MacroMonitor Market Trends January 2013

MacroMonitor Market Trends is a newsletter from Consumer Financial Decisions (CFD) that highlights topical news and trends of interest to you and your colleagues. If you would like more information about the topic in the newsletter or would like to discuss other ways that we can assist you in your research or marketing efforts, please contact us.

High-Earner Households: Taxes Are Going Up

As the law about federal income tax rates changes, it is important to remember that households with annual earnings of $250 000 or more—the initial White House proposed tax threshold—represent the top 2% of all US households; households with earnings of $500 000 or more represent 0.3% of households, and households earning $400 000 or more represent fewer than 1% of households. To help understand the number of households potentially affected by tax-rate changes, it is revealing to trend households with incomes of $250 000 or more over the past two decades.

When one adjusts for inflation, the "Uh-ohs"—between 2002 and 2008—had about twice as many High-Earner Households as did the 1990s. Since the Great Recession of fall 2008 and the lackluster economic recovery, the number of High-Earner Households remains well below 3 million.

Trend in number of Households with Annual Income of $250,000 or More

The headline about these households is that slightly more than 25% report, "I have more than I need." An additional 39% say they are financially secure. Overall, the majority (74%) are satisfied with their current financial situation. Annual income is different from net worth. But households with annual incomes of $250 000 or more have a net worth (mean amount $3.5 million) ten times that for all US households.

For the majority of high-earner households, changes in income-tax rates will not greatly change their financial situation or lifestyle. Closing tax loopholes would affect these households to a greater degree than would tax-rate changes. However, tax-rate changes will likely increase their desire to find tax-deferred and tax-exempt products—a potential opportunity for financial-services providers.

MacroMonitor sponsors may access a Segment SummaryThe Top 2%—on Strategic Business Insights' CFD website and may request a full presentation about these households. To learn more about High Earner Households and other segments, or for answers to other questions, please contact CFD.