As they prepared for tonight’s presidential debate, President Obama and former Massachusetts Gov. Mitt Romney no doubt have had an image seared onto their brains, and perhaps onto their note cards: The scowling American middle class is sitting there, restlessly watching, drumming fingers on the table, waiting to hear the next class-saving promise.
Obama says he wants “to build an economy from the middle out, not the top down.” Romney has a “Plan for a Stronger Middle Class.” Vice President Joe Biden defended his aggressive debate performance as doing what comes naturally to “a fighter for the middle class.” But U.S. Rep. Paul Ryan warned during the same debate, “Watch out, middle class. The [Obama] tax bill is coming to you.”
The Center for American Progress, a liberal think-tank, compiled “5 Charts on the State of the Middle Class,” from sources including the U.S. Census Bureau, the Economic Policy Institute and several liberal economists.
The charts demonstrate the following:
• Median household income has declined over the past decade, after a 20-year period of stagnation.
• In the past 44 years, the share of the nation’s income going to the middle 60 percent of households has dropped from 52 percent to 46.5 percent.
• Compared with 1970, 8 percent fewer households are earning middle-class incomes.
• Despite stagnant incomes, the costs of some essentials of a middle-class lifestyle and career have increased rapidly, especially housing and a college education.
• In 1989, the typical family had a debt load equaling 58 percent of annual income. By 2010 debt was 154 percent of annual income.
The reasons for this apparent decline are as multi-faceted and complex as the reasons for a change in the weather. But the candidates say the solution is simple: Make changes in the income tax code, and the prospects for the middle class will improve. But what changes? The two campaigns point in opposite directions.
The 2012 election is “a make or break moment for the middle class,” according to Obama. Raising taxes on the wealthy while holding the line on tax increases on everyone else is how Obama plans to meet that moment. The middle class needs more government programs that can be paid for only by higher taxes on the wealthy, Obama says. The wealthy can afford it, Obama says, because their share of the nation’s income has increased.
Conservatives have criticized Obama’s plan, calling it “income redistribution.” His comment to “Joe the Plumber” in 2008 that “when you spread the wealth around, it’s good for everybody” became Exhibit A in the charge by conservatives that Obama was, deep down, a socialist. Because socialism historically has generated less robust growth and less wealth, Romney and other conservatives have dismissed Obama’s prescriptions as “doubling down on failure,” especially given the weak economic results since he took office.
However, Obama’s idea of using the tax system to redistribute wealth seems to be making a comeback among some economists, who see the growing gap between the wealthy and everyone else in America as a persistent feature of the current economic phase.
Obama’s idea is to use revenues from higher tax rates on the wealthy to pay for expanded government services that he believes will foster greater wealth for the middle class, including education, as well as improvements to transportation, roads, bridges, broadband and green energy. But it’s not clear whether additional government expenditures will be enough to overcome more than a decade of middle-class stagnation.
In last week’s debate, Ryan challenged Obama’s theory, saying that any plan to boost government spending based on raising taxes only on the wealthy would come up short of revenues. As a result, Ryan said, middle-class Americans would also end up having to pay higher taxes, negating the supposed benefits of government spending on their behalf.
Romney and Ryan’s plans hearken back to the ideas that animated the presidency of Ronald Reagan, with the same focus on lowering taxes to boost economic growth, which produces more and better-paying jobs.
Some parts of Romney’s plan echo Obama’s, particularly his emphasis on education and job skill development. Romney shares Reagan’s concern that too much business regulation has hampered growth. He sees potential new wealth for the United States by drilling for more oil and gas in the United States.
But Romney’s primary tool is the tax code – a 20 percent, across-the-board income tax rate cut, combined with a cut in corporate tax rates, as well as a continuation of the Bush-era tax rate cuts.
The conservative theory is that cutting the tax rate spurs growth, then growth helps pay for such existing, costly budget items as Medicare, national defense and improvements in education.
Romney’s critics, including Obama, Biden and many economists, assert that his tax plan would inevitably do one of two things: Catapult the $1 trillion annual deficit to even greater heights, or force the middle class to pay more as the wealthy pays less. That is because Romney proposes to finance his tax rate cuts through closing loopholes and eliminating some tax exemptions and deductions, but for only the rich.
Romney’s critics say his crackdown on only the wealthy won’t raise enough revenue, so eventually the middle class will suffer from an across-the-board tightening of the tax code, including elimination of the home-mortgage interest deduction, which allows a greater share of the population to own homes.
The Romney campaign cites analysis by the conservative American Enterprise Institute (AEI) that purportedly shows that the economic growth spurred by cutting taxes would avert the need to raise more revenue from the middle class. “Even modest economic growth makes a difference,” the report says.
Middle-class Americans are being asked by both campaigns to choose which weapon they think would bring them out of stagnation: bigger government or lower taxes. But if the stagnation that has prompted all of the political rhetoric is part of a longer-term trend, the middle class probably will be disappointed by either choice, as it becomes clear that the tax hike/tax cut toolkit was inadequate to accomplish the task.