orgtheory.net

the 80th percentile isn’t the problem

Okay, so I know three days is like a thousand years in internet time. But this Sunday Times op-ed, “Stop Pretending You’re Not Rich,” is still bugging me. The title is perfect guilty liberal upper-middle-class New-York-Times-reader clickbait. And sure enough, it was all over my social media feed.

But I think the piece gets things wrong in a particularly pernicious way.

The thrust of the op-ed, and presumably the book it’s promoting, is that upper-middle-class Americans—the top 20% by income—are the real problem, not the top 1%. They are capturing most of the income gains, hoarding opportunities, and they don’t even acknowledge their luck in being there.

A lot of the specific points, particularly about policies that benefit the moderately well-off at the expense of others, are easy to agree with. Exclusionary zoning is bad. 529 plans benefit the well-to-do almost entirely. The mortgage interest deduction is terrible policy.

But the real problem with the U.S. economic system isn’t the self-interested behavior of those in the top 20% of the income distribution. It’s that 1% of the population holds 40% of the wealth, and that GDP increases aren’t translating into higher incomes for most of the population.

The op-ed misdirects our attention away from these factors in multiple ways. First, it paints a misleading picture of this person in the top 20%.

Most obviously, it says that the average income of this group is $200,000, which I admit does sound pretty high. But using the average income to describe this fifth of the population is a problem, given the shape of the income distribution.

The median, which would be the 90th percentile, is $162,000. The 80th percentile is $117,000. (Here’s a quick calculator based on CPS data.) Very healthy, but not $200,000. The anecdotal illustration—the author’s friends who pay $30,000 a year for their kid’s high school tuition—also seems to point to someone with an income on the high end of this range.

Second, while the second decile is doing reasonably well, both its wealth and income are quite proportionate with its actual numbers. This paper is now slightly dated, but it does break out that decile—to show that in 2007 at least, it held 12% of total net worth, and made 14% of total income (see Table 2). You’d have to be pretty damn egalitarian to think that was unreasonably high for the next-to-top 10%.

Finally, yeah, the top 20% has seen more income gains than the rest. But the issue is less that they’re gradually getting better off, than that wages in general aren’t keeping up with either GDP growth or productivity. If you look at pre-tax income of the top 20%, exclusive of the top 1%, it’s increased by 65% since 1979 (see Table 1). Sounds like a lot—until you realize that real GDP per capita increased almost 80% during the same period.

So sure, the top 20% is unquestionably well-off, and indeed rich in global terms. And doubtless people in this group could show a little more self-awareness of their relative good fortune. And it would be nice if the mortgage interest deduction wasn’t the third rail of tax policy.

But the problem isn’t that the top 20% is doing reasonably well. It’s that the rest of the population should be doing that well, too. Ultimately, pointing a finger at the fortunate fifth is a sleight-of-hand that keeps our attention away from where it should be: on a much richer, more rarified group, and the broken system that allows it to capture the bulk of the gains that we as a society produce.

 

 

 

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Written by epopp

June 14, 2017 at 12:15 pm

11 Responses

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  1. All good points about the distribution and where the most money pools – at the very top.

    On the other hand the top decile, if not the top quartile, are the experts that have engineered the system that pushes the earnings of others down and of the top 1% or .1% up, while taking their cut. There is complicity if you are the lawyer or accountant or manager who figures out how to raise profits by outsourcing labor or moving to just-in-time part-time scheduling algorithms.

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    Don Tomaskovic-Devey

    June 14, 2017 at 12:59 pm

  2. Or if you are the guy supported by the 1% who writes books saying that the 1% isn’t actually a problem,

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    epopp

    June 14, 2017 at 2:10 pm

  3. I had a very different reaction. I think that the article is advancing important arguments.

    The 80th – 99th may not monopolize wealth, but they do monopolize virtually all societal deliberations about how to deal with the economic challenges facing the bottom 80%. They are the teachers, academics, journalists, and local leaders who shape or understanding of economic policy and politics.

    They are culturally powerful, and, in an open and democratic society, this power can be used to build a system that totally privileges them. I think upper 20% totally benefit from this system, and play an instrumental role in maintaining policies, institutions that disadvantage the bottom 80%.

