Today I took the time to read through Barack Obama's Blueprint for Change. Much of it I agree with wholeheartedly; some of it I agree with with reservations. There is one thing in it that bothers me, though, and it's a beef I have with many politicians, not just Obama. And that is the apotheosis of the "middle class," which I am not convinced is a useful category anymore.
Instead, I believe it's better to think in terms of four socioeconomic categories that reflect actual financial circumstances rather than social aspirations: poverty, subsistence, comfort and luxury.
In his Blueprint for Change, Barack Obama invokes the "middle class" several times:
"He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners." (11)
Tax Cuts for Wealthy Instead of Middle Class
The Bush tax cuts give those who earn over $1 million dollars a tax cut nearly 160 times greater than that received by middle-income Americans. At the same time, this administration has refused to tackle health care, education and housing in a manner that benefits the middle class. (12)
Provide Middle Class Americans Tax Relief
Provide a Tax Cut for Working Families: Obama will restore fairness to the tax code and provide 150 million workers the tax relief they need. Obama will create a new "Making Work Pay" tax credit of up to $500 per person, or $1,000 per working family. The "Making Work Pay" tax credit will completely eliminate income taxes for 10 million Americans.
Simplify Tax Filings for Middle Class Americans: Obama will dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes. Obama will ensure that the IRS uses the information it already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return. Experts estimate that the Obama proposal will save Americans up to 200 million total hours of work and aggravation and up to $2 billion in tax preparer fees. (12)
Reverse Bush Tax Cuts for the Wealthy: Obama will protect tax cuts for poor and middle class families, but he will reverse most of the Bush tax cuts for the wealthiest taxpayers. (29)
The problem with this is twofold: First, it generally implies that the needs of this "middle class" are paramount, not those of people who are economically even worse off. (To Obama's credit, he also devotes an entire section of his blueprint to fighting poverty.) Second, the definition of "middle class" is so fuzzy as to be useless. According to the U.S. Census, the median household income in 2006 was $48,201 -- yet you'll find families earning half that which consider themselves "middle-class," and you'll find families earning five times that which also consider themselves "middle-class" (or perhaps "upper-middle-class," if they're unusually honest with themselves).
My college sociology textbook (Sociology: An Introduction, 3rd edition, by Bassis, Gelles and Levine) provides the following breakdown:
In general, these studies show that the U.S. population is divided into five social classes (Rossides, 1976). The upper class (1-3 percent of the population) is a small, exclusive collection of famioies who have accumulated wealth and advantages over a number of generations. Although many hold top positions in business and government, their class identity depends more on who they are than on what they do. The upper-middle class (10-15 percent of the population) consists of top-level executives and educated, highly paid professionals who have realized the American dream of success. Although they may have had advantages as children, they are career-oriented and live off their salaries and wits (not inherited wealth and family name). Members of this class are often active in politics and cultural institutions. The lower-middle class (30-35 percent of the population) is composed of small business owners, semiprofessionals (nurses, police, clergy), middle management, and clerical and sales workers. They have white-collar jobs, but their authority and opportunities for advancement are limited. . . . They hope their children will go to college but do not expect this. The working class (40-45 percent of the population) is made up of skilled and semiskilled workers who are more or less steadily employed in a trade or factory. Whereas other Americans see their jobs as a source of prestige or respectability, members of the working class tend to see a job as something a person has to do to earn a living. . . . The lower class (20-25 percent of the population) is a varied collection of unemployed and underemployed individuals, deserted mothers, and physically or mentally sick or handicapped persons. What they have in common is their "worthlessness on the labor market," their poverty, powerlessness, and low status (Rossides, 1976, p. 460). Given their precarious economic position, the extended family and friendship networks whose members can be called on for help in getting from day to day take on added importance. (262-63)
In other words, we have a category consisting of 40 to 50 percent of the population -- and mind you, this textbook is 20 years old, and the study it cites above is 32 years old -- that is supposedly "disappearing" and in urgent need of assistance from the federal government, consisting at least in part of substantial tax relief.
