Friday, September 14, 2012

What Defines Middle Income? On Romney's Views.

You may have already heard about how Mitt Romney responded to George Stephanopoulos' question about what a middle income might be:

MITT ROMNEY: Well, I said that there are five different studies that point out that we can get to a balanced budget without raising taxes on middle income people.  Let me tell you, George, the fundamentals of my tax policy are these.  Number one, reduce tax burdens on middle-income people.  So no one can say my plan is going to raise taxes on middle-income people, because principle number one is keep the burden down on middle-income taxpayers.
GEORGE STEPHANOPOULOS: Is $100,000 middle income?
MITT ROMNEY: No, middle income is $200,000 to $250,000 and less.  So number one, don’t reduce– or excuse me, don’t raise taxes on middle-income people, lower them.  Number two, don’t reduce the share of taxes paid by the wealthiest.  The top 5% will still pay the same share of taxes they pay today.  That’s principle one, principle two.  Principle three is create incentives for growth, make it easier for businesses to start and to add jobs.  And finally, simplify the code, make it easier for people to pay their taxes than the way they have to now.

That's a pretty loose definition of "middle income," especially as it has no lower bound at all, so even the poorest households might be covered by that definition.  

For more meaningful definitions, have a look at this piece by Alicia Munnell.  For instance, in  2010, an annual household income of $180,810 would have put a household at the 95th percentile of the income distribution.  What does that mean?

That only approximately five percent of American households earned more than that figure.  It could be that the figures Romney cites define the 95th percentile today?  But in any case "middle income" cannot be more than or equal to what 95% of American households earn.  It cannot even be the upper bound of such a class.

One might bicker over whether something like "middle income" can even be defined.  Is it the amount which allows a family to live "a middle class lifestyle?"  That amount obviously varies between geographic areas, but it also will vary depending on how we define such a lifestyle.

It's better to stay within statistical definitions.  If we stick to those, in 2010 the median (the middle income in the sense that roughly half of all incomes were less than that particular income and roughly half were more) household income in the United States was $49,445.

This has been a post in the series of excruciatingly boring economic posts by yours truly.