Trump, GOP promise tax relief for middle class. But who does that mean?

Congress Taxes
Treasury Secretary Steven Mnuchin, seen here Sept. 12 at the Capitol for a meeting on the Republican tax overhaul.

WASHINGTON — Republicans promise that their massive tax overhaul plan will help the middle class.

But who exactly fits into that category? Despite weeks of  invoking the middle class, Republicans don’t have a ready definition.

“I don’t think we have a precise line,” said Sen. Pat Toomey (R., Pa.), who sits on the Senate committee that writes tax law. “It’s different in different regions of the country. It’s different in different parts of Pennsylvania.”

The question is more than esoteric.

As House leaders rolled out a sweeping tax bill Thursday and began to fill in the details of the plan, the question of where the middle class starts and ends could drive key policy decisions that determine who benefits and who doesn’t.

If some tax breaks are phased out or capped, what will be the income cutoff? Would a couple with two children and $250,000 of income be considered middle class and thus entitled to the full array of tax benefits? Or will breaks be scaled back to provide more for people lower down the income scale?

The House bill starts to lay out those answers. For example, it limits the deduction for home mortgage interest to homeowners with new loans worth up to $500,000, down from $1 million, and caps property-tax deductions at $10,000. But the details are likely to change in the course of long negotiations in that chamber and the Senate.

The question of who should be seen as middle class defies easy answers in a sprawling country where costs vary widely from places like Philadelphia to, say, Omaha.

Kevin Hassett, the University of Pennsylvania- and Swarthmore College-educated chair of President Trump’s Council of Economic Advisers, would not offer his own parameters when pressed on the definition of middle class.

He only noted that the middle 20 percent of income ranges roughly from $40,000 to $70,000 — without saying if the administration had adopted that definition.

“I have not been in discussions with the White House about what the definition of middle class is,” Hassett told reporters in October. “What middle class is, it depends on what the question is.”

Several lawmakers from the Philadelphia area cautioned that what looks like a lot of money for much of the country might not make someone wealthy in this area.

“The income that looks pretty high in Tennessee may not look all that high to a family in North Jersey or eastern Pennsylvania, especially if they have child care or college expenses or things of that nature,” said Rep. Pat Meehan (R., Pa.). “There’s an appreciation that there will be differences from district to district.”

Rep. Tom MacArthur (R., N.J.) offered a broad range for his high-income and high-cost state: $78,000 up to about $330,000.

“In New Jersey, with our taxes and our cost of housing and such,” he said, “that group needs to come out OK in all this reform.”

Democrats insist that Republicans’ plan will mainly help the wealthy, citing independent analyses written before the bill was released. Republicans slammed those critiques and insisted that “middle class” Americans will reap the benefits of the final plan.

One way economists look at the question is to consider the middle 20 percent of the income range, said Kimberly Burham, managing director of legislation and special projects at Penn Wharton’s Budget Model, which analyzes economic policy. Another is to look at the middle three quintiles of the income scale — leaving the bottom 20 percent as lower class and top 20 percent as upper class.

That leaves the middle 60 percent of income ranges, which runs from $24,000 to $121,000, she said.

“That can encompass a lot of people,” Burham said.

In a study last year, the Pew Research Center labeled as “middle income” those  who make between roughly $42,000 and $125,000 for a family of three. That definition, based on 2014 economic data, encompassed people who made between two-thirds of the median national income up to double the median, said Rakesh Kochhar, an associate director of research at the center — though he noted that the lower and upper ranges have probably increased somewhat in the years since.

Around half of U.S. households fit into this middle-income group — down from 61 percent in 1971, Kochhar said.

Defining Who Is Middle Class

A recent Pew Research Center study defined middle-income adults as those making between $41,641 and $124,924 for a family of three, based on nationwide statistics. But because of differences in cost of living and salaries, the definition of “middle income” can vary widely depending on where you live.
Staff Graphic

But regional differences can slide the definition. In the metro area that includes Philadelphia, the “middle income” range for a family of three is from about $45,000 to nearly $135,000, Pew found, and about 51 percent of adults fit into the tier.

By comparison, in Toledo, Ohio, for the same size family, middle income begins at about $37,500 and tops out at around $112,400. New Yorkers making up to $152,800 are still considered middle income by Pew’s standard.

For most people, numbers don’t tell the whole story of their class. Being middle class has much to do with cultural signifiers, like jobs, education, or personal interests.

A medical resident at Harvard, for example, might be in the lower-class income bracket — but likely feels middle class or higher, Kochhar said.

“That can be: How do I feel? How am I doing in life? How do I compare to the people that I see around me?” Burham said.

Rep. Donald Norcross (D., N.J.), a former electrician and labor union leader, had a vague definition of middle class.

“It’s also a state of mind,” he said. “That you get up every day, you go to work, earn a living.”

But such soft definitions won’t provide much help when it comes to writing laws with hard lines about who pays how much in taxes.

Toomey argued that Republicans can be successful as long as they spread the benefits of their tax plan widely.

“If everyone has lower taxes,” he said, “then you know you’ve covered the middle class.”