Richard Reeves has a kind of silly article in Boston Review (“Dream Hoarders”) based on a forthcoming book, arguing that, rather than attacking the captains and colonels of capitalism and the 1 percent reaping the returns of globalization, progressives should focus their ire on the upper middle class- the 80th percentile instead of the 99th.
There are certainly ways in which our current political system advantages the well-off- Reeves points to the 529 college savings vehicle as an example- but it’s important to remind yourself just who these lucky duckies are. Almost everywhere, these are married, college-educated couples with children, and not unusual ones. In fact, in almost every state in the country, the average married, college-educated couple in their 40s with children makes above the 80th percentile of overall household income for that state:
Even just looking at median incomes for 4-person households (without conditioning on marriage or education) gets you most of the way to the 80th percentile in most states:
While 529s and tax exceptions like the mortgage interest and state and local tax deduction are mainly claimed by the middle class and higher, we also have a progressive tax code and in-kind benefits that strongly discourage marriage for this same group, even if not as much as our means-tested welfare system discourages marriage for lower-income families. For example, let’s take a typical college educated married couple with two kids in Minneapolis, Minnesota, making $132,000 per year.
If, plausibly enough, the husband makes $75,000 per year and the wife makes $57,000, the couple are paying a total of $22,542 of marginal state and federal taxes on the wife’s $57,000 in earnings, a marginal tax rate of over 39%. On the other hand, if she were not married, she would go from paying $22,542 on her income to paying $14,499 (all estimates from Smart Asset’s tax calculator.) That’s a $8,000 per year marriage tax, much larger than any typical benefit from a 529 (which obviously is not limited to married couples in any case.) In addition, the no-longer-wife would now be eligible for $4,320 per year in subsidized insurance purchase under Minnesota’s Obamacare program, along with CHIP eligibility for her kids.
Now, obviously she would be balancing this $12,000 per year tax on her marriage (putting aside other means-tested housing and in-kind programs) against her husband’s $75,000 income and the relative ease of pooling assets when legally married, along with the (quickly dwindling ) cultural pressures towards marriage. All things considered, it’s not surprising that the large majority of upper income middle aged people (with or without kids) still are married:
But it’s simply not true that American public policy favors upper middle class households in an uncomplicated way. The combination of quite significant in-kind transfer programs for lower-income mothers with children with a progressive tax code that disfavors marriage means that we already discourage what one might call “the bourgeois lifestyle” in a number of ways.