The stories you want. The opinions that matter.
No, thanks
Tag: tax increases

Middle-Class Americans Suffer In Silence, For Now

Sept. 20 (Bloomberg) — President Barack Obama’s proposed tax on millionaires has restored the issue of “class warfare” to the forefront of politics.

The new tax plan follows a week of intense campaigning by the president for his jobs bill, and of considerable attention devoted to a Census Bureau finding that poverty rose to a 17-year high.

Asking the wealthiest among us to pay more, and taking new steps to help the least well-off — the jobless and the poor — are good policy. But politically, and perhaps even economically, the president can’t lose focus on a group often left on the sidelines of the political conflict over rich and poor: the long-suffering middle class.

Recent developments have driven home how urgently middle-class families need to be put front and center in Washington.

First, there was bad news for middle-class households in the Census Bureau’s study of poverty for 2010. The news reports focused on the finding that the average annual income of households at the bottom — those in 10th and 20th percentiles – – had fallen by $1,000 and $1,500 a year, respectively, since 1998. At the opposite end of the spectrum, households in the top 10 percent of the income distribution saw their annual income rise by $3,600, and those in the top 5 percent had a $4,200 increase, over the same period. (All these figures are adjusted to be constant for inflation.)

Rich Get Richer

But ignored in this story of the poor getting poorer and the rich getting richer was the less publicized — but equally important — finding of what happened to the household income of those in the middle of the economic distribution, the 50th percentile of national income. In actual dollars, these middle- class families suffered an even bigger drop in annual income than the poor did over the past 12 years: a decline of more than $2,500.

Put another way, American households in the middle of the income spread, those making about $50,000 a year, have lost more than $200 in monthly income since 1998.

The dwindling of middle-class incomes represents a sharp reversal of our tradition. The earnings of families in the 50th percentile rose more than $5,000 over the 12-year period from 1967 to 1979; it then edged up only slightly, by $650, during the tough 1979-to-1992 period; then saw another jump of $5,000 from 1992 to 1998. Thus, looking over the 31-year period from 1967 to 1998, the middle class had periods of strong increases in annual income, and some periods of lesser increases, but the trend moved in one direction: upward. One might even say the fundamental characteristic of middle-class life in America was steadily increasing income.

Decline in Savings

All that changed over these past 12 years, as the incomes of those in the middle fell. Moreover, this loss of annual income is compounded because these families have suffered — more than those above them or below them — a steep decline in savings due to the collapse of housing prices.

While the richest households have their wealth in diverse holdings (including stocks, which recovered after 2008), and the poor have no savings at all, middle-class families have their net worth concentrated in a single asset: accumulated equity in their homes.

Many of these families saw this “nest egg,” which they planned to tap to pay for a child’s college or their own retirement, wiped out when housing prices plummeted in 2008.

Second Blow

If the news on incomes wasn’t bad enough, the middle class was dealt a second blow last week when a report by the Washington research organization Third Way showed that schools serving this segment of the population have vastly under-delivered for their students. (Disclosure: I am a member of the board of trustees of Third Way, though I didn’t participate in preparing the report.)

No one should be surprised by Third Way’s finding that, compared with schools in the wealthiest districts, those serving middle-class families spend about $1,600 less per student, have three more students per teacher, and pay teachers $6,000 less per year.

Sadly, we have come to accept that wealthier districts get better public schools than middle-class areas. What was surprising in the Third Way report, however, was that, compared with middle-class districts, schools that serve the poorest students also spend more per pupil (about $1,400 more), also have fewer students per teacher (about one fewer), and also pay teachers more (about $1,600 a year more).

Behind the Wealthy

The bottom line: On all three of these critical metrics, middle-class school districts are behind both the wealthiest school districts (which use their bigger tax bases to fund their programs) and the poorest school districts (which benefit from more state and federal aid programs).

Is it any wonder, then, that these middle-class schools — which educate more children than the wealthiest and poorest districts combined, and serve a majority of our white, black and Hispanic children — are producing results below our national expectations? Indeed, Third Way found that only about one out of four graduates of high schools in these middle-class districts will finish college before they turn 26.

