The economics of wealth

What do you consider rich?

It is an important question. Our definition of “poor,” “just getting by,” “middle-class,” and “rich” have major implications on public policy.

Politicians build entire careers on seeding jealousy and anger among each of these groups — in both directions — which they then use to pit groups of people against each other, to win elections and make substantive policy changes.

This week, the gubernatorial debates provided us an opportunity to see how this politically motivated class resentment works up close.

U.S. Rep. Mike Michaud, in predictable fashion, dusted off a rather tired talking point, and accused Gov. Paul LePage of pushing a tax cut for the (stop me if you’ve heard this one before) top 1 percent of Maine families.

The accusation is, of course, nonsense. The tax reform package passed by the Legislature and signed by the governor removed roughly 70,000 low income people from income tax liability, and cut the top marginal rate, which kicked in at an astonishingly low $19,500.

As to my original question in this column, I think we can all agree that $19,500 isn’t rich. It isn’t even lower middle-class.

In response to Michaud’s ludicrous assertion, the governor correctly cited the dropping tax burden on low-income families, as well as the fifth-highest-in-the-nation burden on those making $100,000 a year. LePage then noted that those making $100,000 a year are, “the richest people in Maine,” before going on to say, “And I don’t know how many of you are making $100,000, but it’s not that rich.”

It was an appeal to the audience to not fall into the trap of class conflict. The people doing the best in Maine are themselves not exactly rolling in barrels of cash, so treating them as though they are is a punitive, damaging policy priority. We are all not each other’s enemy, but are in this together.

Predictably, Michaud and his allies pounced on the rather thoughtful reply. They simply couldn’t help themselves. The attacks were swift, petty, and completely unhelpful to anyone but Michaud.

What is considered “rich” is relative. Growing up in central Maine, I believed that $30,000 a year made you rich. That perception has changed over time, obviously, as I have grown older, gotten married, and had some kids.

So it is worth asking, is a married couple who each make $50,000 a year and have a couple kids really “rich” in Maine?

There are a lot of variables to consider when determining that, but in most instances I would suggest to you, they really aren’t.

Such a family, for instance, immediately loses about $11,638 in federal income taxes, $6,200 in Social Security taxes, $1,450 in Medicare taxes and $6,985 in Maine income taxes. That’s before they start to pay bills.

Factor in for all four members of this family the cost of a mortgage payment, property taxes, homeowner’s insurance, car payments, car insurance, gasoline, health insurance, prescription drugs, student loan payments for both adults, clothes for everyone, electricity, home heating oil, water and sewer, cell phones, internet, cable, groceries, your children’s activities, expenses for a pet, haircuts, and infrequent entertainment and occasionally eating out.

Most of what a family of four had in income is eaten up right there. And you will notice the absence of things like “vacations” or “saving for retirement” or “paying for my kids’ college education.”

You also don’t see things like, “my head gasket blew” or “there’s a hole in my roof” or “I have some unexpected medical bills.”

At the end of the month, such a family very easily could have little to nothing left over to save, or even potentially be in the red.

Families all over Maine make a lot less than that and make it work, and there is no question that some of the bills I mentioned could be cut, or the amount spent on them reduced.

No one is asking you to feel sorry for such a family, and no one is suggesting they are in financial crisis. But people in that income bracket are not talking about spending the summer on their yacht or furnishing the camp they have on a lake. So let’s stop pretending they are “rich” and are “out of touch.”

The real point shouldn’t be that one family lives more efficiently than another, or that a family such as this couldn’t make do with less. The point is that having cable television, a pet, being able to go out to the Olive Garden with your family once a month and not being able to take a vacation isn’t exactly the lifestyle of the “rich.”

In fact, it is the very essence of a middle-class lifestyle.

The world we live in today is a great deal more expensive than in the past, and everyone’s money buys less than it used to. Whether we make $20,000 a year, $40,000, $80,000 or $100,000, we are trying to get by the best that we can.

Our government and our political candidates should stop pitting us all against each other, sowing jealousy, mistrust and anger. We buy it hook, line and sinker.

Some day, we should start to punish, rather than reward, those who create divisions in this way.

Matthew Gagnon

About Matthew Gagnon

Matthew Gagnon, of Yarmouth, is the Chief Executive Officer of the Maine Heritage Policy Center, a free market policy think tank based in Portland. Prior to Maine Heritage, he served as a senior strategist for the Republican Governors Association in Washington, D.C. Originally from Hampden, he has been involved with Maine politics for more than a decade.