Who Are the “Moneyed Elite”?
posted by Lawrence Cunningham
Inspired by Frank’s post, one wonders who, exactly, are the “moneyed elite” in the United States?
Andrew Sullivan uses the term suggesting a reference to people whose annual incomes run to multi-millions of dollars and whose net worth is accordingly in excess of some $10 million or so.
Another reference appears to the new book Richistan, where the threshold of even the least among the moneyed elite seems to contemplate a net worth of least $1 million (ranging up to $10 million). Annual income is unspecified but supposes average home values of $810,000 which implies incomes of some small multiple of that, certainly exceeding $1 million.
If these are the right parameters to think of the “moneyed elite,” then one wonders about cheering President Obama’s reported tax plan. It reportedly targets tax increases, and reduced tax deductions and credits, at individuals whose annual income is $100,000 (no tax credit) or $125,000 (highest tax rate and least deductions).
Are these really the “moneyed elite” in this country? To be sure, President Bush and Congress ran up an extraordinary deficit the past several years (the figure $1 trillion is heard); President Obama and Congress just passed a nearly $1 trillion stimulus package; and the President and his Treasury Department, with Congressional support, are sustaining the commitment, running to nearly another $1 trillion, to rescue the financial system.
Somebody has to pay for all this. But is it fair to say that imposing higher taxes on people whose incomes are $100,000, $125,000 or even $250,000 (the figure President Obama used in his speech Tuesday night), putting the burden on “the moneyed elite”? It is doubtful that such earners had anywhere near a net worth of $1 million even at the height of the market last year; with the plummeting of asset values since September, moneyed elite, or even affluent, as the New York Times puts it, may not be the best way to describe their financial condition.
February 26, 2009 at 10:53 am
Posted in: Tax
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Responses (12)
JP - February 26, 2009 at 12:43 pm
I think this illustrates a fundamental problem with proposals for a soak-the-rich income tax. No one thinks they are rich (even if they are in the top 2% of U.S. earners [$250k] with 5 times the median income). Instead it’s their neighbor, who has a little bit higher income.
As the tax base gets narrower, rates get higher. At some point the Laffer curve becomes real. (I’m not suggesting we’re anywhere near that, or that Obama’s tax increase will come close. But I don’t think anyone can replace Obama’s proposal with a tax on incomes over, say, $500k without seriously considering the whether the curve will come into play.)
Frank - February 26, 2009 at 2:17 pm
You’ve stated that the plan would be “imposing higher taxes on people whose incomes are $100,000 [to] $125,000.” I’m afraid I didn’t see that in the article you linked to; with respect to those figures, I think it only mentions that a tax “credit phases out for those with incomes above $75,000 a year and for couples with incomes of more than $150,000; no benefit would go to individuals with more than $100,000 income and couples with $200,000.” But if there are special burdens on those making between 100K and 125K, I would be very interested in hearing about them.
I’m also wondering: is $250,000 a middle class salary? Dan Gross doesn’t think so:
“Only 2.245 million U.S. households, the top 1.9 percent, had income greater than $250,000 in 2007. (About 20 percent of households make more than $100,000.)”
“Even in wealthy states, $250,000 ain’t bad—it’s nearly four times the median income in wealthy states like Maryland and Connecticut. And even if you look at the wealthiest metropolitan areas—Washington, D.C. ($83,200); San Francisco ($73,851); Boston ($68,142); and New York ($61,554)—$250,000 a year dwarfs the median income.”
at
http://www.slate.com/id/2198806/
Even if one feels that the 100-250K earners are stretched or deserve relief, it’s hard to blame the Obama administration for not helping them much, or even spreading pain to them. If there’s any tax increase at the top, the Limbaugh-right will bill it as a general tax increase. They’ve made their bed, and now they’ll lie in it.
Lawrence Cunningham - February 26, 2009 at 2:29 pm
Frank,
All fair enough. Yes, people with incomes in the $100,000 to $120,000 are hurting too. They may be rich compared to people with incomes of $12,000 or $24,000 or $36,000. But people do not become millionaires on such salaries and it seems difficult to think of them as the “moneyed-elite.” The truth is, to afford what government has been doing and plans to do, a lot of people will have to pay a lot more in taxes, not only millionaires.
Joe D. - February 26, 2009 at 10:48 pm
I think JP is right, that the term “moneyed elite” is extremely subjective and depends very much on one’s own salary.
Given that, it seems to me that focusing on absolute numbers makes little sense. Instead, we should focus on percentiles. In that light, it’s hard for me to see how the top 2% [$250k+] of households isn’t, by any objective standard, the “moneyed elite.”