I think this all misses the point -- and is deeply muddled by aspirational ideas of "class" that hark back to outdated definitions brought over from Merry Olde Englande, as well as a failure to consider actual financial circumstances. For instance, when manufacturing and the skilled trades were healthier in this country than they are today, it was not unusual for a unionized factory worker or tradesman to earn substantially more than certain white-collar professionals (or, as the textbook rather dismissively calls them, "semiprofessionals"), such as teachers, journalists and even civil servants.
American communities today are no longer so small and tightly knit that socioeconomic class is a function of family and professional dignity, and anyway, these are not issues that can be addressed by government policy. The more crucial factors today are security, flexibility and opportunity.
This is where the four categories poverty, subsistence, comfort and luxury come in. They are matter-of-fact descriptors of the economic security, flexibility and opportunity of a worker or household.
Poverty is the state of not having enough resources to meet one's basic needs of food, shelter and dignity.
Subsistence is the state of being able to meet those basic needs but not to move beyond them.
Comfort is the state of being able to meet basic needs and to enjoy the benefits of additional discretionary income.
Luxury is the state of having sufficient resources never to have to concern oneself with meeting basic needs and to be able to focus entirely on discretionary spending instead.
Some further illustrations should clarify the distinctions between these income categories:
- Income - If you live in poverty, your income probably comes from hourly wages, perhaps supplemented by income assistance and/or under-the-table earnings; everything you bring in goes toward necessities (real or perceived). If you live in subsistence, your income comes from an hourly wage or a low annual salary with minimal benefits, and again, everything you earn goes toward necessities (real or perceived). If you live in comfort, you earn an annual salary or a very high hourly wage, with substantial benefits and the occasional bonus; you can cover your necessities with a significant amount of discretionary income left over. If you live in luxury, not only do you earn an annual salary with substantial benefits, you probably earn significant income from bonuses and investments as well -- perhaps even greater than your salary -- and a large portion, perhaps the majority, of your budget is discretionary.
- Savings - If you live in poverty, you have none, or what you have you can keep in a coffee can. If you live in subsistence, you may have some, but rarely enough to accumulate, and certainly not enough to retire on. If you live in comfort, you probably have a savings account and a retirement account. If you live in luxury, your extra income goes into a variety of high-yield investments.
- Housing - If you live in poverty or subsistence, your home is not an asset. You rent, or you own a trailer or some other form of home that depreciates. Additionally, if you live in poverty, you may receive some form of housing assistance or live in subsidized housing, and your home is probably overcrowded. If you live in comfort, you own your own home or could if you chose to. If you live in luxury, you own your own home and may own or rent one or more additional homes as well.
- Transportation - If you live in poverty, you probably take public transportation or drive a heavily used car. If you live in subsistence, you probably have a drivable used car, maybe two. If you live in comfort, your household probably has more than one car, at least one of them new or leased and higher-end (a mid-size, SUV or minivan). If you live in luxury, your household probably has a car for every driver, all of them new (or collectible), higher-end and owned outright.
- Security - Ironically, if you live in poverty, a catastrophic event might be less hard on you than if you lived in subsistence, because you're already dependent on aid from others to get by day-to-day. If you live in subsistence, you have no flexibility with which to survive a catastrophic event -- it will destroy you financially for many years to come. If you live in comfort, your savings and insurance are enough to allow you to survive a financial catastrophe, though it may be a severe inconvenience for some time. If you live in luxury, the kinds of events that would be catastrophic to others cause you no anxiety, because you have the financial resilience to deal with them; an event that would be genuinely catastrophic for you would be far outside other people's experience.
