The Screwing of the Middle Class

When I was growing up, my father told me “if you work hard and are excellent at what you do, you’ll be rewarded.” Like others of the Baby Boom generation, I took that statement to heart and lived by it my entire career. I’m not cynical enough to believe that it was an empty promise, but for myself—as well as for most people that I know—things didn’t work out that way. Census Bureau Data (below) shows that for the majority of the people who entered the work force over the past 50 years, their income has been flat.

household-incomes-mean-real

Census Bureau Data charted by dshort.com

Further breaking down decades of census data to focus on people at the upper end of the income spectrum, “middle-class wages are stagnant: middle-wage workers’ hourly wage is up 6% since 1979, low-wage workers’ wages are down 5%, while those with very high wages saw a 41% increase” (Economic Policy Institute).

In the 1980’s, Republicans embraced supply-side economics. According to David Harper (Investopedia.com), "Supply-side economics is better known to some as "Reaganomics," or the "trickle-down" policy espoused by 40th U.S. president, Ronald Reagan. He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest, and produce economic benefits that trickle down into the overall economy.” Over the intervening years, applying supply-side principals to our tax laws has ensured the ever-increasing concentration of wealth among the upper class and corporations, while leaving the middle class struggling to stay even.

Why hasn't the middle class benefited? Because most middle-income families aren't entrepreneurs and they didn’t—and still don’t—have money to invest in the stock market. Or they consider the market to be a rigged gambling system designed primarily to profit the very wealthy and hedge fund managers. The days when a stock went up solely because of the value of the underlying company are long over.

What “economic benefits” are supposed to be trickling down to those who don’t have 6- or 7-figure incomes? The Republican pitch is that by lowering tax rates on corporations, they will share their added wealth by providing raises, hiring more workers, and offering higher starting salaries. This, of course, is ludicrous. Businesses do not hire out of a sense of good will or community spirit. They hire only because they need more workers to create, service, and sell their products and services. And while some employee salaries may be based on merit, most are set based on what I call “Tipping Point Theory.” When establishing an offer for a new employee (where a particular starting salary isn’t mandated by policy), the strategy is to offer as little as possible while still ensuring the hire, based on the person’s education, experience, and previous salary. When setting a current employee’s salary, the object is to pick an amount that—below which—the employee may be motivated to quit rather than paying an amount that will make the person happy and content. Simply put, the key to business profits is to pay as little as possible while still retaining your employees. Thus, pumping more money into most corporations only affects their annual profits; it doesn’t promote additional hires nor does it result in a “share the wealth” scenario. And when a company is publicly traded, this “pay as little as possible” philosophy is even more deeply entrenched. Public companies are primarily beholden to the shareholders, not to their employees.

Republicans (including Donald Trump, who recently adopted existing Republican tax policies) have successfully pitched lower taxes for the wealthy and corporations since the 1980’s, while selling them as being for the benefit of the middle class. But the tax savings have always been relative. Each tax cut gave middle Americans a few hundred extra dollars per year, while doling out millions to the wealthy and corporations. The secondary effect of these cuts has been to decimate the U.S. tax base, depriving it of funds that our government uses to operate programs, run agencies, maintain the infrastructure, fund wars, and pay for the largest standing military in the world. 

The fact that lower- and middle-class Republicans have wholeheartedly bought this "lower taxes" pitch for more than 35 years is either a testament to their hopefulness or their stupidity. While I’d like to think it’s the former (hoping that some day they, too, will be wealthy and benefit from low tax rates), becoming rich over the last 40–50 years has been a pipe dream for most people. (Just ask your parents how it worked out for them.) No, most middle-class parents worked their entire lives, paid their bills, and—if they were lucky—occasionally went on vacation or bought a new car. Huge tax cuts for the rich did not benefit the Republican base because they were not then nor would they ever be wealthy. 

For the record, don’t be swayed by the argument that supply-side hasn’t worked because we still haven’t handed enough money to the wealthy and corporations. I suspect that the failure of bloodletting (using leeches) to cure illnesses in the Middle Ages was similarly explained by the statement: “She didn’t get better because we didn’t take sufficient blood.”

As a life-long Democrat, however, I can’t say that my party has done much more for my pocketbook than the Republicans have done for their middle-class supporters. While Democrats are major proponents of the “social safety net” that prevents our poor, disabled, unemployed, and children from having to live in the streets (which, most agree, are good/essential things), there has been little in the way of Democratic tax proposals that have directly affected how much we earn or keep per year. In fact, the Affordable Care Act (Obamacare) is the only government program that has benefitted me monetarily—enabling the self-employed and people with pre-existing conditions to get decent coverage at an affordable price.

To be fair, though, if the Democrats had proposed a tax savings plan that specifically targeted the middle class, Republicans would have screamed “Class warfare!” because the wealthy didn’t get their cut or were expected to help pay for it. And although President Obama repeatedly offered job packages and infrastructure proposals to Congress, the Republican majority steadfastly refused to discuss or bring them to a vote. (How’s that for class warfare and a total lack of empathy for the Republican base?)

Personally, I’m not hopeful that this situation will turn around during my lifetime. But I do have a simple—perhaps simple-minded—prescription: 

  1. Restore a hefty top tax rate for the wealthiest among us; say, 50-60%. I’d like to think that someone who earns $2,000,000 per year, for example, could squeak by on $1,000,000.
  2. To shore up the tax rolls and reduce the deficit, make the new top rate retroactive for the previous 5 years.
  3. Use some of the proceeds of 1 and 2 to give each citizen who is below the top tax bracket a one-time refund of all taxes paid in his/her highest taxed year-to-date.
  4. Eliminate the loopholes that enable the wealthy and corporations to avoid paying their fair share.
  5. Make dividends taxable again as ordinary income. Only the rich receive much benefit from dividend-paying stocks.
  6. Do the same with capital gains from investments. Income is income and—as with dividends—the wealthy are the primary beneficiaries of a lower rate for capital gains.
  7. Tax U.S. corporations for all overseas income, minus whatever they pay to the foreign countries in which they are based. Either they are U.S. companies or they aren’t; where they’re located should be immaterial.
  8. Similarly, money moved offshore to tax shelters should not be tax exempt. As in 7, where a U.S. citizen receives income, dividends, or capital gains should be irrelevant. If income is earned elsewhere, it should be taxed by the U.S., minus whatever is paid to the foreign country in which it’s earned.

Finally, if Donald Trump is elected and Republicans maintain their majority in Congress, Trump’s slight reshuffling of long-standing Republican tax proposals will finish off the economy while helping the wealthy and corporations syphon off much-needed tax revenue to further enrich themselves—without any obvious benefit to the country and the rest of us.

If Hillary Clinton is elected and Democrats regain control of Congress, there’s at least a chance that the middle class will see some much-needed relief. Perhaps she learned something from observing President Obama’s first two years as he tried—but failed—to be that “across the aisle” guy who could convince the Republicans to cooperate by doing something, anything for this country other than making the rich richer. Remember, though, Hillary's a moderate—not a progressive liberal. She may not do much to correct the abuses that the middle class has suffered these past 40 years, but—unlike the Republicans—she probably won’t make things worse for us. We’ll have to see.

—Steve (DummyDonald.com), August 17, 2016

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