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Everyone, it seems, says they want to cut taxes for the middle class. President Trump promised such tax relief in the weeks before the election, though his plan never materialized. Now, newly resurgent Democrats are talking about their own middle-class tax cuts.
But who is the middle class?
As the lawyers like to say, let me stipulate that while middle class may be a useful description of social and political status, it is pretty much meaningless to economists. Middle income is something else again. That is something economists can work with. But middle class, not so much.
OK, so who is middle-income? Sorry to say, it depends on who you ask.
Let’s start with the Census Bureau, which calculates median household income for the government. While the exact number is a matter of some uncertainty even within Census (there are measurement issues), the ballpark median for 2017 was about $61,000. Thus, half of US households made less than $61,000 and half made more. When you think about middle income, that seems like a pretty good place to start.
Then TPC divides US households into quintiles (20 percent chunks). So an easy way to think of middle-income is to look at who is in the third, or middle, quintile. As it happens, we land pretty much in the same place as Census: Households in the 40th to 60th percentile of the income distribution make between roughly $50,000 and $90,000.
Plenty of definitions
In a series of recent studies, the Pew Research Center used a wider band to define middle-income. It says these households have income between two-thirds and twice the Census national median. Thus, for 2017, Pew would say that a middle-income household made between about $41,000 and $132,000.
And there are plenty more definitions, especially once you try to use income to define middle class. Last spring, Richard Reeves and colleagues at the Brookings Institution summarized a dozen different income measures for the American middle-class. All come from respected researchers--and they fall in a range between $13,000 and $230,000.
As Reeves and his co-authors note, that covers nearly 90 percent of American households. Just as we all can’t be above average, neither are we all be in the middle. In theory every American could have income in a narrow band around the median. But we don’t.
Then, there is the political definition of middle-class. When President Obama and congressional Democrats needed a source of revenue to help finance the 2010 Affordable Care Act, they imposed an additional Medicare tax and a new Net Investment Income Tax on high-income households. Congress decided to define them as joint filers making $250,000 or more or singles making $200,000-plus. Does that mean households earning less qualify as middle-class?
In the Tax Cuts and Jobs Act (TCJA), President Trump and congressional Republicans set phase-out ranges for some tax breaks. For example, the upper-bound for those fully eligible for the 20 percent deduction for pass-through businesses is $315,000 of taxable income for joint filers. The TCJA’s child credit doesn’t phase-out for married couples until they have modified adjusted gross income of $400,000 ($200,000 for singles). Are households below those thresholds middle-class? Somebody seems to think so.
But even separating singles and married couples doesn’t tell the full story. How do you adjust for household size? After all, middle-income for a couple is very different than for a family of six. Then, there is the matter of age: Is middle-income the same for two 20-somethings as for two 70-somethings?
What does summer mean?
And what about geography? All the income ranges I’ve described are national figures. But middle-income in, say, Manhattan (in New York City) is very different from middle income in Manhattan (in Kansas).
Where does this leave us? Well, it just isn’t very helpful to have an income definition of middle class that lands somewhere between $13,000 and $400,000.
Perhaps the lesson is that we should stop trying to use income to define the classes. I have a friend who has a simpler way: If you use summer as a noun, she says, you are poor or middle class. If you use it as a verb, you are upper-class. Works for me.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.