America's Upper Middle Class Problem
Richard Reeves’ new book "The Dream Hoarders" (Brookings, 2017) forwards a thesis that should disturb all Americans who hold professional or managerial jobs. A Brookings Institution scholar and former top adviser to then-U.K. Deputy Prime Minister Nick Clegg, Reeves posits that much of what ails American society stems from programs that either deliberately or implicitly favor upper-middle class households.
The book cites policies that range from tax-advantaged 529 college savings plans to the mortgage-interest tax deduction as clear examples of policies that favor the well-off. The blame for growing income inequality, Reeves posits, shouldn’t be pinned just on the top 1 percent but rather on the professional and managerial class as a whole.
While there are plenty of nits to pick with the details—preferences for college “legacies” may be morally offensive, but Reeves grants them more attention than they deserve—it’s difficult to fault his overall thesis. A wide variety of policies do indeed perpetuate the interests of the top income quintile, a small but not tiny class that, by virtue of political participation and control, manages to rig the game in its own favor. The current mortgage-interest deduction does almost no good and college savings systems need significant reform to offer more benefits to the lower-middle class and fewer to the well-off.
But does this mean government should do nothing for those who are well-off? Should policy actively work to tilt the playing field against them to foster more social mobility? The facts say no. In fact, there are some cases where programs and policies that benefit the upper middle class make a lot of sense.
As citizens—not to mention citizens who pay the great bulk of all taxes—members of the upper middle class deserve equal access to those things the government provides for everyone. Naturally, they deserve equal access to public goods like law enforcement, national defense, parks and the like. So long as education and planning policies are locally driven, it’s also inevitable that those who do well financially will have the resources to spend more on schools and live in nicer neighborhoods.
There also are a host of policies designed to encourage wealth accumulation that successfully promote better overall social outcomes, even if many of the benefits flow to those who are already prosperous. The benefits of almost any implicit or explicit incentive to save will tend to accrue disproportionately to those who have more money to save.
The truly rich—say, those with annual incomes of more than $1 million—surely will have enough money to live in the future, no matter what. By contrast, a comfortably upper-middle class family with two full-time workers who each bring in $70,000 a year each (wages that could be earned by a nurse or a retail manager) might not be able to maintain that income forever. Offering a strong incentive to save for retirement, even one that offers relatively few benefits to those who earn significantly less, can do a lot of social good by reducing the chances they’ll ever have to depend on charity.
Sometimes, families have massive needs that anyone who isn’t very wealthy would struggle to meet. The lifetime costs of raising a special needs child can be $2 million more than those of a typically developing one. Hardly anyone could or should pay for all of those costs without help; even well-off families will send their children to special education classes at public schools. Programs that encourage or subsidize savings to help with such needs can make a lot of sense.
For example, the Achieving a Better Life Experience (ABLE) Act of 2014 expanded the existing 529 program to create "ABLE Accounts" that allow some tax-advantaged savings for the future needs of special needs children. Rep. Cathy McMorris Rodgers, R-Wash., recently introduced legislation that would make it easier for such families to plan for the future, encourage special needs adults to work and raise the age for eligibility. Most of those who take advantage of the enhancements, styled "ABLE 2.0," likely won’t be upper middle class, but most of the dollars saved will come from those who are. Given that seriously disabled children usually will become disabled adults who need social support their entire lives, encouraging well-off families to save more to serve their children's future needs actually can serve to reduce dependence on public support in the future.
Are programs like this the single most important thing for government to do? Probably not. But there are sometimes real public purposes in government policies that also happen to help the well-off.