Why Six-Figure Salaries Don’t Make You Wealthy

By Justin Haskins

University of Michigan student Jesse Klein made headlines across the Internet on February 19 when her article insisting her parents are “middle class” despite having a combined annual income of $250,000 was covered by several major media outlets. Virtual sparks flew throughout the blogosphere, Twittersphere, and everywhere in between as debaters on both sides of the issue lined up to defend or denounce her allegedly controversial claim.

Americans who earn something close to the 2013 median household income of $52,000 may find it hard to believe, but destructive tax and economic policies imposed by governments at all levels have significantly reduced the value of earning six-figure salaries in the United States and made incomes once considered to be a sign of wealth more similar to those typically thought of as “middle class.”

For example, a family of three in Illinois earning the 2013 average household income of $53,000 according to the U.S. Census Bureau, would pay an effective tax rate of 18.47 percent, calculated with minimal deductions, and have an after-tax income of $44,209. The same household in Illinois earning $100,000 per year would pay an effective tax rate close to 23 percent and have an after-tax income of $78,018.

What started as a salary gap of nearly $50,000 quickly closed to a difference of $33,809, and there are numerous other considerations to take into account as well. For instance, if one parent in the household is able to stay at home and care for a child, the savings offset a significant portion of the additional income. According to the National Association of Child Care Resource & Referral Agencies, the average cost of center-based daycare is $11,666 annually. This brings our initial gap of $33,809 down to $22,143.

Other factors also must be considered. A household in Illinois with an income of $53,000 would be eligible for more federal subsidies to help pay for health insurance, increased financial aid for college students—such as Pell grants, and various other tax incentives. Even if we assume these annual savings amount to a modest $5,000, our initial wealth gap has now fallen below $18,000, which few Americans would argue makes the difference between being wealthy and being in the so-called “middle class.”

[Published on Human Events, Read More Here]

Justin Haskins
Justin Haskins
About Justin Haskins (205 Articles)
Justin Haskins is a widely published writer and political commentator, the senior editor and founder of The Henry Dearborn Institute for Liberty, and the editorial director and research fellow at The Heartland Institute, a national free-market think tank. (His work here does not necessarily reflect the views of The Heartland Institute.). Follow him on Twitter @JustinTHaskins.