    My experience suggests that many in this top 20% have no idea how the bottom 80% live. They draw analogies between their personal circumstances and those faced by the lower ranks, without understanding the profound differences in their situations. Pieces like these will hopefully move some members of that privileged and culturally-powerful class to recognize that people closer to the bottom have it much worse of than they might assume, or that situations that they previously saw as just may be much more unjust than they assume.

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    JNCohen

    June 14, 2017 at 2:12 pm

  4. So I have two reactions to this. The part I agree with is that yes, the system is set up to benefit the 20% or so of the population that is relatively well educated and relatively well-off, that it often does that at the expense of the majority of the population, and that this well-off segment is often relatively segregated (increasingly so) and relatively clueless that its experience is not the norm. It is absolutely worthwhile to try to get these folks to acknowledge their relatively strong position (even though many of them likely don’t feel all that secure) and to behave more altruistically.

    However. I think the reason the piece left such a bad taste in my mouth is that it feels dog-whistle-y. I just can’t get over the sense that this is work that is either being done because 1) it’s a counter-intuitive thesis (the problem isn’t X! it’s Y!) that is likely to get attention just by virtue of its counter-intuitivity, or worse, 2) it’s getting attention because it’s supported by the wealthy sponsors of Brookings etc. who really would like political attention not to be on the fact that a very small number of people is capturing nearly all our wealth gains. And I don’t think that even needs to be happening in an explicit, quid pro quo way for that dynamic to be underlying why this particular argument is getting attention.

    Finally, the dog-whistle part for me is that the piece taps into, consciously I think, the “out-of-touch coastal elites” argument. And there’s a core of truth to that, too, but it’s also highly politicized and closely associated with a lot of other stuff (e.g. hatred of universities, dismissal of huge swaths of the population as not “real Americans”) I find really distasteful. Of course two minutes’ thought will show that a lot of the people in the top 20% by income are going to be either 1) managers/professionals/small business owners outside the “coastal elite cities”, and 2) many of those who do live in NYC/Boston/SF/LA aren’t really all that well-off given the cost of living. But instead of conveying either of those things, the article paints a picture of rich, out-of-touch progressives who are cluelessly supporting their own tax breaks at the expensive of the struggling lower/middle-income. And even though those people exist, I think painting them as the problem is dangerous.

    Too cynical?

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    epopp

    June 14, 2017 at 10:06 pm

  5. I don’t know. On one hand, I understand the political pitfalls of pushing these ideas into people’s faces. It could detract from the fact that the very rich have a very, very nice deal. And maybe it could be used to gin up anti-Northeast sentiment in the Rust Belt, etc. I also understand the notion that this kind of viewpoint could alienate the college-educated, and maybe cause political fissures among the middle class.

    On the other hand, notwithstanding recent attitudes towards the idea of objective facts, I think that this is a fact that needs acknowledgement. We need to establish basic facts, like climate science had done with global warming.

    I’m amazed at how good a deal it is to be in the US upper-middle class, and how rough it seems to be at the middle or lower. Compared to my native Canada, I get ridiculous tax shelters for making financial investments. My health insurance lets me see a dermatologist to look at a sunburn for $15 – you can’t do that in Canada. That 529 can let you buy a mediocre child’s way into college, and a home in an expensive neighborhood let’s you send your kid to a school that is several years ahead of a poor district. If the system weren’t so tilted, that upper-middle class kid would have too compete with poorer kids. And your Social Security payments are going to be way better than I’m the Canada Pension Plan. The upper-middle class defends its privilege too, and is totally part of the problem.

    The upper-middle class has its part to do in engaging the rest of society’s economic problems. They probably need to pay more in taxes. We probably need to end programs that unfairly benefit them. We need them to open their communities to other Americans. We need them to acquiesce to changes that help poorer kids compete, even if that means losing some of their own kids’ advantages. None of this is going to happen as long as we have fairly rich people think they’re poor and disadvantaged, or the bottom 80% does not demands it from them.

    PS, on being upper-middle class in NYC. I think that median household income is something like $60k. Food for thought when you think about how people feel they’re struggling in NYC while earning $100k+.

