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Tax cuts: How can 98 percent of us be middle-class?

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(Read caption) President Barack Obama, accompanied by House Speaker John Boehner of Ohio, speaks to reporters in the Roosevelt Room of the White House in Washington, in this November 2012 file photo. In Washington’s weird, upside-down Lake Wobegon world, two percent of us are rich, and thus, according to Obama, should pay more, Gleckman writes.

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Congress and President Obama can’t agree on much, but they agree on this: Congress must preserve what they persist in calling middle-class tax cuts. As most TaxVox readers know by now, the red lines in this debate are for singles making about $200,000 or less and couples filing jointly making $250,000 or less.

By this standard (invented by Obama but embraced more or less by Democrats and Republicans) if you make more than these limits, you are rich. Make less, and you are just a regular working stiff trying to hang on ’til your next paycheck.

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Except this is fantasy.

My Tax Policy Center colleague Georgia Ivsin ran the numbers, and this is what she found: In 2013, 99.3 percent of single filers will make $200,000 or less—just 0.7 percent will make more. Also next year, 96.4 percent of joint filers will make $250,000 or less—fewer than 4 percent will make more. Overall, 2 percent of households are rich. The other 98 percent are middle-class (or poor) and deserve to have their tax cuts protected. 

If percentages make you nervous, think of it this way: In 2013, there will be 158 million households (we call them tax units). By the $200,000/$250,000 standard, fully 155 million would be un-rich and thus exempt from any tax increases.

In Washington’s weird, upside-down Lake Wobegon world, two percent of us are rich, and thus, according to Obama, should pay more. Ninety-eight percent of us should not.

Btw, TPC based the $200,000/$250,000 thresholds on adjusted gross income and increased them for inflation so, for instance, the income cap for couples is $266,000 in 2013. Other estimates may use a different definition of income but whatever you measure, the overwhelming majority of households are middle-income according to the consensus trope.

For a bit more context, the Census bureau reports that median household income in the U.S. was about $50,000 in 2011. For a single man, it was roughly $37,000, for a single woman it was only about $26,000. Yet, Congress and the President have defined middle-income as married couples making five times the median. Single women get to keep low taxes if they make nearly eight times the median.

I get that in places like New York, LA, and Washington, $250,000 may seem middle-class. But get a grip: Folks in Toledo think this is nuts.

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The politicians can all have a good argument over whether they should raise taxes on anybody, or over how much they should be raising taxes relative to how much they should be cutting spending. They can even fight over whether some households should be exempt from tax increases. But can they at least stop claiming that 98 percent of us are middle-class?