The revolt of the lower upper class begins

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Back in 2006, Matt Miller wrote a column for Fortune that seemed very clever to me at the time and now is looking downright prescient. The gist of it:

Here’s my outlandish theory: that economic resentment at the bottom of the top 1 percent of America’s income distribution is the new wild card in public life. Ordinary workers won’t rise up against ultras because they take it as given that “the rich get richer.”

But the hopes and dreams of today’s educated class are based on the idea that market capitalism is a meritocracy. The unreachable success of the superrich shreds those dreams.

“I’ve seen it in my research,” says pollster Doug Schoen, who counsels Michael Bloomberg and Hillary Clinton, among others. “If you look at the lower part of the upper class or the upper part of the upper middle class, there’s a great deal of frustration. These are people who assumed that their hard work and conventional ‘success’ would leave them with no worries. It’s the type of rumbling that could lead to political volatility.”

Lower uppers are doctors, accountants, engineers, lawyers. At companies they’re mostly executives above the rank of VP but below the CEO. Their comrades include well-fed members of the media (and even Fortune columnists who earn their living as consultants).

Lower uppers are professionals who by dint of schooling, hard work and luck are living better than 99 percent of the humans who have ever walked the planet. They’re also people who can’t help but notice how many folks with credentials like theirs are living in Gatsby-esque splendor they’ll never enjoy.

This stings. If people no smarter or better than you are making ten or 50 or 100 million dollars in a single year while you’re working yourself ragged to earn a million or two – or, God forbid, $400,000 – then something must be wrong.

The Obama administration is very much a lower upper crowd. And sure enough, they’re coming out with rules today limiting cash pay to $500,000 at banks and other companies that get “exceptional assistance” from the government. They also decided to dump Tom Daschle, who abandoned the lower upper ranks for Richistan when he left the Senate, while sticking with Tim Geithner, who doesn’t appear ever to have made more than $400,000.

Next up (a year or two down the road) the tax code. As I’ve written before, the U.S. tax system possesses the interesting characteristic of being progressive for most of the income distribution (that is, the higher your income, the higher a percentage of it you pay out in taxes), then turning regressive somewhere near the top. For the most progressive of taxes, the federal income tax, that kink occurs somewhere in the top 1% of the income distribution—mainly because the super-rich get a higher percentage of their income from capital gains, which are taxed at a lower rate than earned income. Obama already pledged on the campaign trail to undo the income tax cuts of the Bush years for those making more than $250,000 a year. Expect more along those lines.

Of course, if things keep getting dramatically worse with the economy, we may see a revolt against all the upper class, even the lower uppers. But for now, Miller’s prediction is looking awfully smart. And if you desire more such smartness, he’s got a new book out called The Tyranny of Dead Ideas: Letting Go Of The Old Ways Of Thinking To Unleash A New Prosperity. Chapter 11 happens to be titled, “Only the (Lower) Upper Class Can Save Us from Inequality.”