Elizabeth Warren, just appointed a special advisor to President Barack Obama for consumer protection, says we are witnessing the “death of the middle class.” Slate’s Timothy Noah, a terrific writer and thinker, believes the rich are running away with the country. This new Census Bureau report, showing a nearly 5 percent decline in middle-class household income, received banner-headline treatment, with news stories suggesting typical people are being clobbered.
Middle-class life is the soul of the American experiment. Are things really so bad?
All the angst is focused on pretax income — not after tax.
Stated in today’s dollars, median household income was $45,000 in 1985, peaked at $52,500 in 2000 and is $50,000 now. (Absurd precision such as the “$46,269” median for 1991 doesn’t appeal to me.) Nearly all the decline from $52,500 to $50,000 has occurred since 2007 — that is, during a recession. Most likely that loss will bounce back.
But the key point is that the numbers in the Census Bureau report, and in nearly all alarmism about the middle class, are pre-tax income.
Federal income tax rates for the middle class were cut in 2001 and again in 2003. Because of the cuts, in 2000, 29 percent of American households paid no federal income taxes; today, 44 percent pay none. The result is that slightly lower middle-class incomes are being taxed less — and all that matters to the individual is buying power. The Tea Party crowd, which claims taxes are rising, doesn’t like to talk about the reality that taxes are falling. (Tax cuts, not spending increases, are the main reason for rising deficits.) The left doesn’t like to talk about after-tax income — only pre-tax numbers are used, because they’re the only numbers that are disturbing.