When $100K No Longer Cuts It

Posted by - Monday, July 9th, 2012

Once upon a time, an annual income of $100,000 put you at the top. It still does, in terms of average American salary. In 2010, only 19.9% of households broke six figures.

But times have changed in terms of what you can do with that money. Pay raises have not caught up with inflation, and now what was $100,000 in 1990 is roughly $172,103.29, says Craig Guillot of Bankrate.

What was $100,000 in the '70s is now $381,000.

Inflation has affected things as basic as the cost of food and purchases as large as a home. Even the cost of health insurance has inflated 134% in just eleven years.

From Bankrate:

“These are things that everyone spent money on 30 years ago, but the percentage of what was going out of their paycheck is a lot higher now. More of the income is being taken away to pay for a lot of these things,” says [Mari] Adam [of Adam Financial Associates].

With mortgage payments, car payments, health insurance expenses, and any other additional regular costs growing as much as they have, households are spending larger chunks of their paychecks and are left with a much smaller percentage.

But for more recent purchases, families are not taking into consideration the rate of inflation. Some are purchasing, for example, homes that may have cost less and taken a much smaller percentage of their total income years ago.

And what constitutes a middle class lifestyle has also changed with technology. While cell phones were once a novelty, nowadays your average eighth grader might have a smartphone. That additional cost wouldn't have been considered in 1980.

During the Bush administration, this shift in lifestyle combined with inflation was dealt with in the form of tax cuts for people earning under $250,000, what Craig Guillot calls “the new $100,000 income.”

Now, President Barack Obama is looking to extend this for a year beyond the January 1, 2013 expiration date currently in place. Though he said in 2010 that he would not extend the cuts further, he is expected to announce another push for an extension today.

Obama's 2012 Presidential campaign places focus on the middle class and working American. His proposed “Buffett Rule” to raise taxes on the very wealthy was shot down earlier this year. But he won't stop pushing for it.

From CNN:

“We have got to make sure that those of us who can afford to do a little bit more, because we have been so blessed by this country, that the wealthiest among us can pay a little bit more to help close this deficit,” Obama said at a campaign stop in Poland, Ohio, on Friday.

And for those who can't afford any more, Obama might continue to alleviate the burden.

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