RISING INCOME INEQUALITY HAS DECIMATED THE MIDDLE CLASS

 

“Income inequality is the defining challenge of our times.” Barack Obama 

According to the Pew Research Center, eight in ten registered voters (81 percent) say the economy will be very important to their vote in the 2024 presidential election. The state of the economy and inflation are the centerpiece of Republican attack ads against Democrats, notwithstanding a growing economy, lower inflation, lower unemployment, lower interest rates, cheaper gasoline, and a booming stock market.

Many middle-class voters have concluded that the Biden-Harris administration has adversely affected their economic welfare, and that a Trump presidency will improve it. However, the middle-class economic situation is more complex than these voters realize. Fifty years of income inequality, resulting in lower earning power, has decimated the middle class.

Last year’s inflation spike, largely caused by the pandemic and a booming economy, exposed a larger problem. An avalanche of adverse economic events has impacted the middle class since 1970.  Inflation is only one cause for the decrease in middle-class purchasing power. Other economic forces have long been at work to increase the net worth of the wealthy at the expense of the middle-class.

A recent Pew Research Report, The State of the American Middle Class, provides some background. “Not only do a smaller share of people live in the middle class today, the incomes of middle-class households have also not risen as quickly as the incomes of upper-income households. The median income of middle-class households increased from about $66,400 in 1970 to $106,100 in 2022, or 60%. Over this period, the median income of upper-income households increased 78 percent, from about $144,100 to $256,900. (Incomes are scaled to a three-person household and expressed in 2023 dollars.) 

“The median income of lower-income households grew more slowly than that of other households, increasing from about $22,800 in 1970 to $35,300 in 2022, or 55 percent. Consequently, there is now a larger gap between the incomes of upper-income households and other households. In 2022, the median income of upper-income households was 7.3 times that of lower-income households, up from 6.3 in 1970. It was 2.4 times the median income of middle-income households in 2022, up from 2.2 in 1970.”

A Brookings Institute study highlights four long-developing economic factors that have adversely affected middle class prosperity.  First, despite gains in national income over the past half-century, American households in the middle of the distribution curve have experienced very little income growth in recent decades.  Actually, there has been greater income growth over the last four years under President Biden. Most earners did well following the pandemic, when jobs were plentiful.

Second, while workers of all skill levels were hard-hit by the Great Recession that began in December 2007, those without four-year degrees saw the steepest earnings declines.

Third, upward mobility is no longer the almost-universal experience among America’s youth.  While 90 percent of those born in 1940s grew up to experience higher incomes, this proportion was only 50 percent among those born in the 1980s.

Fourth, middle-class families are more fragile and more dependent on two incomes. Were it not for women’s economic contributions, middle-class families would have experienced sharper reductions in income over the 1979 to 2020 period.  The rise in single parenthood has dropped many families into the lower middle-class, or worse.

The upper middle class is prospering and gaining wealth in a booming economy that is the envy of the world. These millions of economically well-off Trump supporters are not concerned with inflation or the price of eggs.  Their higher incomes, investments and increasing net worth more than compensate. Wealthy individuals are supporting Trump to keep Kamala Harris from raising their taxes and to keep their wealth accumulating at unprecedented rates. The economic priorities of Trump supporters from the upper middle class are exactly the opposite of those important to Trump supporters from the middle and lower classes.

Which candidates’ positions will actually help the middle class to recover from its fifty years of economic malaise? Kamala Harris would extend the Trump tax cuts for the middle class – but not for the wealthy individuals and corporations. She would raise taxes even higher for the richest Americans. The tax deduction for small business start-up expenses is currently $5,000. Vice President Harris’ plan would push for expanding this deduction to $50,000 for new small businesses to cover more of these costs and provide more flexibility on when and how they can claim it.

According to a recent essay in Newsweek Magazine, “Looking forward instead of backwards, only Harris has real proposals for the middle and working class. These include a plan to spend $40 billion to bring down home prices, incentives for developers to build affordable housing, a $2,000-a-year cap on prescription drug costs and a dramatic expansion of the child tax credit that would immediately relieve some of the pressure on middle-class families.”

Regarding Trump’s economic plan, Goldman Sachs wrote in a report in early September, “The hit to growth from tariffs and tighter immigration policy would outweigh the positive effects of tax cuts.” According to Moody’s analysis, “Trump’s tariff plan would spark a recession by mid-2025.”  Economists believe such a tariff will rapidly accelerate inflation and cost the average family $1,500 a year.

Negative political ads and FOX news commentators are not to be believed. The economic plight of the middle-class would steadily improve under a Kamala Harris administration.