Who’s rich? Who’s middle-class? How can you tell the difference? By the “upper class,” do we mean the yacht-club set, the ascot-wearing folks with lockjaw diction? Or does the upper class include all those harried, two-income suburban families who somehow burn through 200 grand a year and fret about orthodontist bills?
Class, always an awkward topic in the United States, made a cameo appearance at a recent candidates debate in Las Vegas.
Democratic presidential contenders Sen. Barack Obama and Sen. Hillary Rodham Clinton sparred over tax policy and quickly got entangled in the question of whether someone making more than $97,000 a year is middle-class or upper-class.
That’s upper-class, Obama said. Not necessarily, Clinton suggested.
Former Sen. John Edwards didn’t join in this particular discussion, but since his initial announcement almost a year ago in New Orleans, he has been the bluntest of all the candidates in describing a country divided between the haves and the have-nots.
Government statistics show that most households’ income has declined, in inflation-adjusted dollars, since 2000. Many workers’ jobs have been outsourced to other countries, even as a new class of tycoons, the managers of hedge funds, has found a way to pay only a 15 percent marginal tax rate.
Still, if there are political opportunities here for Democrats, there are also hazards. Candidates don’t want to lose votes by advocating a tax increase on the not-really-that-rich. The basic question: Who, exactly, can afford to pay more? Who is rich?
The tax question
Discussions about taxes usually have a class subtext. For instance, Republicans generally want to preserve or expand President Bush’s tax cuts, which lowered marginal rates across the board but gave the largest benefits in real dollars to the richest Americans.
The exchange between Obama and Clinton began when the senator from Illinois said he was open to adjusting the cap on wages subject to the payroll tax. That’s the tax that the government prefers to call a “contribution” to Social Security. Under current law, a worker pays a flat percentage (and employers match it) of wages up to $97,500. Wages beyond that aren’t taxed.
Clinton responded by saying that lifting the payroll tax would mean a trillion-dollar tax increase, adding that she did not want to “fix the problems of Social Security on the backs of middle-class families and seniors.”
Obama replied: “Understand that only 6 percent of Americans make more than $97,000 a year. So 6 percent is not the middle-class. It is the upper-class.”
Clinton: “It is absolutely the case that there are people who would find that burdensome. I represent firefighters. I represent school supervisors.”
Obama doesn’t want to lift the payroll cap entirely, according to one of his campaign’s senior advisers. Rather, Obama has said he would consider a “doughnut hole” arrangement, in which people would not have to pay any additional payroll tax until they had made at least $250,000 or $300,000. The adviser said of Obama: “He has always said that the people he expects to pay their fair share are households with income above $250,000.”
Clinton has cited that same figure, saying households with income above $250,000 can pay the marginal rates set in the 1990s when her husband was president. She would also give married couples with estates worth less than $7 million an exemption from the estate tax.
Tuition or horses?
As for how people see themselves, location is key.
Online calculators allow anyone to make an instant city-to-city cost-of-living comparison. One such Web site calculates that someone making $97,500 in Washington, D.C., could live just as comfortably on $67,846 in Ames, Iowa.
Median household income in America in 2006 was $48,201, which, adjusted for inflation, is lower than it was in 1999.
Edward Wolff, a professor of economics at New York University, thinks that the middle class in a major city includes people in households with incomes from $40,000 to $100,000. From there, up to $200,000, people are “upper-middle-class.” They all have difficult financial issues to contend with, from health-care costs to college tuition.
“Financial stress: That’s the key ingredient,” Wolff said.
People making $200,000 to $350,000, he says, could be considered rich, but they still have to slog to work every day. To be really rich, in Wolff’s scholarly judgment, you need not only an income upward of $350,000 a year - you also need at least $10 million in accumulated wealth.
“These are people who can basically live off their wealth and don’t have to work. You’re talking about the top half of 1 percent,” Wolff said.
Jared Bernstein, senior economist at the liberal Economic Policy Institute, said that no one knows the exact parameters of the middle class, but that in general they are defined by what he calls an “aspirational package.”
“The middle-class aspirations include a decent home in a good neighborhood with a good school, and the ability to save for college and to make sure that your children have the opportunities to put themselves on a path to match or exceed yours,” Bernstein said. “If you’re upper-class, you think about whether you want to move your horse from one barn to another barn.”
Robert Frank, who covers the rich as a full-time beat for The Wall Street Journal, said being rich comes with certain requirements:
“You have to have at least two homes,” Frank said. “You have to have a household staff of some kind, and/or a personal assistant. You send your kids to private schools. You give to charity and attend charitable events. And you travel. You travel globally. You go to Europe at least once a year, and perhaps Asia.”
Or even conquer gravity itself, he said.
“The new status symbol for the rich,” Frank said, “is going to space.”