    Liked by 1 person

    JNCohen

    June 15, 2017 at 2:02 am

  6. Pardon the spelling errors. I wrote this response on my cell phone and can’t go back to edit. Sorry!

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    JNCohen

    June 15, 2017 at 2:06 am

  7. I will go a bit farther than this discussion and suggest that there is a real class war going on between the credentialed and the un-credentialed. I don’t think the upper middle class is a good category for apprehending this. But I also think the credentialed are entirely complicit in the exacerbation of inequality across numerous dimensions (income, security, geography, criminal justice, and education all come immediately to mind). The book is pointing out a real thing. It is not surprising that assertions along these lines make sociologists uncomfortable, but that doesn’t make them any less valid.

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    mgmcquarrie

    June 15, 2017 at 8:13 am

  8. Mike, I keep thinking about your comment because I think you are right on one level but I’m still not convinced it’s the policies preferred by the credentialed (who generally favor a safety net, education, etc., if also self-interested) that are driving inequality. Complicity might be a different thing though. Will come back to this if I think of anything more coherent to say.

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    epopp

    June 15, 2017 at 12:39 pm

  9. I’m working on coherence myself, but it would be interesting to discuss it down the road. Let’s do that.

    Liked by 1 person

    mgmcquarrie

    June 15, 2017 at 1:21 pm

  10. I think Reeves has said elsewhere that the top 1% is also part of the problem but he wrote this to highlight the problem with the top 20% because nobody has really made that case yet. Reihan Salam is the only other person, that I know of, writing about it.

    I don’t know what Reeves’ full argument is because I haven’t read the book so I’ll make my own here. Lane Kenworthy has shown that, since the 1970s, the poor would have fallen behind everywhere if we only looked at market income. The reason they haven’t is that social spending has helped keep their income up. If that’s the case then we want to look at why the U.S. spends less than other countries on social benefits. It’s a complicated answer but fiscal sociologists have shown much of it is really a revenue problem – tax expenditures substantially reduce the amount of revenue the government could use for social spending. The 529 program gets a lot of press but the most costly in terms of revenue loss are the state and local tax deduction, home mortgage interest deduction, exclusion on employer sponsored insurance, and charitable deduction. We’re talking several hundreds of billions of dollars a year. Other countries don’t have them – they use that revenue for more robust social spending instead. We still have them, in part, because the top 20% are some of their biggest defenders. The Pease amendment means the benefits for most of these tax expenditures are phased out for the top 1% so they’re not likely driving the defense.

    Also note that the narrow focus on the top marginal tax rate has obscured differences in which that rate kicks in between countries. After the financial crisis, lots of countries added new top brackets to symbolically show that they were punishing the 1% but historically the top rate has started at relatively low rates in most other countries. The average point at which the top rate kicked in (2000-09) as a multiple of the average wage in the US was 8.7 whereas in Canada and the UK it was 2.8 and 1.3 respectively. It typically kicks in at 1.5x the average wage in Nordic countries. The U.S is really the only place where the top 20% actively avoid paying the top MTR. Policymakers call for raising the top rate all the time but never call for extending the bracket downward because that would piss off the top 20%.

    So yes, Reeves’ essay is NYT reader clickbait and a cutesy counterintuitive thesis. It’s not wrong though.

    (I could also go on a long rant about the top 20%, housing finance, and land use regulations but will save that for another day!)

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    Josh Mccabe

    June 15, 2017 at 2:13 pm

  11. Josh, I don’t think I would have written the blog post if you had written the editorial. I will point out, though, that none of these are new benefits, or benefits that have emerged as the top 20% has gotten wealthier relative to the bottom 80. Now, it is possible (likely?) that the value of the tax expenditures has increased as that has happened, but the upper quintile has always been self-interested around these policies.

    I’m fine with the top 20% paying higher taxes though.

    More fundamentally, while I’m pro social spending, I don’t think this is a problem that can be solved with transfers alone. I think workers need more power to demand higher wages, and we need to tax finance more heavily to prevent some of the unproductive accumulation. But that’s just me.

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    epopp

    June 16, 2017 at 8:56 pm


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