How Can 98 Percent of Us be Middle-Class?

By :: November 26th, 2012

Congress and President Obama can't agree on much, but they agree on this: Congress must preserve what they persist in calling middle-class tax cuts. As most TaxVox readers know by now, the red lines in this debate are for singles making about $200,000 or less and couples filing jointly making $250,000 or less.

By this standard (invented by Obama but embraced more or less by Democrats and Republicans) if you make more than these limits, you are rich. Make less, and you are just a regular working stiff trying to hang on 'til your next paycheck.

Except this is fantasy.

My Tax Policy Center colleague Georgia Ivsin ran the numbers, and this is what she found: In 2013, 99.3 percent of single filers will make $200,000 or less—just 0.7 percent will make more. Also next year, 96.4 percent of joint filers will make $250,000 or less—fewer than 4 percent will make more. Overall, 2 percent of households are rich. The other 98 percent are middle-class (or poor) and deserve to have their tax cuts protected.

If percentages make you nervous, think of it this way: In 2013, there will be 158 million households (we call them tax units). By the $200,000/$250,000 standard, fully 155 million would be un-rich and thus exempt from any tax increases.

In Washington’s weird, upside-down Lake Wobegon world, two percent of us are rich, and thus, according to Obama, should pay more. Ninety-eight percent of us should not.

Btw, TPC based the $200,000/$250,000 thresholds on adjusted gross income and increased them for inflation so, for instance, the income cap for couples is $266,000 in 2013. Other estimates may use a different definition of income but whatever you measure, the overwhelming majority of households are middle-income according to the consensus trope.

For a bit more context, the Census bureau reports that median household income in the U.S. was about $50,000 in 2011. For a single man, it was roughly $37,000, for a single woman it was only about $26,000. Yet, Congress and the President have defined middle-income as married couples making five times the median. Single women get to keep low taxes if they make nearly eight times the median.

I get that in places like New York, LA, and Washington, $250,000 may seem middle-class. But get a grip: Folks in Toledo think this is nuts.

The politicians can all have a good argument over whether they should raise taxes on anybody, or over how much they should be raising taxes relative to how much they should be cutting spending. They can even fight over whether some households should be exempt from tax increases. But can they at least stop claiming that 98 percent of us are middle-class?

 

 

7Comments

  1. Will Lewis  ::  8:33 pm on November 26th, 2012:

    “There are three classes in America: the lower middle class, the upper middle class, and the middle class. They all have one thing in common: they hate the middle class.” -I forget who said it…

    Maybe it’s a question of share of income and income inequality? In 2005, the top 1% enjoyed 18.1% of the pre-tax income in the U.S., the top 20% enjoyed 55.1% of pre-tax income, and the 20-80% enjoyed 41.6% of pre-tax income. The inequity in the tax code that President Obama and the Democrats are trying to address is income inequality, and incomes become very unequal above some number such that a person earning $249,000 per year does not have the opportunity to live an extravagantly different lifestyle from someone earning $50,000 per year, but someone earning $1 million per year has that opportunity. Someone has decided that the top 2% or $250,000 has a nice, palatable ring to it. Essentially it sounds like a tax on the rich in the states where the votes matter. And a tax on the top 1% is too clearly class warfare and too closely associated with rioters in Oakland.

  2. Michael Bindner  ::  8:56 pm on November 26th, 2012:

    The top two percent could be called wealthy, while the next 15% could be considered upper middle class. I agree that their taxes should go up, but the political class never will since upper middle class earners are also responsible for a large share of political donations. Only a party which acknowledges that there is such a thing as a working class and that they are losing out by not having a more robust government sector funded by the upper middle class will mention this.

  3. Vivian Darkbloom  ::  4:28 am on November 27th, 2012:

    If one wants to increase revenue through raising tax rates (or eliminating deductions) it is completely irrational from a sound policy perspective to focus on one arbitrary point in the income scale (which is itself often arbitrary in that it depends on how “income” is calculated). However, as a political strategy pitting 98 percent of the population against 2 percent and promising the former they will never pay higher taxes (or suffer lower spending) is a completely rational *political* strategy. It has worked brilliantly for the past two presidential election cycles, so why change it?

    How and where did this tax policy nonsense get started? It was on September 12, 2008 in Dover, New Hampshire, one day after the anniversary of a different disaster:

    “I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

    And, who said that? No, it wasn’t Grover.

  4. Andrew Redenbach  ::  12:26 pm on November 27th, 2012:

    So, I have in my mind this picture:

    A bell curve. If the upper tail (of 2%) are rich, then the lower tail (of 2%) must be poor. Something tells me that the lower tail is much larger than 2%, relatively speaking.

  5. Tax Roundup, 11/27/2012: Rocking Sheldon! And billionaires and millionaires « Roth & Company, P.C  ::  12:27 pm on November 27th, 2012:

    […] Gleckman, How Can 98 Percent of Us be Middle-Class? (TaxVox) Angus Young (Wikipedia […]

  6. Ralph H  ::  1:57 pm on November 27th, 2012:

    Amazing that a “credible” candidate can run promising the fiscal solution only affects 2% of us and he was judged the one with the best idea! It either says Mr Romney was such a poor candidate or that the general population is delusional. Once this does not work, what is next?

  7. Nathanael  ::  12:00 am on December 2nd, 2012:

    The key issue here is the shape of the income distribution.

    When there are thousands men collecting $5 million a year, or $50 million a year, anyone collecting less than $500,000 a year is basically poor.

    The class distinction between the extreme superrich elite living in Richistan, on the one hand, and everyone else on the other hand: this is the only distinction which matters, because it’s so much larger than the distinction between the person with $500,000 a year and the homeless person with nothing.

    Only the superrich elite can buy politicians.