defining “wealthy”

The Times‘s Economix blog pokes around in the data from a recent Gallup poll and finds that wealthy people often bracket themselves down into “the middle class.”

Everyone thinks they’re middle-class partly because of cultural reasons, and also partly because of the way the income distribution is skewed. The greatest income inequality is at the very top. As a result, people who are rich but not the richest — in the $250,000 zone, say — see they have more than lots of poor people, but also much less than a few very visibly rich people. Then they conclude they’re in the middle, so they must be middle class.

The post goes on to make some points about the disconnect between the 6% of wealthy Americans ($250,000./yr or more) who think their personal taxes are too low and the 30% of that same bracket who think that the taxes of “wealthy people” in the abstract are too low.

Personally, I found it much more illuminating to see that wealthy Americans are the only group who, overall, think their taxes are unfair. (45% of the wealthy bracket say their taxes are fair, while 55% say they are unfair. All other income groups overwhelmingly consider their own taxes to be fair.) This makes sense. Tea Party activists — aka the Republican base, aka the people most likely to complain that taxes are too high — are wealthier than average.

Furthermore, as discussed in an Alyssa Battistoni article I linked a few days ago, the wealthy are not entirely wrong that the tax burden falls disproportionately on them — but that’s because they’re the ones with the money. If there were less wealth inequality overall — which is to say, if America were to have healthy working- and middle-class economic sectors again — that problem would right itself. We would be able to spread the tax burden more easily without pushing working families to the brink. So there’s that.

But here’s the funny thing: even those who are quite wealthy (making, say, $250,000/yr.) are totally being taken for a ride by the superrich. From BusinessWeek:

For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30 percent in 1995 to just under 17 percent in 2007, according to the IRS. And for the approximately 1.4 million people who make up the top 1 percent of taxpayers, the effective federal income tax rate dropped from 29 percent to 23 percent in 2008. It may seem too fantastic to be true, but the top 400 end up paying a lower rate than the next 1,399,600 or so.

In other words — everybody knows that the wealthy use all kinds of sneaky accounting tricks to pay less in taxes. But the very, very wealthy are able to use those tricks much more effectively. So a doctor or a lawyer who’s doing quite well really is feeling the taxman’s yoke (though not at quite the level his highest marginal rate would make you think), while Rupert Murdoch is paying the same effective tax rate as a convenience store manager.

In other words, it’s not really hypocritical or risible for the somewhat wealthy to feel, simultaneously, that their own taxes should not be raised and also that the taxes of the really wealthy should be raised. In fact, it makes perfect sense.

Finally, as someone who experienced one glorious year of being quite well-off (we were never in that top bracket, but we were in the next-highest bracket), I’d like to point out that many people making what seems like amazing money from the outside are also living in cities where the cost of living is preposterously high. Many of your well-to-do bankers, lawyers, doctors, entertainers, and entrepreneurs live in New York, Los Angeles, San Francisco, or Seattle — where they can pay three times as much for a home that’s a third as nice as that of someone making half as much but living in a less competitive market. I’m not suggesting that anyone making $250,000 is suffering. But many of those people are actually getting quite a bad quality of life for their money — and they’re paying higher taxes, to boot, because for the most part taxes are not indexed to the cost of living in your geographic region.

All of which is only to say that when we libersocialist types go around demanding that the wealthy pay more taxes, we shouldn’t also question their intelligence or their grip on reality while we’re doing it. The Times blogger, Catherine Rampell, draws this conclusion from her reading of the Gallup poll:

[M]any Americans are misinformed about how reliant the country is on their tax contributions, and what kinds of additional sacrifices they might have to make to help get the nation’s fiscal house in order….

But I draw the opposite conclusion from the data: the wealthy are actually quite aware of how much they’re paying in taxes, and they’re also aware that the people above them are getting away with something.

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