I recently read an article entitled $250,000 a Year is Not Middle Class. The author argues that because families who make $250,000 per year earn more than most Americans, an income of $250,000 is not middle class. The implication is that these “elite” earners need to be taxed more than they are currently being taxed.
The author completely ignores three important factors:
• Family Size
• Student Loan Debt
Is $250,000 a good chunk of change? Yeah, it sure is. I wish my hubby and I had a combined income of $250,000. Heck, even half of that income would be awesome. We would be able to pay off our student loans way faster if our incomes were that high.
But do I consider $250,000/year to be wealthy?
A young couple, Susan and Alan, earn a combined income of $30,000/year. They both work for minimum wage and they never went to college. Neither of them have student loans or any other form of debt. They don’t have kids. They live in a small town in Iowa and rent a one bedroom apartment for $400/month.
If this couple saw my husband’s and my combined high five-figure income, they might assume that we’re well off financially. They might think “Wow, if only we could live like them! They must be living great!”
Would they be right?
My husband and I earn “good” incomes but we do not make enough money to live on – when you factor in our enormous student loan payments. Our debt load is extraordinarily high, and we also live in an expensive urban area where even studio apartments cost over $1,000/month (including utilities).
So, I may look at a couple who earns $250,000/year and think that they have it made. Would I be right? Maybe. Maybe not.
What if they live in an expensive area of the US? What if they have five young children who are all in daycare? What if they are both lawyers who are buried in law school debt? What if they owe $400,000 in student loans?
[callout title=” text=’Many high earners have advanced degrees – which means there is a good chance that they also have massive student loan debt.’ button_text=” button_link=”]
It is irresponsible to assume that $250,000 is not middle class in ANY situation.
The cost of living varies widely between different parts of the US. Family size is obviously another important factor – the cost of daycare is ludicrously expensive.
Lastly, many high earners have advanced degrees – which means there is a good chance that they also have massive student loan debt.
I totally agree that education debt should be taken into account when considering any thresholds/limits/tax changes. Especially when larger incomes are looked at. In Australia education debt seems to be handled better or at least is at better levels than in the US. Basically you get a loan from the government that has an interest rate of whatever inflation is. You start automatically paying off that loan after you start earning over a level. The more you earn the more you pay off. It is taken out just like income tax is (more or less).
Student loan debt (or lack thereof) definitely makes a huge impact on someone’s financial status. It’s interesting how Australia handles student loan debt. I didn’t know that. Thanks for sharing!
At the beginning of the post I was ready to disagree with you, but you’re right: typically higher earners have advanced degree. And not every high earner had Mom and Dad to pay off their college years. I think people would have a similar view of my wife and I, but honestly we pay a lot in student loans and we both are getting masters (her in counseling and me an MBA).
It’s frustrating when the government looks solely at income and ignores student loan debt. I personally know a few young doctors and lawyers who are struggling financially because of massive debt. I have a master’s degree, and most of my friends who don’t have master’s degrees make less money than I do. Yet many of them are doing much better financially than I am – because they don’t have any debt.