Feb. 24, 2019
Since 1980, the incomes of the very rich have grown
faster than the economy. The upper middle class
has kept pace with the economy, while the
middle class and poor have fallen behind.
400% cumulative increase
90th to 99th
Have upper-middle-class Americans been winners in the modern economy — or victims? That question has been the subject of a debate recently among economists, writers and others.
On one side are people who argue that the bourgeois professional class — essentially, households with incomes in the low-to-mid six figures but without major wealth — is not so different from the middle class and poor. All of these groups are grappling with slow-growing incomes, high medical costs, student debt and so on.
The only real winners in today’s economy are at the very top, according to this side of the debate. When Bernie Sanders talks about “the greed of billionaires” or Thomas Piketty writes about capital accumulation, they are making a version of this case.
On the opposing side are people who believe that the country’s defining class line is further down the economic ladder. To them, the upper middle class is on the happy side, enjoying rising incomes, longer lifespans, stable marriages and good schools. Richard Reeves’s recent book, “Dream Hoarders” made this case, as did Matthew Stewart’s well-titled Atlantic article: “The 9.9 Percent Is the New American Aristocracy.”
I think the chart above helps to resolve the debate. It shows that both sides have a point — but that it’s a mistake to divide the country into only two groups. To make grand pronouncements about the American economy, you need to talk about three groups.
The first is indeed the top 1 percent of earners, and especially the very richest. Their post-tax incomes (and wealth) have surged since 1980, rising at a much faster rate than economic growth. They are now capturing an even greater share of the economy’s bounty.
Then there are the bottom 90 percent of households, who are in the opposite position. The numbers here take into account taxes and government transfers, like Social Security, financial aid and anti-poverty benefits. Even so, the incomes of the bottom 90 percent have trailed G.D.P. Over time, their share of the economy’s bounty has shrunk.
Finally, there is the upper middle class, defined here as the 90th to 99th percentiles of the income distribution (making roughly $120,000 to $425,000 a year after tax). Their income path doesn’t look like that of either the first or second group. It’s not above the line or below it. It’s almost directly on top of it. Since 1980, the incomes of the upper middle class have been growing at almost the identical rate as the economy.
If you, dear reader, happen to be in this group, I’m not trying to dismiss your economic anxieties. I know that you may not feel rich. You probably have big mortgage payments, rising medical costs and perhaps eye-popping tuition bills.
But I’d ask you to spend a minute thinking about how much more challenging life is for the bottom 90 percent. These households aren’t making six-figure incomes, and they have received only meager raises over the past few decades. They aren’t receiving their fair share of the country’s economic growth. No wonder so many feel frustrated.
And for too long, the country’s economic policy, even under Democrats, has blurred the distinction between the upper middle class and the actual middle class.
In the 2008 campaign, Barack Obama and Hillary Clinton both used $250,000 as the upper limit of the middle class. (Even in the New York area, $250,000 in pre-tax income puts a household in the top 10 percent.) Obama then delivered a tax cut for everyone below that cutoff. In the 2016 campaign, Clinton and Sanders used the same definition.
A better approach exists. Politicians should recognize that there are three broad income groups, not just two. The bottom 90 percent of Americans does deserve a tax cut, to lift its stagnant incomes. The top 1 percent deserves a substantial tax increase. The upper middle class deserves neither. Its taxes should remain roughly constant, just as its share of economic output has.
So here’s some good news: The 2020 Democratic candidates are moving in this direction.
Kamala Harris’s big tax cut applies only to families making less than $100,000. Elizabeth Warren’s child-care proposal delivers 99 percent of its benefits to the bottom 90 percent of earners, according to Moody’s Analytics. The housing plans from Harris and Cory Booker give all their benefits to the bottom 90 percent, according to the Center on Poverty and Social Policy. The tax cut from Sherrod Brown, who’s a potential candidate, is likewise focused on the middle class and poor.
Ro Khanna, a Silicon Valley congressman who co-wrote Brown’s tax plan, has a useful way of thinking about this. “Our priority has to be the working poor and those struggling to make it into the middle class,” Khanna told me. “What do the upper middle class care most about in my district? They want a pluralistic America that is engaged with the world and embraces technology and future industries. What they don’t want is a backlash to diversity, a backlash to globalization, a backlash to technology.”
The upper middle class doesn’t deserve the blame for our economic problems. But it doesn’t deserve much government help, either.
More from Opinion on income inequality: