What Defines the Top 1% of Income?

(Image Source: Avinash Kumar / Unsplash)

Wisconsin IDEA

Insight • Data • Economics • Analysis

Income Earners Making $462,926 or More Make Up the Top 1% within Wisconsin

Over the last several decades, a common frustration with the U.S. economy is that much of the benefit of economic growth flows to individuals at the highest income levels. While evidence of rising income inequality across the U.S. and Wisconsin is solid, there remains a lack of understanding about how changing income thresholds determine high incomes. If the concerns are true and much of the economic growth is going to the top one percent, what defines the top one percent? Another way to consider this question is to ask how much income is needed to be in the top one percent.

Figure 1. Income Threshold for Top 1%, US and Wisconsin, 1917-2020
Data Source: Mark Frank, Sam Houston State University

Using data compiled by Mark Frank at Sam Houston State University, we can track the income threshold for the top one percent in Wisconsin and the U.S. from 1917 to 2020. After adjusting for inflation, an income of $110,892 was required to be in the top one percent in 1917 in the U.S., while the threshold for Wisconsin was noticeably lower at $77,339. Over time, these threshold levels have consistently increased. By 2020, the threshold had risen to $541,277 for the U.S. (an increase of 388.1%) and $462,926 for Wisconsin (an increase of 498.6%).

In 1917, 17.7% of total income flowed to the top one percent at the national level, and 14.2% of Wisconsin’s income flowed to the top one percent. By 2020, the share of income flowing to the top one percent nationally increased to 23.6%, and in Wisconsin, it increased to 17.2%. There are two reasons for this increase. First, as the economy grows, overall income increases, and consequently, the thresholds for high income rise as well. Second, there is evidence that a growing share of total income is going to the top one percent.

Whether the highest income households (IRS tax filers) are disproportionately benefiting from economic growth is subject to interpretation. The trend of increasing income thresholds and a larger share of income flowing to the top one percent underscores the ongoing concerns about income inequality. But is a disappropriate share economic growth is going to those in the highest incomes is subject to interpretation.

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