News flash: College students come from middle-aged parents

Over the years I’ve done many posts pointing out that income distribution data doesn’t mean what people think it means. I spent the first 8 years of my adult life in the bottom 20%, and more recently I’ve been in the top 20%. Roughly 73% of Americans spend at least part of their lives in the top 20%. This year I’ll be in the super rich class (as I sold a house in Boston with a big capital gain), but next year my income will drop by 70%. And yet none of this tells us anything interesting about my economic situation.

Consider this typical press report about University of Michigan students:

Just 16 percent come from families in the bottom 60 percent of earners combined. The median income of parents of students at the university is $156,000, roughly three times the median income of Michigan families.

Now there is no doubt that students at an elite school like Michigan tend to come from richer than average families. How could it be otherwise? But the specific data here is almost meaningless. The bottom 60% of the income distribution is heavily dominated by both retired people and younger versions of me. Lots of 24-year olds and lots of 80-year olds make below average incomes. And guess what, very few Michigan college students come from families headed by either 24-year olds or 80-year olds. They tend to come from families headed by 50 year olds, that is, people near the peak of their earning years. Often with two earners.

This confusion over income distribution data has affected our tax debate. Consider this typical article:

On the income distribution charts at the center of tax overhaul plans, Courtney Mishoe knows she’s doing well. She works as a tax manager at a firm in the Atlanta suburbs. Her husband is a police officer. Together they make more than $180,000 a year. They are solidly in the upper middle class. But they have a mortgage and three kids, including one in day care and another in high school with plans to go to college. It all adds up. They depend on tax deductions to make their budget work. “I don’t feel wealthy,”

Yes, $180,000/year is far above average for household income, it’s even well above average for middle aged two income couples. But in a sociological sense a cop and a tax manager are not “rich”. To claim they are is to suffer from innumeracy. When most Americans hear the term “rich” they have something else in mind:

In Alpharetta, many people said they could not determine how they would make out under a confusing plan littered with caps and phase-ins.

As he ate lunch at Alpha Soda, a popular local restaurant, Chris Krogh said he hadn’t followed the debate closely but was troubled by what he heard. Krogh runs a custom cabinetry business and depends on homeowners as customers.

“I always thought Republicans were supposed to be good on the tax breaks,” he said.

Here’s what I think is going on here. The GOP is buying into the progressive’s view of income inequality. They feel under pressure to avoid tilting the tax plan toward “the rich”. In trying to avoid doing so, they’ll end up imposing higher taxes on some members of the upper middle class. That may or may not be a good idea, but it’s not how upper middle class Republicans envisioned the term ‘rich’, or how they envisioned the GOP. There are likely to be some disappointed GOP taxpayers.

PS. It is certainly fair to argue that by global standards the American upper middle class is rich, but that’s not the issue being debated. It’s also true that by global standards most of America’s poor don’t deserve any of the welfare programs that progressives advocate.

PPS. Here’s another way of thinking about the tax debate. Under Reagan (and Clinton), the GOP seemed to be proud of its supply-side ideology. Supply-side economics seemed “progressive”, as the entire world was trending in a neoliberal direction. Now the GOP seems slightly embarrassed by its supply-side ideology. Once a party becomes embarrassed to hold a particular political view, it’s only a matter of time before they stop holding that view. The Democrats are winning the tax fight; they just don’t know it yet.