During the presidential campaign, the word “poverty” was rarely mentioned. The term, “middle class,” however, was ubiquitous.
The trend has only increased since Election Day.
As he attempts to justify raising taxes on upper-income earners — while framing it as a method to preserve middle class tax cuts — President Obama is engaging in a sort of class warfare.
Consider a few recent headlines:
“Biden, at Costco, calls for middle class tax cut“
“Pelosi Urges Vote on Middle Class Tax Relief“
“President Obama: Middle class tax cuts too important to screw up“
(As I noted the other day, it seems Obama is consciously attempting to re-cast the Democratic Party as the party of middle class tax cuts.)
Pandering to the middle class is smart politics — so smart that both parties do it.
Aside from the obvious point that you pander to the largest number of likely voters available, attention paid to the middle class is premised on the notion that this cohort has been stagnating for decades.
But are middle class Americans really worse off than they were in the past?
This spring, Richard V. Burkhauser, a professor of policy analysis and management at Cornell University, along with Jef Larrimore, and Kosali I. Simon, authored an important paper that pokes holes in the premise.
According to the team, when you look solely at IRS data on pre-tax income, it indeed appears the middle class has stagnated in recent decades.
But statistics buttressing this argument do not typically account for government transfers (entitlements, etc.) — or an increase of non-monetary in-kind benefits (healthcare, etc.) as compensation.
Compensation packages — including employer-provided health insurance — have become almost de rigueur in the last fifty years. Yet this is typically not counted as “income.”
Additionally, Burkhauser argues that the government’s methodology of counting “tax units” instead of “households” skews the data.
For example, suppose you make $250,000 and have an elderly father who lives with your family. He collects only social security, and is not counted as a dependent on your taxes — ye lives in your “household.”
In this hypothetical scenario, should your father be considered to have fallen from the middle class into poverty? … And should you be considered the 1 percent?
According to Burkhauser, the trend of more and more people living together (and enjoying economies of scale) — yet not being lumped together for tax purposes — accounts for a dramatic discrepancy in how we view the middle class.
This, of course, does not mean the Bush tax cuts for middle class Americans should expire. But it does undermine the notion that this group has been hit especially hard, while the fat cats have only gotten richer.
(It might also buttress the argument that we should disconnect health care insurance from employment — and let employers compete for workers based on cash — not benefits.)
For more information on Burkhauser’s paper, read Jim Pethokoukis and listen to Burkhauser’s appearance on EconTalk.
