Money

No one can agree what 'middle class' means, and it might matter now more than ever

Last Sunday, Press Secretary Sarah Huckabee Sanders wrote on Twitter, "The average American family would get a $4,000 raise under the President's tax cut plan."

Her claim seems to be based on a paper released by the White House Council of Economic Advisors that says, "Reducing the statutory federal corporate tax rate from 35 to 20 percent would, the analysis below suggests, increase average household income in the United States by, very conservatively, $4,000 annually."

Other Republican leaders in Washington and members of the Trump administration have promoted the proposed tax plan as being materially helpful to "middle-class" Americans. But one of the problems that those trying to sell the plan keep running into is that the definition of "average," "typical" or "middle-class" remains unclear.

In an interview for FOX Business, GOP Senator Rob Portman said the tax plan "is focused on the middle class." When pressed by the host to define what that meant for a family in Ohio, he said, "about 150 grand for a family."

That's twice the median household income of a three-person, middle-class family in Ohio, which is $73,458, according to the Pew Research Center.

Nationwide, the average American family currently makes about $74,000 a year before taxes, according to the Bureau of Labor Statistics, and while the median American income is $59,000 a year.

To some degree, "middle-class" seems to be a state of mind. 70 percent of Americans think of themselves that way, according to a new survey by Northwestern Mutual. But a 2015 report from Pew Research Center shows that, in practice, the middle class has been shrinking over the past four decades and now makes up only 50 percent of the U.S.

"When Americans talk about the 'middle class,' they are usually thinking about a range, not just the specific income dead in the middle," explains the Washington Post.

It's also situation specific. "The more people in a family, the more money they typically need to live a comfortable middle-class lifestyle," writes the Post. Likewise, the more expensive your area, the more you need to make to qualify. Overall, "America's middle-class ranges from $35,000 to $122,500 in annual income, according to The Post's calculation" approved by the Pew Research Center.

"The bottom line is: $100,000 is on the middle-class spectrum, but barely: 75 percent of U.S. households make less than that," writes the Post.

So would "average" or "middle-class" Americans actually be helped or hurt by tax reform? Politicians and economists continue to argue the point.

Economic adviser Gary Cohn took some heat for acknowledging that he "can't guarantee" taxes wouldn't go up for some middle-class families.

An NPR analysis concludes, "there are many reasons for American taxpayers not to expect $4,000 from this tax overhaul package." It says, "Already, with the word 'average,' there's reason for a taxpayer to doubt that she would receive $4,000 from this change in tax policy. After all, extremes make averages — the CEA report, for example, estimated the median household could get $3,000."

One now viral rejoinder to Sanders also makes the point that even thinking in terms of "average" can be misleading. If one person is given ten apples and nine others are given zero, each person will have an average of one — but only the first recipient has anything of value.

Some experts have made a similar point about the Republican tax plan which, they argue, in practice will heavily favor the rich, including various members of President Trump's cabinet and Trump himself.

"The Republican plan offers almost no direct benefit to the middle class," wrote Harvard Kennedy School professor and economist Jason Furman for the Wall Street Journal in an op-ed titled, "No, the GOP Tax Plan Won't Give You a $9,000 Raise."

And the chief economist of Moody's Analytics Mark Zandi writes, "The big winners are the top 5 percent of taxpayers, with current incomes well over $300,000 per year." Those "making less than $150,000 will take home a modestly higher sum after-tax," he predicts, though he declines to name a figure, and overall, for individuals, he predicts, it will be "a wash."

Bridgewater Associates CEO Ray Dalio agrees that "looking at 'average' conditions could provide a misleading picture as the concentration of wealth at the top skews the numbers. Instead, he advises a closer look at the plight of the middle class," CNBC reports.

Of course, that strategy only works if everyone agrees what "middle class" means.

Don't miss: Here's how much money Americans think you need to be considered middle class