Falling incomes and floundering schools, that is what our great middle class faces today.

Workers of Tomorrow

Economically, addressing the prosperity of this vast majority of our citizens is essential, because it is impossible to build a prosperous America without a strong middle class. They are the workforce of today and their children are our workers of tomorrow; they are the consumers who power demand; they are the small-business people who create jobs and innovations. They make the cars, build the homes and grow the food that make up a huge share of our national output. They also buy the cars, the homes and the groceries that make up a huge share of our national consumption.

No economic recovery plan can work unless it lifts up the middle class.

Politically, middle-class voters perennially believe that Democrats care too much about the poor, and Republicans care too much about the rich, leaving their hearts and minds up for grabs. As we approach the 2012 election, these voters are alienated from both parties, seeing little benefit for themselves in policies such as the bank bailout; state and local fiscal relief; and extended unemployment insurance; all of which have consumed so much of Washington’s time and money.

Policy Doubts

Over the past few years, these Americans have developed doubts about whether Obama-administration initiatives such as the Patient Protection and Affordable Care Act really help them, or mostly help the disadvantaged. At the same time, they are deeply skeptical about Republican economic policies. Those misgivings are certain to be reinforced as Republicans race to protect the wealthiest Americans from paying the same share of their income in taxes as the middle class pays.

The president should continue to press for his new “Buffett Rule” to raise taxes on the wealthy, and his jobs bill to help the unemployed. But he also needs to speak directly to the millions of middle-class families that have jobs, but are reeling under the unprecedented income squeeze of the past decade, and are worried that their children may be part of the first generation of Americans that didn’t do better than the preceding one.

Demanding that the wealthiest shoulder the same tax burden as the middle class is only fair, but by itself, doesn’t address middle-class anxieties; likewise, pressing policies that provide jobs and health care to those who lack them is the right thing to do, but may not lift incomes and reduce costs for those who are employed and who have health coverage.

Best Opportunities

Education initiatives need to focus not only on fixing the most broken schools and drawing the best teachers to the most troubled districts, but also on lifting up middle-class schools, so that those students can compete for the very best opportunities in the years ahead.

It is often said that U.S. elections are “won in the middle,” a statement about ideology that reflects the centrist leanings of swing voters. But in 2012, that is more likely to be a true description of the economic profile of the voters who are up for grabs.

The party that can best address the needs and concerns of middle-class voters who have jobs, but are enduring flat incomes, underperforming schools, and shrunken savings, is the one most likely to win next year.

(Ron Klain, a former chief of staff to Vice President Joe Biden and a senior adviser to President Barack Obama on the Recovery Act, is a Bloomberg View columnist. He is a senior executive with a private investment firm. The opinions expressed are his own.)

Most Americans Support Tax Increases To Reduce Deficit

We know that President Obama wants tax increases as part of the deficit reduction plan, and we know that Republican politicians vehemently do not want them. But what does the general public want?

Bruce Bartlett compiled data from 27 national polls conducted between November 2010 and Sept. 16, 2011. The results? A whopping average 64.5 percent of respondents said the budget deficit should be reduced through increasing taxes, and only 30 percent said they wanted all spending cuts and no tax increases.

So the Republican politicians who refuse any tax increases can claim a lot of things on this issue, but they certainly can’t claim they’re representing the people of the United States.

Congressional GOP Less Willing To Compromise Than Rick Perry

Republicans in Congress made plain during the debt ceiling fight that they will never accept tax increases or new revenue of any kind, even if it is outweighed hugely by reduced spending. This apparently puts them to the right of even Texas Gov. Rick Perry, Tea Party champion and Republican presidential flavor of the month:

To hear him tell it on the presidential campaign trail, Gov. Rick Perry has never met a tax increase he liked.

But at home, over a political career that reaches back to the oil price shocks of the 1980s, Mr. Perry has embraced billions of dollars worth of them — including a $528 million tax increase approved in 1990, after he defected to the Republican Party.

The biggest tax increases came early in his career, before anyone used the phrase “Tea Party” to describe a potent political movement. But a few weeks ago, Mr. Perry also signed into law an online sales tax measure that the state says will raise $60 million over the next five years.

