The Joe-the-Plumber vote is bigger than you think

Until
Wurzelbacher launched into his challenge to Barack Obama’s rhetoric
about the elusive "5 percent" of Americans whose taxes would be hiked,
"the rich" seemed like some abstract, black-and-white concept. The U.S.
economy, according to the Obama campaign and much of the media, was
divided into either Wall Street fat cats or the rest of us Joe
Six-Packs who barely had two nickels to rub together.

But
Wurzelbacher put a face on the diverse class of voters could be
classified as "rich" under a highly redistributionist tax plan such as
that proposed by Obama. And the fact is that America has a dynamic
economy with entrepreneurs and savers jumping back and forth into new
income demographics all the time. As financial adviser Jim H. Ainsworth
wrote on this site in August, "I know many people who have hit a high-income threshold only once in their lives."

In their best-selling 1996 book The Millionaire Next Door,
Thomas J. Stanley and William D. Danko documented that even most
millionaires are difficult to distinguish from ordinary folks. Most
"wear inexpensive suits and drive American-made cars," the authors write.
"Only a minority …drive the current-model-year automobile." And 80
percent are "first-generation affluent." What distinguishes them are
frugality, disciplined investment habits, and entrepreneurial
risk-taking. According to Stanley and Danko, "self-employed people make
up less than 20 percent of the workers in America but account for
two-thirds of the millionaires."

What’s
more, according to the authors, many of the millionaires’ businesses
"could be classified as dull/normal. [They] are welding contractors,
auctioneers, rice farmers, owners of mobile-home parks, pest
controllers, coin and stamp dealers, and paving contractors." It’s this
not-so-exclusive club that Wurzelbacher wants to join by owning his own
plumbing business. He may not make it to profits of $250,000 a year –
the threshold at which Obama says his tax hikes for families will begin
— but doesn’t want the tax system to penalize him if he does. Given
the fact that unlike Wall Street titans, Wurzelbacher and others won’t
get a taxpayer bailout if they fail, they probably want to put every
penny they can into expanding their businesses further.

But
with his reply to Wurzelbacher, Obama made it clear to him and many
others in his situation that they would face higher taxes not because
of pressing budget needs, but simply to advance the redistributionist
notion of "spread[ing] the wealth around."
This fits in the with the observation of the highly sympathetic New
York Times Magazine article on Obama’s economic policies that
nevertheless noted
that Obama’s proposed tax hikes were far more "progressive" than even
those enacted by the Clinton administration. According to the article,
"Obama’s agenda starts not with raising taxes to reduce the deficit, as
Clinton’s ended up doing, but with changing the tax code so that
families making more than $250,000 a year pay more taxes and nearly
everyone else pays less."

The
$250,000 figure has also to this point made good politics. It has
allowed Obama to maintain that 95 percent will not pay more taxes. But
even assuming Obama holds to this promise, the "5 percent" — and those
like Wurzelbacher who wish to join it — actually represent a
substantial bloc of voters.

The
rich as a voting bloc? The idea seems strange because one of the things
that define the wealthy as a class is that there are supposedly so few
of them. Thus, even some conservative writers take it for granted that
their only importance in the electoral process is in giving money to
candidates and causes. In arguing in his book Comeback that
tax cuts are basically dead as an issue, David Frum argues that the top
1 percent of earners pay one-third of the taxes. He then adds, however,
that "they still cast only 1 percent of the votes."

Frum
is certainly correct on his first point that the rich pay an
overwhelming share of the tax burden. But the latter part of his
argument contains a fallacy common in observing voters. That is, he
assumes that all groups vote in proportion to their share or the U.S
adult population, or even their eligibility to vote. The fact is that
in elections with around 50 percent voter participation rates – and a
50 percent turnout would be high — upper-income voters still have
recently constituted almost 25 percent of the electorate. As liberal
financial columnist Daniel Gross has written
in Slate, "Because we’re in an age of mass affluence, and because
wealthier people tend to vote more frequently than poorer people do,
the voting behavior of the rich can be almost as significant as the
political donations they make."

In
the Congressional elections of 2006, those making more than $100,000 a
year made up 23 percent of the voters, according to the CNN exit
polls.  And those making more than $200,000 were 10 percent of the
voters. And these upper-income voters were pretty evenly distributed
across geographic regions, constituting more than 25 percent of the
electorate in the East and West, 23 percent in the South, and 18
percent in the Midwest.

From
the way the GOP is described as the party of the rich, you’d think
Republicans would have this voting bloc in the bag. But in truth,
upper-income voters have been drifting toward the Democrats in the last
few election cycles. In fact, in the 2006 elections, Gross contends,
rich voters may have been instrumental in handing back control of
Congress to the Democrats.

That
year, on a nationwide basis, GOP candidates won households making more
than $100,000 a year by a bare majority of just 51 percent. "[I]t’s
quite possible that the defection of angry rich folks might have tipped
the balance in places like the Rhode Island and Virginia Senate races
[where GOP incumbents Lincoln Chafee and George Allen were defeated,
respectively by Democrats Sheldon Whitehouse and Jim Webb] and
Republican House losses in Pennsylvania, Connecticut, New Hampshire,
Colorado, and Arizona," Gross wrote.

"The
rich," like other income demographics, are as a diverse political
class. But this year, upper income voters are in play because of the
direct threat of the vast and looming tax hikes Obama and other
Democrats have explicitly promised. It’s not just Joe the plumber’s
income taxes that will go up once his family hits the magic number
$250,000. Obama’s plan would also subject
his entire earnings above $250,000 to the 12.4 percent payroll tax for
Social Security and Medicare. Currently this tax is capped at $102,000
per year.

As Andrew Biggs, former deputy principal commissioner at the Social Security Administration has written
in the Wall Street Journal, "The U.S. already collects far more Social
Security taxes from high earners than other countries do … and Mr.
Obama’s plan would make it more so." Financial Times columnist Rob
Arnott has also pointed out "the proposed" tax hikes, combined with state and local taxes, total taxes "can quickly exceed 60 percent" for the affluent.

But
note the Arnott’s use of the phrase "the proposed" without
identification of the candidate doing the proposing. At the beginning
of his column, he wrote, "High taxes are a near certainty in 2009, no
matter who wins in 2008." In addition to the FT, Kiplinger’s and USA Today’s "Money" section
have featured articles about looming taxes next year. But like Arnott’s
column, they both leave the impression that taxes will go up no matter
who is elected, and don’t mention that one campaign has promised to
leave current tax rates in place for everyone, while the other has
proposed massive new tax hikes for "the wealthy." 

Republicans
and John McCain’s campaign have had trouble unclogging this media
blockage of information about just who "the rich" are and how much they
will likely be "soaked" under Obama. But Joe the plumber just may have
opened the pipes and spread the message to those who don’t wish to see
their newly acquired wealth go down the political drain.