In Part 1 of our review of the plight of America’s middle class, we reviewed the information indicating how middle income families are increasingly scarce. In today’s report, we look at why this is happening.
Blame for the sharp reduction in America’s middle class has been placed on misguided federal policies. The Daily Signal opines that “Americans of all income levels would benefit from faster economic growth that raises wages. Unfortunately, wages are being held back by the very policies supported by those criticizing slow wage growth. Liberals across the country supported the misnamed Affordable Care Act (aka Obamacare). The law’s mandates have made health coverage more expensive for both individuals and businesses…when benefit costs rise, employers cut wages. Empirical research confirms this prediction. Ironically, some of the most rigorous evidence for offsetting wage cuts comes from Jonathan Gruber, the Obamacare architect who boasted the health law takes advantage of Americans’ ‘stupidity.”
Resrearch from the Heritage Foundation concurs. “The curse of the U.S. economy today is the downward trend in “take-home pay.” This is the most crucial economic indicator for most Americans, but when President Obama said in a recent speech at Northwestern that nearly every economic measure shows improvement from five years ago, he conspicuously left this one out.
“Most workers’ pay has not kept up with inflation for at least six years. Even as hiring picked up … Why aren’t wages rising? There are several reasons, including that many jobs today don’t pay as well as the ones lost during the recession. ObamaCare has made health insurance more expensive for businesses…and that takes a bite out of take-home pay. Yet one factor is often overlooked: the tax increase on “the rich” at the beginning of 2013…The overall effect of the 2013 tax hike was not minor. The highest income-tax rate on small business income has risen to almost 42% from 35%. That’s a 20% spike in the small business tax for successful companies. When the government takes more, there is less to plow back into the business or invest elsewhere.
“A comparison with the Reagan years when investment taxes were cut tells the story. From 1983 to 1988, private investment averaged 12% of GDP, one-third faster than the 9% since 2009 under Obama. In the aftermath of the Kennedy, Clinton and George W. Bush capital-gains tax cuts (1998-2006), the investment rate rose sharply and immediately.
“What does investment have to do with stagnant wages? Everything. As Paul Samuelson, the premiere Keynesian economist who sold more economics textbooks than anyone in history, once explained: “What happens to the wage rate when each person works with more capital goods? Because each worker has more capital to work with, his or her marginal product [or productivity] rises. Therefore, the competitive real wage rises as workers become worth more to capitalists and meet with spirited bidding up of their market wage rates.”
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“The high corporate tax rate is also holding the economy back. Twenty years ago the U.S. rate was about at the international average, but now we are about 15 percentage points above the rate of most of our competitors and nearly three times higher than countries like Ireland. The American Enterprise Institute has found that “a 1% increase in corporate tax rates is associated with nearly a 1% drop in wage rates” because when corporations invest less here at home, worker productivity suffers.”
An American Thinker article suggests that “The U.S. middle class is sinking into government-provided economic quicksand. U.S. living standards have declined ever since 1970…the two-earner family lost ground … Typical U.S. households earned less in 2009 than a decade earlier; median household income is still declining. Even with two earners, many live closer to the poverty line than did families in the ’70s. Middle-class family savings turned into consumer and mortgage debt, which reached 134% of household income at the end of 2007.
“A middle-class key, and a requirement for its upper half, is a degree. For those whose parents couldn’t afford it, “working your way through college” was practicable and so common that it became a cliché, but by 2008, ABC News said, “Soaring Tuition Pushes College Out of Reach.” Not only lower-middle, but also many upper-middle-class parents can’t afford college for their kids. Graduates are often burdened with school loan debt. In short, life has been growing tougher for the middle class, with a recent kick from the ailing economy.
“Considering that, what’s ahead? Middle-class wealth was personal savings, homeownership, and a pension, stemming in most cases from a decent job. Savings are now debt, homes are mortgaged and losing value, and the private-sector pension has devolved into a 401(k) with shrunken assets. Government pensions face shrunken assets, too. Everyone knows that Social Security is in the red (seven years early), and the government is broke. Unemployment is outlasting previous declines (excluding the 1930s), and the current 9.7% rate has been “adjusted” by the government. At Shadowstats, where readjusted numbers are more realistic, unemployment shows close to 21%. Those unemployed add another economic burden for the government (i.e., taxpayers), or for families. …
“When most middle class wealth is built on jobs, no jobs equals no middle class. So will the jobs be back soon? Short answer: No. And the main reason, politicians’ speeches to the contrary being lies, is deliberate government policy.”