June 10, 2008 6:00PM

Searching for a “Middle” Class

By Brian Sullivan

We should place a bet on how many times the terms “tax” and “middle class” and uttered in the same sentence by Barack Obama and John McCain ahead of the November election.    My under/over on each would probably fall somewhere around 1,000.  That’s 1,000 times each word is uttered, not combined.

While I know what the word “tax” means (believe me, living in New Jersey you do), the problem is that I have no idea what being “middle class” means.  For that matter, I also don’t know what it means to be “rich.”  I’m not sure the candidates do.  I’m not sure Americans do.

I’m not trying to be obtuse.  Let me explain.

I found this on factcheck.org: An Oct. 2007 poll by the Kaiser Family Foundation, Harvard School of Public Health and National Public Radio asked 1,527 adults what income level makes a family of four middle class. About 60 percent said a family earning $50,000 or $60,000 fit that description. But 42 percent answered an income of $40,000 and 48 percent said $80,000 were both middle class 

Here’s what everyone - Presidential candidates included - is missing: the determination of any relative wealth level cannot be defined solely by income, it must also include cost of living.  We should analyze households and taxes the same way we look at companies, revenue (income) vs. expenses (cost of living).   

For example, according to the 2000 census, the median home price in Iowa was $82,500.   The median price in New Jersey that year was $170,000.

Of course, that data is old (though the newest we have from the census) and so less official but still relevant numbers show this: that the median home price in Iowa from 2006 to 2007 was around $145,000.   The median price of a home in New Jersey in 2007 was $196,300 and more strikingly the median home price for a home in all of the Northeast was $280,000.   Basically double that of Iowa.

And think of it this way.   At 6.25%, a $145,000 loan has a monthly payment of just under $900/month.   The monthly mortage for the average home in the Northeast is $1,700.   And that doesnt include both higher property taxes (guaranteed) and higher insurance costs (nearly guaranteed).  I know people who’s car payment and car insurance is more than $900 a month.

The point is clear: people define their own financial status based on where they live (i.e. their cost of living).  I’m pretty sure that those making $80,000 a year in Iowa are feeling pretty good, at least based on their average home price.   After all, if you make $80ks a year and all-in your taxes are about 40%, your net income is about $4,000 a month.   Not bad compared to the sub-$1,000 monthly mortage. 

To have the same income v. monthly mortgage payment on the average home (income 4x that of monthly payment), the “middle classer” in New England would have to earn about $135,000/year.

Of course, if you went to Iowa and told the person who made $80k that you made $135k, they would think you are rich.  In reality, you are living with the same take home income, and likely higher expenses.

Obama and McCain need to learn basic math.  More important, they should learn to use a basic cost of living index when they discuss the “middle class” and the “rich.”   Especially Mr. Obama.   I’m not making a political statement (I leave that to others) but Obama won’t exactly win the hearts and votes of New Englanders by telling those who make $80,000 a year that they are “rich.”   Tying terms like “middle class” and “rich” to a cost of living index will not only make sure that those who live in pricey costal areas dont get hit with an already higher tax burden, but also make sure that those who can’t play “geographical arbitrage” and move the family to lower cost areas aren’t unfairly labeled, and punished.

Author’s note: I’m not picking on Iowa.  Its a lovely state.   I’m just still bitter about losing every single hand at a Harrah’s in Cedar Rapids!