The Middle Income Misinterpretation

It would appear to me that more people than you think are misinterpreting the middle income discussion. Misinterpretations are flying all over the place. So, I’m going to do what I do best and provide an angle that might add some perspective.

The misinterpretations started with Mitt Romney when he was reported as saying that the middle income is $200,000 to $250,000 and less. But then, Barack Obama got into the mix when he defined “middle class” as making up to $250,000 a year.

In my eyes, they are both saying the same thing. But, let’s talk about some other numbers for a second. What so many people are focusing on is the fact that the “median” income is roughly $50,000 a year. But, if you make $200,000 a year, you are in the 94th percentile.

When people are reporting statistics, some fail to know what they mean. See what I did there? You will in a minute. A quick class on median is that it is the middle number in a list of numbers. That’s all.

If you have three incomes on a list: $20,000, $50,000 and $250,000. The median is $50,000 because it is the middle number. But, check this out! If the $250,000 income were removed and $10,000,000 were put in its place, the median would remain $50,000. It’s still the middle number.

I think a much better number to use is the mean, or the average. In the first scenario above, the mean income would be roughly $106,000. In the second scenario, it drastically changes to roughly $3.3 million. Big difference! While median doesn’t change at all based on any number above it or below it, mean is effected.

So, the median isn’t really a good number to use when you are trying to determine what I would have to call the middle of the middle income. The problem is that the U.S. Census Bureau even uses median. So, I’ll have to go with their calculations and they report, “Median household income was $50,054 in 2011.”

Page 7 – http://www.census.gov/prod/2012pubs/p...

So, let’s go with that for now. All that says to me is that’s the “middle” of the middle. That’s not the high end and that’s not the low end. That’s right smack dab in the middle.

The thing is that for the longest time we were talking about the top 5% of earners in America. Then, somehow our focus across the nation became the top 1% of earners in America. The difference is not small!

By the latest data available, from the IRS in July 2011, the top 5% of earners in America made at least $154,643 in 2009. The top 1% made at least $343,927. I don’t know why all this information isn’t digital and we can’t just have a huge computer spit out up-to-date statistics in real time. But, I’m confident I can continue with these numbers. I’m sure any variation will be slight compared to the amount of money we’re talking about anyway.

To return to what Mitt Romney and Barack Obama are saying, $250,000 and below isn’t a bad guestimate at where the TOP of the middle income is. Of course, everyone below that is included except, of course, for the low income. So, while reporters and other people who are trying to discuss the topic are attempting to stomp all over the top two presidential candidates for not “understanding” where the middle income is, I think it’s the non-credible media types who don’t understand.

If you make $50,000 a year, both Mitt Romney and Barrack Obama know that you exist and that you are somewhere near the middle of the middle. The U.S. Department of Health and Human Services reports that roughly $22,000 is poverty level for a family of 4. For 1 person, it’s just under $11,000.

So, $11,000 isn’t ideal for a person living alone and trying to make it. And for most of us across America, we’d love to make $250,000 and we really don’t think people who do belong considered in the middle income with the rest of us. But, those are roughly the two extremes of middle income.

Most of the news you are getting these days is skewed in some way. The best advice I have is to listen to what all sides have to say. Even if you don’t agree with someone’s opinion, take the time to listen. Take a good look at what they’re saying before you dismiss it. You just might find yourself weighing the truths from different angles and coming to a conclusion you can comfortably believe.

Posted in: Economy, Income by michaelallen / Tags: Barrack Obama, low income, median household income, median income, middle class, middle income, Mitt Romney, top 1%, top 5%