The 1%, the 19%, and the 80%

 

Through the efforts of the Occupy Wall Street Movement and the stump speech of Presidential aspirant Bernie Sanders, we are now well acquainted with the 1%.  Nobel Prize winners Joseph Stiglitz and Paul Krugman and a host of other progressive economists have tried to expose the lies behind trickle-down economics and the value of the alleged job creators. They have describe the massive shift in wealth over the last three and a half decades so that now the 1% owns more than 50% of the wealth in America. They have defined the many ways in which inequality in America – more pronounced than in any western industrial nation – is the enemy of democracy and a more open society.   As a result of this advocacy, their ideas have permeate the culture; there is widespread sentiment to tax the rich more heavily – even to “soak the rich” – as a way of addressing the rising inequality in the country and as a way of stimulating the economy. Yet the built-in American resistance to aristocracies (regal or plutocratic) and to concentrations of power in too few hands is tempered by the equally widespread though erroneous belief that dramatic improvement in the financial lives of each individual is within reach. We simultaneously abhor the 1% but aspire to join its ranks.

Into this discussion steps Richard V. Reeves. He’s a Brit who has recently embraced American citizenship; he’s a researcher at the left-leaning Brookings Institute. In Dream Hoarders he wants us to adjust our sights downward, to ask question about how the 19% below the top strata, despite their frequent professions of interest in creating more equality of opportunity and outcomes, stand in the way of a fuller democratic promise. The subtitle of the work says a lot about his intention: “How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That is a Problem, and What to Do About It.” His work takes its place in other similar examinations of American liberalism like Thomas Frank’s Listen, Liberal and Chris Hayes’s The Twilight of the Elites.

While we are inclined to generously define middle class membership as that status between those folks below the poverty line and those whose half a million dollar income places them in the economic stratosphere, there are clear gradations in the middle class. Most of us fly economy rather than first class, but now for a few more dollars we can fly economy premium and get more leg room and an extra no-cost bag, one small indication that the uber-categorization is insufficient as a nuanced description of great differences in educational achievements, wealth acquisition, and social behavior.

As you might imagine, Reeves, a former advisor to Britain’s Deputy Prime Minister Nick Clegg, is well versed in the rigid social class divisions in his native country. As his book reveals, American social class is as stratified and social mobility may be even more frozen than in European countries. We are loath to admit these realities because we have been fed on the mythology of a classless society and on the possibility of upward mobility. Look even a mixed race kid raised by lower middle class Kansas grandparents can become president! Thus we readily comply with the super-wealthy and the politicians  who serve them when they warn us against engaging in “class warfare” because it would be un-American to do so.

Reeves looks at the “stickiness” in American culture, that is, at the ways in which the place on the social ladder where you end up is determined by the place from which you start. In a fair society, a child born into a completely fair society would have a one in five chance of rising from the lowest 20% to the upper 20%. [A quintile = 20%] The reality in America is much different. That child has a one in ten chance of rising into the upper strata and her chances are diminished by the accidents of race, gender, geography, marital stability, and education. Born black to a single mother in an area where schools are inadequate, you have a one in one hundred chance at best of a dramatic rise.

Reeves finger of blame for social and economic stagnation points not only to the upper 1%, about who more than enough has been written, but to the remaining folks in the upper 20% who are, by and large, college educated individuals in white collar professions like medicine, law, education, government, media, and financial services. This section of the population, occasionally called “the knowledge workers,” are the winners in the meritocratic game. With pride they point to their accomplishments and fail to fully acknowledge the social policies that tilt in their favor.

This section of the population, making $125,000+ post-tax dollars as a result of some combination of generous compensation, entrepreneurial zeal, and two substantial household incomes, can afford to live in desirable city neighborhoods or suburban communities where they associate primarily with people like themselves (see The Big Sort, Bill Bishop’s 2004 account of “how the clustering of like-minded people is tearing us apart”). And tellingly they can create homes that are mechanisms for the preparation of their children to enter great colleges and rewarding professions and to meet a like-minded spouse and, in turn, to produce their own privileged children. As a recent New York Times article reveals, the most prestigious colleges in the nation are machines for the perpetuation rather than the healthy churning of social class membership. For every low-income scholarship kid, Harvard will accept 20 from the upper quintile.

Because the Upper Middle Class is vocal and well-connected they can propose and then preserve legislation, especially in the area of taxation favorable to them. They operate as a powerful  interest group protecting their advantage.

Reeves offers a number of examples of policy advantageous to the Upper Middle Class. The first is the Mortgage Interest Deduction, first established as a way of encouraging home ownership but which now has little effect on the rate of ownership. The foundational belief is that ownership would create a stakeholder society marked by stability and the appreciation of property wealth. But what has happened instead is that the deduction is a subsidy for the well-to-do who are emboldened to acquire high priced properties because in doing so they will enjoy a substantial tax break. Low income people also profit from this legislation but nowhere close to the degree that the Upper Middle class does. The Upper Middles buy into affluent communities that demand great schools and are “zoned” to  prohibit economic diversity. The separation of the upper 20% from the lower 80% is inscribed in the geography of our metropolitan areas.

A second benefit to the affluent is the 529 College Savings Plan. This legislation enables parents of college bound students to contribute tax free money to a college fund and to withdraw that money for tuition without paying any tax. While available to all, it is those families whose annual income places them in the upper quintile who profit most greatly, because they have not only the college finance planning moxie (because they are likely to be graduates themselves), but also because they have a greater amount of discretionary long-term investment money than do those in quintiles below them. Parents who collectively make $50,000 (slightly less than the average household income) may only be able to set aside $2,000 in a 529 while those making four times that amount may be able to contribute five to ten times as much.

Were these two programs terminated, the revenue recaptured could serve to provide low to middle income housing at affordable costs to the renters and home buyers and to increasing Pell Grant support for aspiring university and technology college students.

Reeves would also terminate the legacy admissions to universities, not only to provide spots for more talented, less well-connected students, but also to send a symbolic signal to a nation that was founded as a country resistant to nepotism and hereditary succession.

Throughout his work, Reeves constantly addresses the Upper Middle Class reader, the primary if not the sole target of his persuasion. What he wants is for members of this strata to put their money where their mouths are, to give up a little for the sake of establishing greater opportunity. He’s not asking members of this group to be any less responsible in their parenting or any less active in creating a safe community for their families, but rather to realize the social consequences of these well-intentioned aspirations. He doesn’t want these and all other Americans to let the fixation on the super-rich distract them from finding creative solutions to the problems of inequality.

He’s enough of a realist to know that it will be hard to change hearts and minds. The 529 Plan was a feature of an Obama tax reform proposal but it was quickly dropped by the then President when he fielded concerned calls from congressional representatives of affluent districts. And he knows that the powerful real estate lobby, which has a vested interested in keeping property values increasing and the mortgage interest deduction intact, is one of the more powerful lobbies in Washington. In 2012 it contributed $162 million to political candidates. And what university will turn down a multi-million dollar gift from a alumni benefactor is the price is the admission of that benefactor’s unqualified child?

Like the call from many progressives, Reeves wants a social contract that is stronger than President Trump’s short –sighted and mean spirited Darwinian approach to the world.  His is a call for a recognition of interdependence and modest sacrifices from societies most fortunate citizens. This will require some soul searching on the part of the Upper Middles and the admission that they bear more in common with those above them than with those below. While the defeat of Hillary Clinton is attributable to many causes, it’s possible that the Democrat’s loss was due to the fact that the lower 80% saw her and devoted followers  as more enemies than friends.

 

 

About Dr. Michael Cunningham

Dr. Michael Cunningham is Professor Emeritus in English.

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