Stop pretending you’re not rich: preserving benefits in the top 1% and the top 20% in the US

By Richard Reeves, NY Times, 11 June 2017

The upper middle class is solidifying. This favored fifth at the top of the income distribution, with an average annual household income of $200,000, has been separating from the 80 percent below. Collectively, this top fifth has seen a $4 trillion-plus increase in pretax income since 1979, compared to just over $3 trillion for everyone else. Some of those gains went to the top 1 percent. But most went to the 19 percent just beneath them.

The rhetoric of “We are the 99 percent” has in fact been dangerously self-serving, allowing people with healthy six-figure incomes to convince themselves that they are somehow in the same economic boat as ordinary Americans, and that it is just the so-called super rich who are to blame for inequality.

Politicians and policy wonks worry about the persistence of poverty across generations, but affluence is inherited more strongly. Most disturbing, we now know how firmly class positions are being transmitted across generations. Most of the children born into households in the top 20 percent will stay there or drop only as far as the next quintile. As Gary Solon, one of the leading scholars of social mobility, put it recently, “Rather than a poverty trap, there seems instead to be more stickiness at the other end: a ‘wealth trap,’ if you will.”

There’s a kind of class double-think going on here. On the one hand, upper-middle-class Americans believe they are operating in a meritocracy (a belief that allows them to feel entitled to their winnings); on the other hand, they constantly engage in antimeritocratic behavior in order to give their own children a leg up. To the extent that there is any ethical deliberation, it usually results in a justification along the lines of “Well, maybe it’s wrong, but everyone’s doing it.”

The United States is the only nation in the world, for example, where it is easier to get into college if one of your parents happened to go there. Oxford and Cambridge ditched legacy preferences in the middle of the last century. The existence of such an unfair hereditary practice in 21st-century America is startling in itself. But I have been more shocked by the way that even supposedly liberal members of the upper middle class seem to have no qualms about benefiting from it.

The upper middle class is also doing lots right, not least when it comes to creating a stable family environment and being engaged parents. These are behaviors we want to spread, not stop. Nobody should feel bad for working hard to raise their kids well.

Things turn ugly, however, when the upper middle class starts to rig markets in its own favor, to the detriment of others. Take housing, perhaps the most significant example. Exclusionary zoning practices allow the upper middle class to live in enclaves. Gated communities, in effect, even if the gates are not visible. Since schools typically draw from their surrounding area, the physical separation of upper-middle-class neighborhoods is replicated in the classroom. Good schools make the area more desirable, further inflating the value of our houses. The federal tax system gives us a handout, through the mortgage-interest deduction, to help us purchase these pricey homes. For the upper middle classes, regardless of their professed political preferences, zoning, wealth, tax deductions and educational opportunity reinforce one another in a virtuous cycle.

It takes a brave politician to question the privileges enjoyed by the upper middle class. Recently, there have been failed attempts to make zoning laws more inclusive in supposedly liberal cities like Seattle and states like California and Massachusetts. The handout on mortgage interest appears to be an indestructible deduction (unlike in Britain, where the equivalent tax break was phased out under both Conservative and Labour governments by 2000).

Or look at 529 college savings plans, another boondoggle. These are tax-exempt vehicles for putting money aside for educational expenses. Thanks to legislation signed by George W. Bush in 2001, any capital gains in these plans are free of all federal taxes. Most states also allow savings up to a certain level to be deducted from state income tax. Almost all the benefits of 529 plans go to upper-middle-class families. But when President Obama proposed to end the federal tax break in 2015, uproar ensued, and not just from Republicans. Liberal democrats representing affluent districts killed the idea stone dead.

Progressive policies, whether on zoning or school admissions or tax reform, all too often run into the wall of upper-middle-class opposition. Self-interest is natural enough. But the people who make up the American upper middle class don’t just want to keep their advantages; armed with their faith in a classless, meritocratic society, they think they deserve them. The strong whiff of entitlement coming from the top 20 percent has not been lost on everyone else.

I see now that English class consciousness has an important silver lining. At least there we know that class is a real fact of social life. Posh Brits are more likely to see that their position is at least in part the result of good fortune. For Americans to solve the problem of their deepening class divisions, we will have to start by admitting their existence and our complicity in maintaining them. We need to raise our consciousness about class. And yes, I am looking at you.