- Financial Knowledge and Access - If you live in luxury, you are connected through work and family to a network of people with financial expertise; thus, you have access to investment opportunities and vehicles that other people don't even know about. If you live in comfort, you probably know the basics of saving, investing, and buying and managing assets, including real estate, but you do these things through a professional financial adviser. If you live in subsistence, you probably have much less financial knowledge: you can take out a car loan, open a savings account or buy insurance, but you may not know the full range of options available to you or recognize when you're getting a poor deal. If you live in poverty, you probably have no knowledge of the financial world and are systematically exploited by high-rate lenders. You have little or no access to legitimate sources of credit; there is still a good chance that you may be a victim of redlining.
- Educational Opportunity - If you live in poverty, chances are your school is underfunded, understaffed, overcrowded and run-down, and the main thing it has taught you is to follow rules and directions; no matter how talented, intelligent or hardworking you are, it will not prepare you for higher education, which is likely to be a community college. If you live in subsistence, you'll be slightly better prepared for higher education, having been taught in your public or parochial school that the important thing is to get the right answers, but you will probably have to work to put yourself through the state university, which may take its toll on your ability to complete your degree program. If you live in comfort, you're well-prepared for college, having attended a public or private day school that taught you to be creative and independent, and your family will probably be able to put you through the state university out of pocket, or through a private university or liberal arts college with the help of student loans. If you live in luxury, you attend a very well-funded public school or exclusive private school that teaches you to be an independent and analytical thinker, and paying for whatever college you can get into is not an issue.
You get the idea. In every case, the picture of poverty is one of deprivation of basic needs and opportunities and dependence on others; the picture of subsistence is one of running madly on a treadmill to stay in the same place; the picture of comfort is one of dignity, security and forward movement in the pursuit of happiness; and the picture of luxury is one of having access to every opportunity that exists and never having to worry about the little things.
So this idea of there being a "disappearing middle class" is, I think, an inarticulate expression of a fundamental truth that is much clearer when viewed through this lens:
When we hear the words "middle class," when we imagine the "middle-class lifestyle," we think of comfort. And the combination of falling incomes and rising insecurity in America is causing people who are accustomed to living in comfort to slip down into a state of subsistence, and causing people who are accustomed to living in subsistence to fall over the edge into poverty.
Debt explodes as people cling desperately to the standard of living to which they're accustomed, taking advantage of easy credit offered by the owners and operators of the financial industry, the luxury class. Meanwhile, those who live in luxury don't appear to be losing ground at all -- on the contrary, they're gaining. And as always, the needs, desires, hopes and dreams of those living in poverty are disregarded.
So let's not have anymore of this talking about "saving the middle class," because it's completely beside the point -- for crying out loud, we have people living in luxury who nevertheless think of themselves as "middle-class." The notion is no longer useful. Instead, let's focus on getting people up out of poverty into a state of subsistence, at least for the time being, while giving the subsistence class the security, flexibility and opportunity that are now enjoyed by the comfort class.
I'm pleased to say that many planks in Barack Obama's platform will accomplish this. However, in place of his "middle-class tax cut" policy, I would suggest instead a new bracketing of the graduated income tax, as follows:
- No income tax on income up to the line between poverty and subsistence, and an EITC calculated to elevate a poverty-level income to this amount.
- A nominal rate on income between the poverty/subsistence and subsistence/comfort lines, say, 5 percent -- just enough to make workers at this level feel that they're making an investment in our government.
- A substantial rate on income between the subsistence/comfort and comfort/luxury lines, say, 25 percent.
- A high rate on income above the comfort/luxury line. I'm not messing around here: 60 percent. Hear the high and mighty squawk! But consider this: In the 1950s and 1960s, the last period of robust economic growth in the United States (not counting the 1990s technology boom), the top marginal tax rate was between 70 and 90 percent, and clearly that did not break our economy. On the contrary, the luxury class has been picking everyone's pockets for the last two decades, and it's time to demand repayment. This is where the money will come from to balance the budget and pay for the many fine programs that Obama's platform promises and that we'll need to restore security, flexibility and opportunity to everyone in this country.