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MILSTEAD: Obama's middle class makes $250,000

By David Milstead, Rocky Mountain News (Contact)

Published September 2, 2008 at 9:05 p.m.

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What does it mean to be middle class?

Let's look at a snippet of Sen. Barack Obama's acceptance speech last week at Invesco Field to see how the oft-used term fits into the Democrats' policies.

"I will - listen now - I will cut taxes for 95 percent of all working families, because in an economy like this, the last thing we should do is raise taxes on the middle class," Obama told the cheering throngs.

Fair enough. But note something internally inconsistent in that sentence: Only 5 percent of "working families," as Obama says, will not see a tax cut. The rest, up to the 95th percentile of household income, get grouped into the "middle class," per Obama's speech.

I am not putting words into the Democratic nominee's mouth: His official policy, as outlined by his economic adviser Austan Goolsbee last week in Denver, is tax cuts for households with income up to $150,000, no change in taxes for households between $150,000 and $250,000, and tax increases for families making above $250,000.

We have come to this in America, where the highest-income households can be considered "middle class" even by the Democratic Party. (We will not ascribe to all Republicans John McCain's gaffe that one needs $5 million in income to be considered "rich," particularly since McCain seemed to be joking at the time.)

Let's look at this literally, and simply. If there are such things as "lower," "middle" and "upper" classes, should we not look at household income in thirds - namely, the lower third, the middle third and the upper third?

The results may surprise. Using 2006 household income data from the Census Bureau, I estimated where the 33rd percentile and the 67th percentile fall. The lower third of household income stops at about $31,700. And the middle third of household income stops at about $70,400. Families making above $70,400 are in the upper third of income, whether they realize it or not. A family income of $250,000 puts you ahead of 98 percent of American households.

Stop before you write your angry e-mail. This analysis indeed ignores cost-of-living issues, family size and accumulated wealth (after all, some number of those low-income households are retirees drawing small amounts from retirement accounts).

To be even fairer, the handful of economists I contacted think dividing America into three equally sized classes cuts the population too strictly.

Tucker Hart Adams says it's far more typical to put the lowest and highest 20 percent in the lower and upper classes, leaving the vast 60 percent in between as the middle class. CU's Rich Wobbekind says high income would certainly be more than $70,400, and wealth should be considered as well.

And Alan Reynolds of the libertarian Cato Institute, author of the textbook Income and Wealth, says, "Surveys show that almost everyone thinks of themselves as 'middle class' or 'upper middle class.' Very few households in the top 10-20 percent think of themselves as rich, and they may be right."

Goolsbee, the University of Chicago economist who advises Obama, acknowledges the basics of the household-income data but says he likes to look at income growth measures. They show that only the highest American earners have seen meaningful gains in income in recent years, he argues.

Indeed, what works for Obama is that there are plenty of people whose household incomes exceed $100,000 - the 81st percentile - who don't feel so fortunate, no matter what the data say. In America, class seems to be an elusive and self-defined concept.

That allows liberal Democrats to propose "middle-class tax cuts" for 95 percent of the population.

David Milstead and James Paton take turns writing Up and Down 17th Street. Contact Milstead at 303-954-2648 or milstead@RockyMountainNews.com.

American wages

Percentages of U.S. households below certain income levels:

* Under $10,000: 7.5%

* Under $20,000: 19.3%

* Under $30,000: 31.0%

* Under $40,000: 41.9%

* Under $50,000: 51.4%

* Under $60,000: 59.6%

* Under $70,000: 66.4%

* Under $80,000: 72.3%

* Under $90,000: 77.0%

* Under $100,000: 80.9%

* Under $150,000: 92.4%

* Under $200,000: 96.5%

* Under $250,000: 98.1%

Comments

  • September 3, 2008

    11:21 a.m.

    Suggest removal

    ActualThinker writes:

    I'm not sure why there is an article slamming Obama's definition when the ONLY definition McCain has put forth is $5 million.

    It is an interesting article though. I think the biggest skewering of this data though is that 10% of American's own 70% of the wealth. So I don't think it would be fair to break it in to thirds, I think labeling the top 10% of American's income in to upper class would be somewhat fair which is right around $140K last I read. This doesn't add up to Obama's definition, but is more fair than even thirds. More accurate would be to break up in to more than three categories though as the guy who makes $200K and the guy who makes $2 mil are in completely separate boats, and yet treated the same.

  • September 3, 2008

    12:42 p.m.

    Suggest removal

    SirRealist writes:

    I'd like to see something more along the lines of a fair, graduated level of taxes based on the old system of the progressive tax. Here's an example, and numbers could be moved around of course, but I believe that IN NO CASE should the taxable amount be higher than 30%:

    $0 to $15,000 - 3%
    $15,001 to $25,000 - 6%
    $25,001 to $60,000 - 12%
    $60,000 to $120,000 - 22%
    above $120,000 - 30%

    So, for a person/couple who have $50,000 in taxable income, it would be 3% of 15k, 6% of 9,999 (the amount from $15,001 to $25k), and 12% of $34,999 (the amount from $25,001 to $50k) which would be $450 + $599.94 + $4199.88 = $5249.82

    Of course, I'd really like to see lower overall rates for everyone, ideally maxing out at maybe 20 to 22%. There are many ways of looking at taxes, but I just don't think it's fair to tell the wealthy that as much as 50% of their money should go to the government. Incentive is what makes our system work, and the higher the tax rate goes at any level, the less incentive there is.