As much as we hear about economic inequality and how much the top 1 percent makes in income, Americans are well off compared to the rest of the world. We rank 6th in the world with a median household income of roughly $44k, while the median household worldwide is $9.7k.
Warren Buffett claims he won the ovarian lottery by being born in the United States, the country has boomed during his life, and the economy continues growing at a healthy pace.
Even if you are making the median household income of $44k, you’re still in the world’s richest 5%, and are making over 4x the global median household income.
Below is a breakdown of how much each percentile makes in pre-tax income, as well as the taxes they pay as their income increases.
How Much Each Income Percentile Makes
Below is how much the top individual earners make, according to a 2018 study by the University of Minnesota.
| Percentiles | Pre-Tax Income |
| Top 1% | $301k |
| Top 2% | $226k |
| Top 5% | $153k |
| Top 10% | $114k |
| Top 25% | $69k |
| Top 50% | $39k |
How Much Taxes Do the Top 1% Pay?
The top 1 percent of income earners paid $90k in federal income taxes in 2018, paying an effective tax rate of nearly 30%. State taxes could add up as well, especially if you live in high tax states like New York or California.
California residents who made $301k in 2018 would pay another $25k in state taxes as well, which increases their effective tax rate to 38.2%, or $115k.
There are definitely worse things in life than taking home $186k after taxes, so let’s see how much our tax rates effect each income group in California.
| Percentiles | Pre-Tax Income | Total Taxes | Take Home Income |
| Top 1% | $301k | $115k | $186k |
| Top 2% | $226k | $80k | $146k |
| Top 5% | $153k | $49k | $104k |
| Top 10% | $114k | $35k | $79k |
| Top 25% | $69k | $17k | $52k |
| Top 50% | $39k | $7k | $32k |
Income Taxes Escalate Quickly
As you can see, your tax bill escalates quickly as you make more money. In fact, the top 1 percent of income taxpayers paid nearly 40% of all income taxes even though they accounted for just 20% of the overall income in the United States. Finally, over 44% of Americans won’t pay any federal income tax in 2018.
Moreover, these accelerating income tax rates create an interesting quagmire for the top 1%. Specifically, income has a diminishing marginal utility just like anything else, and this is exacerbated by each incremental dollar being taxed more. Taxes are a massive wealth destroyer as your income increases, which is why so many high earners proactively lower their taxes to preserve their wealth.
To illustrate this, NPR’s Planet Money released a Podcast called the No Brainer Economic Platform back in 2012. Specifically, five of the brightest economists across the political spectrum agreed on economic policy. All five agreed that there should be no income tax because it harms productivity. While the economists agree, just imagine how people would react if that would be enacted tomorrow.
At any rate, for better or worse, this is the system we’re stuck with.
How Much Income The Top 1 Percent Makes – The Bottom Line
The top 1 percent made $301k worth of income in 2018, which is nearly 8x the median income of $39k. Americans are doing well overall, with the median household income being over 4x the global median income of $10k.
While achieving the top 1 percent of income is a great aspiration, it means nothing if you spend all of the money. Above all, your end goal is to maximize your net worth, and that can only be done by increasing the amount you save. Although it’s easy to give in to lifestyle inflation and spend more as you make more, you net worth will explode if you save that money instead.