I wrote a short piece on the political untouchability of the upper-middle-class and why it’s a problem. My basic argument is that
(1) raising marginal tax rates is a terrible way to raise revenue, because it creates work disincentives;
(2) curbing tax expenditures are a much better way to raise revenue;
(3) but (2) threatens the interests of upper-middle-income households, particularly those residing in high-tax jurisdictions in high-cost metropolitan areas, a constituency that tilts to the left but that is important to both of the major political coalitions;
(4) and I argue that the collective political influence of the upper-middle-class is greater than that of the ultra-rich.
This last point should be obvious. The United States may indeed be a Plutonomy, in which the influence of the top 0.01 percent is enormous. But the influence of the slice of the population from, say, the 90th percentile to the 98th percentile is expressed in many different ways: small dollar donations, direct involvement in campaigns, and, most importantly but far more difficult to measure, through disproportionate cultural influence, i.e., heavy concentration in the upper echelons of the “culture industries,” including the news media.
An obvious check on the influence of upper-middle-income households is the ideological heterogeneity within this group: the upper-middle-class is not a monolith. Yet on an issue like tax expenditures, it may as well be a monolith, united across party lines by a shared interests in defending the mortgage interest deduction and the state and local tax deduction, among others.
To illustrate why the upper-middle-class matters in the tax debate, I recommend taking a look at this chart, which I found via the Hoosier Pundit. It measures the amount of total taxable income for all filers by adjusted gross income level for 2008, and it shows that the total taxable income for households earning $100,000 to $250,000 — comfortably beneath the upper bound of the “middle-class” — approached $1.4 trillion.
