Paul Krugman, in the New York Times, provides a sensible answer to a tricky question: how much is rich?
In his entertaining book “Richistan,” Robert Frank of The Wall Street Journal declares that the rich aren’t just different from you and me, they live in a different, parallel country. But that country is divided into levels, and only the inhabitants of upper Richistan live like aristocrats; the inhabitants of middle Richistan lead ample but not gilded lives; and lower Richistanis live in McMansions, drive around in S.U.V.’s, and are likely to think of themselves as “affluent” rather than rich.
Even these arguably not-rich, however, live in a different financial universe from that inhabited by ordinary members of the middle class: they have lots of disposable income after paying for the essentials, and they don’t lose sleep over expenses, like insurance co-pays and tuition bills, that can seem daunting to many working American families.
Krugman’s point is, there is a grey area between “middle class” and “rich”.
It’s an important distinction when it comes to tax policy. At a time when the USA is running an enormous deficit, it might be good policy to increase taxes. But many middle class people are having trouble making ends meet — the housing crisis is of particular note — and you might want target your tax increases at “the rich”. If you can figure out who they are, exactly.
I like the observation that the inhabitants of “lower Richistan” don’t lose sleep over expenses, like insurance co-pays and tuition bills. That resonates with me. I’m certainly middle class (at least on paper), but I can’t afford to pay my kids’ tuition for them. They have to rely on government-sponsored student loans, which means they’ll graduate with some thousands of dollars of debt.
(Note: I live in Canada, and I understand that, to some extent, I’m comparing apples to oranges here. Overall taxes are higher in Canada, and we look to the government to provide more of our services.)
If I could pay my childrens’ tuition, and not lose any sleep over it — i.e., I still had a cushion to insulate me against unexpected expenses — yep, I’d consider myself rich!
With that definition in place, Krugman turns his attention to McCain’s and Obama’s tax proposals.
Mr. McCain wants to preserve almost all the Bush tax cuts, and add to them by cutting taxes on corporations. Mr. Obama wants to roll back the high-end Bush tax cuts — the cuts in tax rates on the top two income brackets and the cuts in tax rates on income from dividends and capital gains — and use some of that money to reduce taxes lower down the scale.
According to estimates prepared by the nonpartisan Tax Policy Center, those Obama tax increases would fall overwhelmingly on people with incomes of more than $200,000 a year. Are such people rich? Well, maybe not: some of those Mr. Obama proposes taxing are only denizens of lower Richistan, although the really big tax increases would fall on upper Richistan. But one thing’s for sure: Mr. Obama isn’t planning to raise taxes on the middle class, by any reasonable definition — even that of the Bush administration.
This is important, because McCain has been hammering away on the theme, Barack Obama will raise your taxes. To be blunt about it, McCain is guilty of lying repeatedly on this point.
If you reside in Richistan, McCain’s your candidate. But for the rest of us,
Obama’s tax plan skews the other way, aimed at strengthening benefits for lower-rung taxpayers and raising rates at the top. His plan would restore the Clinton-era rates for the two highest tax brackets.
So when John McCain insists that Obama will raise your taxes, he’s talking to people like himself. That is, the rich. And even for the rich, Obama only wants to return to the Clinton-era tax rates: when the American economy was smokin’.