Fragmentary Evidence

Every so often, newspapers print articles about the struggles of some of the wealthiest people in our country, who are barely scraping by on several hundred thousand dollars a year. The New York Times’s 2007 story on “working class millionaires” in the Bay Area was a classic of the genre. And last year, when the San Francisco Chronicle’s conservative columnist Debra J. Saunders dared to call people making $200,000 to $250,000 a year “rich,” she received so many indignant responses from high-earning readers that she decided to follow up in her next column, answering the objections of people like the lawyer who wrote in to inform her that a $200,000 salary cannot, by definition, make someone rich because “a ‘rich’ person does not need to work.”

The Wall Street Journal had a version of this old chestnut yesterday, in an article about how much people who make $250,000 to $400,000 a year will suffer if their taxes go up during President Obama’s administration. I won’t waste too much time explaining why it nauseates me, particularly in these tough economic times when many people are losing their jobs entirely, to hear people who earn more than 98 percent of Americans talk about how they struggle to pay their bills, but here’s an excerpt that gives you a sense of how hard it is to eke out a living on $260,000 a year:

“I’m not complaining, but the reality is Obama may call me wealthy, but I thought we were just good old middle class,” says Ms. Parnell. “Our needs are being met, but we don’t have a load of cash to cover wants.”

…For the Parnells, their perception of themselves is based on the math. The value of their house is down $60,000. Ms. Parnell says the couple’s gross income last year was about $260,000. Taxes, premiums for medical care and deductions for Social Security and their 401(k) contributions cut the gross to about $12,000 per month. The family tithes $1,300 a month at their church. Their mortgage, second mortgage and payment on land they bought is nearly $4,000 a month. Other expenses, including their family car payment, insurance and college funds, as well as basics like food, utilities and donations to charities, leave them with about $1,200 left over each month.

“I’m not after sympathy. We are blessed. What I want is a reality check on what rich means,” Ms. Parnell says. “I can pay my mortgage and I can buy some clothes. I’m not going without, but I’m not living a life of luxury.”

If anyone needs a reality check, it’s people like Ms. Parnell. (It’s interesting how the word “rich” is often the trigger that provokes such a strong reaction; people such as Ms. Parnell are perfectly willing to admit that they are “blessed,” or “fortunate,” or any number of other euphemisms, but call them “rich” and you will immediately be challenged.) I understand that life is expensive for a family of five, and that even for households who earn a quarter of a million dollars a year, there are a lot of things that they cannot afford, but do the Parnells realize that the $1,200 that they have left over each month—after putting money into their retirement accounts and college funds and tithing to their church and donating to charities—is more than the entire monthly income of about 15% of American households? Another person quoted in the article makes $400,000, but says, “I’m barely getting by.”

Presumably these people know that a lot of people “get by” just fine on much less than they do, so even if they don’t want their taxes raised (who does?), you might think that they would be a bit embarrassed to tell a newspaper that they are “barely getting by” or “don’t have a load of cash to cover wants.” (If the mysterious “land they bought” was not a “want,” then what was it? A need?)

I’ve read so many articles like this before that I am no longer surprised when I see some of our nation’s highest earners explaining to reporters how tough it is for a family to make ends meet on a mere $150,000 a year after taxes. I was surprised, however, to see the mayor of San Jose buying into this blinkered view of the world:

Changes to the tax code don’t generally make adjustments for high costs of living in particular areas of the country.

San Jose, Calif., Mayor Chuck Reed calls a family living in Silicon Valley earning $250,000 “upper working class.” That is about what two engineers working at a technology firm can expect to make, but “a family earning $250,000 a year can’t buy a home in Silicon Valley,” he said.

What on earth is Reed talking about? If he wants to think of Silicon Valley engineers as “upper working class,” then I guess that’s his right, but the notion that a family earning $250,000 a year can’t buy a home in Silicon Valley is absurd. The median single family home price in Reed’s own city of San Jose is now under $500,000, down from about $600,000 a year ago. In nearby Mountain View, the median price is under $1 million. If Reed’s hypothetical household of Silicon Valley engineers bought an above-median home in San Jose or a middle-of-the-road home in Mountain View and took out an $800,000, 30-year mortgage at a 6% rate (that’s higher than current rates), their payments would be a bit less than $4800 per month—less than $60,000 per year. Even if they only brought home $140,000 after taxes, they would still have more than $80,000 left after their mortgage payments.

To put that number in perspective, the census bureau reports that San Jose’s median household income was $76,354 from 2005-2007. Let’s round that up to $80,000. So our hypothetical engineers could buy a decent house in many parts of Silicon Valley, and the money they had left over after taxes and mortgage payments would still be more than the median pre-tax income of all San Jose households. It’s obviously true that $250,000 doesn’t get you as much in Silicon Valley as it would in most other parts of the country, and you might not be able to afford a house in Atherton on that income, or a vacation condo at Lake Tahoe, or private school tuition for 3 school-age children, or any number of other things that you might wish you could afford, but it’s still more than most residents of San Jose earn, and it is certainly enough to buy a home, if that is your goal and if you have any basic ability to manage your other spending.

I don’t follow San Jose politics at all, so I don’t know if that quotation is characteristic of Reed, or if he just said a silly thing this one time, or if he was quoted out of context, or if he just figured that the price to pay for saying something dumb was less than the price he would have paid for offending his well-off constituents by failing to commiserate with their plight. But if I were among the 50% of San Jose households who earn less than $80,000 a year, I would wonder whether Reed is out of touch with the parts of his community that are truly “working class.”

The State of California announced this morning that the official unemployment rate reached 11.2 percent in March. Many Silicon Valley technology companies are laying off workers because of the economic downturn. Even Google, which somehow made a profit in the 1st quarter even though most of its revenue comes from advertising, has laid off some workers for the first time in its history.

Given that context, I would have hoped that a public official like Chuck Reed would add some much-needed perspective to the views of the other people quoted in the article, instead of endorsing their distorted view of reality.