Grover Norquist’s influential organization, Americans for Tax Reform, calls the measure a dreaded “new tax.” Mr. Perry opposed it as a stand-alone measure, but this summer it was tucked into a must-pass bill during a legislative session that otherwise saw deep budget cuts.

The past votes and more recent tax legislation are sure to get a new look from opponents as Mr. Perry, now a Republican front-runner, promotes his tax-cuttin’, budget-slashin’ ways as an antidote to the ailing economy and a president he attacks as recklessly profligate.

“To the extent that he tries to oversell this in a campaign, people are going to pick at it,” said Jim Henson, a political scientist at the University of Texas. “The question is, will his opponents be able to outmaneuver him to create a high level of dissonance between his record and what he says.”

So even Perry has vulnerabilities in his record. But the real takeaway here is the incredible stubbornness of the House GOP and its leaders.

“Super committee” Inspires Little Confidence

Congressional leaders have begun naming their selections for a powerful “super committee” that will search for ways to slash $1.5 trillion from the deficit before Nov. 23. The super committee — which was established in the last-minute deal to raise the debt ceiling and avoid a default by the U.S. government — will consist of six Democrats and six Republicans. Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), House Speaker John Boehner (R-Ohio), and House Minority Leader Nancy Pelosi (D-Calif.) will each make three selections for the group. The bipartisan committee will be able to approve a deal by a simple majority, meaning that only one member would have to cross party lines to bring a plan directly to a vote by both houses of Congress.

On Tuesday, Reid announced his picks: Senators John Kerry (D-Mass.), Max Baucus (D-Mont.), and Patty Murray (D-Wash.), who will serve as co-chair. Although House Minority Leader Nancy Pelosi has not yet named her selections, Reid’s choices suggest that the Democratic half of the super committee will be quite liberal. Murray, Kerry, and Baucus have long been known as strident defenders of Social Security, Medicare, veterans’ benefits, and other entitlements that many Republicans hope to cut into in an effort to reduce spending. Furthermore, Kerry’s history as the Democrats’ 2004 nominee for president (and as one of Republicans’ favorite targets for scorn) along with Murray’s current position as chairman of the Democratic Senatorial Campaign Committee promise to add an even greater political dimension to the committee.

On the Republican side, McConnell named conservative Senators Rob Portman (R-Ohio), John Kyl (R-Ariz.), and Pat Toomey (R-Pa.) to the super committee. McConnell’s choices are certain to upset Democrats; Portman spent two years as budget director for the Bush Administration, Kyl frequently enrages liberals with his hardline positions on immigration and abortion rights, and Toomey is a former president of the Club for Growth who was swept into office on a wave of Tea Party support.

Boehner (R-Ohio) also chose three staunch conservatives, selecting Reps. Dave Camp (R-Mich.), Fred Upton (R-Mich.), and Jeb Hensarling (R-Tex.), who will serve as co-chair alongside Murray. All three congressmen have pledged not to increase taxes; Camp said on Wednesday that he will use his spot on the committee to fight against “job-killing tax increases as a way to reduce our debt and deficits.”

On its face, the deficit super committee seems almost certain to be bogged down in the same kind of partisan gridlock that has plagued Congress for the better part of a decade. The liberals and conservatives in Congress have done such a poor job working together in the past that it is hard to see why this committee would prove to be more effective. There is, however, some hope that fear of the across-the-board spending cuts that are triggered if no deal is reached by Thanksgiving will force cooperation.

Americans are clearly fed up with Congress right now, and the partisan selections for the deficit super committee don’t figure to help. Sixty-eight percent of voters believe that lawmakers who shared their view on the debt ceiling negotiations should have compromised, 77 percent believe that Congress acted like spoiled children during the debt ceiling negotiations, and only 24 percent of voters believe that most members of congress deserve re-election. If Congress approaches the deficit super committee in the same manner that they approached the debt ceiling debate — with Democrats refusing to make cuts to social programs, Republicans refusing to raise taxes at all, and both parties refusing to compromise — then voters’ cynicism about government isn’t going anywhere anytime soon.