PrintOctober 22, 2008
The Joe-the-Plumber vote is bigger than you think
Joe the Plumber did more than add some levity to the last presidential debate. Joe, aka Joe Wurzelbacher of Ohio, just may have awakened a swing bloc of voters that could make the difference in this election. This voting group can be described as "the rich" and those who aspire to be, and believe it or not, they could actually represent more than 20 percent of the electorate.
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.
John Berlau is director of the Center for Entrepreneurship at the Competitive Enterprise Institute and blogs at CEI's Open Market.org.
