Six years ago President Obama acknowledged that “the strength of our economy can me measured directly by the strength of our middle class.” And yet, for all the subsequent bloviating about inequality and the attempt to leverage class resentment, the president has not put forward an agenda that is focused on improving the everyday lives of the middle class.
The result has been disastrous. Jim Tankersley writes for the Washington Post:
The nation’s median income remains lower than it was when the Great Recession ended, $52,000 at the end of 2013 compared to $54,400 at the end of 2008 in today’s dollars. Scan down the typical family’s balance sheet and the picture looks even worse. From 2010 to 2013, middle-class families sold off assets and spent down what little savings they had, in order to pay off debt and compensate for stagnating wages, according to calculations by New York University economist Edward N. Wolff.
The home ownership rate for the middle class is now more than 10 percent lower than it was in 2007, per Wolff’s calculations. Stock ownership rates are down 15 percent, and pension ownership is down 17 percent. Business ownership is down by a quarter. Middle class Americans, in other words, are in a much worse position to benefit from the rising asset values that have marked this recovery so far. They bought high and sold low.
It makes sense then that the president would choose to put forward a middle class agenda in his State of the Union. The question is: why didn’t he do it?
To be clear, he talked a lot about the middle class. He even offered up some ideas on how to shift money towards the middle class. What he did not do, however, is provide a workable agenda for jumpstarting broad based economic growth and wealth creation. Instead, his ideas – free community college, an expanded child care tax credit, and tax hikes on everything from large financial institutions, to college savings plans, to capital gains – were little more than talking points aimed at setting the table for Democrat gains in 2016.
Each of those ideas is seriously flawed. For instance, offering free community college is an exorbitantly expensive idea that will mainly benefit families that could already afford tuition (Pell grants already make tuition effectively free for poorer families).
Perhaps that would still fit within a middle-class agenda if it wasn’t paid for by taxing 529 plans, which middle class families use to save for college.
“I was very surprised by the Obama 529 proposal because in many ways it is anti-middle class for families trying to afford college,” Joe Hurley, founder of SavingforCollege.com told the New York Times.
Obama’s childcare tax credit idea is similarly problematic. Rather than focus on the middle class, his plan would only help those in which both spouses are in the workforce and opt for facility-based childcare. This flies in the face of surveys, which suggest that parents prefer to keep their child at home, Americans believe children are better off when parents are home, and less than a quarter of American families use organized care facilities. In other words, why offer a benefit that benefits so few families, especially when it is not the preferred method of child rearing?
A speech the president gave last year provides a hint.
“Sometimes, someone, usually mom, leaves the workplace to stay home with the kids, which then leaves her earning a lower wages for the rest of her life as a result. And that’s not a choice we want Americans to make,” Obama said to a crown in Providence, Rhode Island.
But it may be a choice that a mother wants to make in order to stay at home with her children.
Finally, the president’s pitch to raise the capital gains tax will is a flawed idea that will decrease employment and shrink the economy. The nonpartisan Tax Foundation estimates that the proposed capital gains hike would result in 134,579 fewer jobs created per year, would reduce the size of the economy by 0.8 percent, or $142 billion, per year, and would cause wages to fall by 0.7 percent. Perhaps most troubling of all, it would depress national savings at a time when the middle class needs to be building and holding wealth.
We mentioned earlier that the great recession required many middle class families to spend down the savings they had, leading to a 15 percent drop in the amount of families who owned stocks. Is that really a trend the president wants to embrace rather than reverse?
The bottom line is that President Obama was right to focus on middle class economics, but to truly effect change they need good ideas, not political talking points.