The Dreadful Plight of the Upper-Middle Class (Ironic Headline)

As Obama enters the home stretch, one thing is certain: nothing will happen for the upcoming four years except acrid partisan bickering. Expect no action, unless the droning chatter of the sequester gets you excited (pun mucho intended! (pun within a political pun!!)).

So let’s talk about one little sliver of the political landscape that will keep the feverish insults flying: taxes.

Let’s agree on one thing at the outset, because that will be the last time we agree today: nobody really understands taxes or the impact that raising or lowering them will have on tax revenue or the general welfare of our society. A lot of assumptions underlie the math thrown about by politicians, pundits, and journalists, and every bit of it will be proved to be wrong in the future. They’re all estimates, based on a bunch of stuff that hasn’t yet happened.

Our pals in Britain know how to drop tax-related insults.
Our pals in Britain know how to drop tax-related insults.

Obama has oft loudly averred that billionaires should pay taxes at the same rate as plumbers, and if that represents class warfare, then he’s all for class warfare.

I’m no billionaire, but I’d gladly pay the same effective (an important word here) rate as the average plumber, because it’s probably lower than mine. The word “fair” often boots this discussion into the realm of angry name-calling, so I’ll just point out that we all (within jurisdictions) pay the same rate with certain taxes, like sales tax and property tax, which is nice.

Remember, I’m in the middle here. The staunch righties and lefties all have good stats up to back up their arguments. Sez the right: “Hey, 10 percent of us pay 50 percent of all income tax in the U.S.” Sayeth the left: “The rich don’t pay their fair share; just look at Warren Buffet and Mitt Romney!!”

Our tax system is inherently unfair. No one pays tax on the first $17,000 in income, so millions of American pay no income tax (arguably, rightly so).

Back in the day, the income tax was only for rich people; only 1 percent of the population got hit by any income tax in the early 1900s (you had to earn a whopping $3,000 a year before you paid tax). Progressively taxing the rich over decades contributed to broader government programs that, while perhaps inefficient, built the infrastructure and relatively stable economic environment that fostered a burgeoning American middle class and the envy and admiration of the world. All good stuff.

But all these well-to-do middle class folk wanted disposable diapers and instant coffee and houses and such.

And the government thought it was a good idea to encourage ownership of said houses, thus its ongoing decision to uphold the deduction of mortgage expense. The mortgage deduction is a good example of how good intentions can destroy tax revenue and hamper economic progress.

First, it shouldn’t be deductible. Interest deductions were originally allowed with business expense in mind to spur investment and job creation; there was no 30-year, government-backed mortgage (let alone government-sponsored entities or investment banks securitizing and reselling them).

Second, it encourages American to tie up capital and piece of mind in their overpriced homes. The homes are overpriced because the demand for them is artificially boosted by the mortgage interest deduction and the government’s willingness to subsidize the costs of making and securitizing mortgage loans.

I am one of the faceless millions of Americans awkwardly ensconced in the upper middle class. We’re the ones who get pinched by the rhetoric and the enfeebled compromises that aim to increase tax revenue (not to mention the dread Alternative Minimum Tax). But, we can afford to be pinched, so no one cares.

I think people hate us, but I’m not sure everyone does; the employees of Lululemon and Starbucks are big fans. We’re the ones who make good money and experience irrational housing prices (that we ironically cause) in much-desired locales. You shouldn’t feel sorry for us, but we’re the ones without a voice.

And rightly so. We don’t win anyone elections.

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