, and this gets to one problem with examining high-income in the US. With median home prices of one million, the Bay Area (including Marin, San Francisco, and San Mateo counties) is a place from which we get reports of homeless people making $80,000 a year. Palo Alto - home to Stanford's campus and neighbor to Google, Apple and Facebook campuses - is considering a proposal that would help to subsidize housing for households making only $150,000 to $250,000 a year.

The differences between what it costs to live in San Francisco (where median home prices are $1,129,800) and Gary Indiana (where median home prices are $47,500) are so great as to render national discussions about income disparity almost meaningless.

If you lived in rural Wyoming or Mississippi, $100,000 would feel very different than it would in Manhattan or Bethesda, MA. And most of the good jobs are being created in places where home prices are high. Whether you are an American making $32,400 or a New Yorker making $100,000, your income relative to people outside of your community (whether you define the community as the US or as New York) says little about your lifestyle. From afar you might appear rich but your reality might be barely getting by. Partly this is because so many of our expenses are set by market prices determined by the people around us. Partly it is because our expectations of normal are set by the folks around us.

And this is one fascinating thing about relative wealth and income. We rarely think of ourselves as rich when we're living among people with roughly the same income. And we do tend to live among people in our demographic group. I was chatting with someone who lived in a neighborhood with multi-million dollar homes and they were talking about how rich their neighbors were. Steve Jobs used to socialize with Larry Ellison - who has been on the top ten richest people list a number of years. Jobs' son called Ellison "our rich friend." Even the rich know someone they consider rich. Every group - even groups who are themselves in someone else's 1% - know someone in their 1% and to them, that guy is the rich one.

And later in the day after writing this, I find this article on how much $100 is worth in different states. 

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