I think many people are a bit startled by how low the $250k figure is for the top 2%. But I think people routinely underestimate how unevenly distributed income is in the U.S. The top 5% of U.S. households make more in aggregate income than the bottom 60%. The rich bear the heaviest tax burden because they earn most of the money. In fact, the government can raise a lot of money by simply taxing the top percentiles, because that is where all the income is.
The following site has a nice comparison of aggregate income versus aggregate tax burden. It shows that the federal tax burden is progressive, yes, but not too far off from the share of aggregate income that people earn.
http://www.cbo.gov/publications/collections/taxdistribution.cfm
Joe D.
P.S. A household earning more than $100,000 would be roughly in the top 10-15%. Still elite, I think.
Frank - February 27, 2009 at 9:57 am
To add to Joe D.’s point, consider the state tax burden as well, and the phaseout of certain payroll taxes as income goes above a certain level. Susan Pace Hamill has done an extraordinary job in turning public attention to hidden regressivity of the tax system, including the upside-down subsidies of mortgage interest deductions for interest paid on mansion mortgages.
According to the NYT’s David Cay Johnston, Hamill’s latest book “As Certain as Death” (Carolina Academic Press, 2007) “seeks to document how the 50 states, in contravention of her view of biblical injunctions, do more to burden the poor and relieve the rich than vice versa.”
more at
http://www.concurringopinions.com/archives/2007/12/the_heroism_of.html
Lawrence Cunningham - February 27, 2009 at 10:40 am
Guidance on what Congress and the President officially consider to be the “moneyed elite” may be found in the economic stimulus package,* which uses the figure of $500,000 annual income as a way to install caps on executive compensation for recipients of government investment. Why not $250,000? $100,000?
* American Recovery and Reinvestment Act of 2009 (“ARRA”) (signed into law by President Obama on
Feb. 17, 2009), amending the Emergency Economic Stabilization Act of 2008.
JP - February 27, 2009 at 10:47 am
“Why not $250,000? $100,000?”
Because then there would be nothing to tax!
Joe D. - February 27, 2009 at 11:25 am
Guidance on what people define as “economic elite” can probably be found in many parts of the budget, and probably varies quite a bit depending on the particular measure at issue.
I still don’t see how, objectively speaking, anyone can say that households with incomes in the top 10% ($100k+) or top 2% ($250k+) are not “elite.” Isn’t that the very definition?
Lawrence Cunningham - February 27, 2009 at 11:52 am
Joe D.,
I think the figures are the issue, not the definition.
Elite means different things in different contexts, so one may speak of political elites, educational elites, military elites, etc. Often it designates a powerful class of persons within a given context, who govern, instruct or wage war, for example.
The issue I’m raising is what is the definition of a “moneyed-elite”? Sure, one approach is the one you take, simply counting the top 1, 2 or 10% measured by income. But I don’t see how that approach or definition is inevitable. It is possible to approach the question by also asking whether that cohort exerts significant economic power. That does not seem obvious. It is also possible to focus on net worth instead of income, of course.
JP - February 27, 2009 at 12:27 pm
Lawrence: You raised the issue explicitly in the context of an income tax proposal, which I think explains why the discussion in the comments have taken the income measurement approach.
(If you were implicitly arguing for a wealth tax, or some alternative to an income tax, that would be an interesting discussion, but I missed the implication.)
Joe D. - February 27, 2009 at 12:47 pm
Lawrence,
But what use are the absolute figures, without an understanding of how wealth is distributed in the U.S.? A lawyer in NYC making $250k may not subjectively feel wealthy. Objectively speaking, however, the lawyer is in the top 2% of households in the nation. Compared to the rest of the 98% of the U.S., the lawyer is exerting far more economic power.
I agree that using percentiles is but one way to measure eliteness, and there are of course other ways. Net worth is arguably a better way of measuring economic power, although net worth is also highly concentrated in the U.S. (and no one is talking about taxing net worth). I would probably be just as happy with this measure.
What I object to, however, is subjective impressions of what is “elite,” based on an absolute number, because such impressions are very likely to be heavily influenced by our own economic positions, and likely ignore just how little most of the U.S. makes.
For an example of what I’m talking about, see, e.g., this post by David Bernstein over at the Volokh Conspiracy:
http://volokh.com/archives/archive_2009_02_22-2009_02_28.shtml#1235664195
Joe D.
Maryland Conservatarian - February 27, 2009 at 12:48 pm
when I think of moneyed-elite, I think of the likes of Ted Kennedy and Jay Rockefeller; guys with lots of money that in NO part is due to their own efforts and who happily join in the cries to tax the rich but are in a position to ensure that we do no such thing but instead tax income – which subsequently has little effect on their no-windmills-viewing lifestyle.
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