The (Tax-Plus) Middle Class as Pols’ Love Target

by Martin Harris

If you’re blessed with a superior sense of humor, you can chuckle over modern governance which unctuously proclaims its middle class recognition, admiration, concerns, and origins, in rhetoric which, if meant seriously, would have been generating economic results quite different from those actually produced. Arguments over how long the middle class has been losing ground vary from more than a decade to just the last five years, and, sometimes, the counting start-point you select will produce the results you want. Recent parallel example: modern politician complaints on behalf of the lower-wage working class argue that the Minimum Wage hasn’t been keeping up with inflation, and that’s quite true if your compare today’s MW with that of 1968. It’s quite untrue if you compare it to the 25 cent MW of the first year for the statute, 1938: adjusted for inflation, 25 cents then equates to $4.07 now, according to recent financial-press writers. Your Humble Scribe ran the numbers separately, using the Economic History website calculator, and the number is $3.87, using cumulative changes in the Consumer Price Index as the indicator. For middle class earnings and savings, most writers cite a 10%+plus decline to $51,000 in Median Household Income from either 2003 or 2007, both years when it exceeded $56,000; and a 5% decline from the $54,000 of 2009, the year the recession officially ended. A recent Census study reports a 35% decline in Median Household Net Worth between 2005 and 2010, from $102,844 to $66,740 in inflation-adjusted dollars. Both are critical markers for middle class economic well-being. And both may be the root-cause (a little pop-psych lingo there) of the emergence of the Tea Party phenomenon in 2009. That’s the argument made by writers like Tony Blankley of RealClearPolitics, who specifically defined the Tea Party as a middle-class economic movement in 2010, with this header to his essay: “Tea Party Movement is a Revival of the Middle Class”. With your superior sense of humor, you can similarly chuckle over politicians of both traditional political parties professing, simultaneously, their love for the middle class and their distaste (D’s more so, R’s somewhat less) for Tea Partiers as voters and, especially, as candidates.

All the above indicators are US totals, meaning that economically-pressured middle class households moving from State to State in pursuit of improved economics are still within the averages (the wealthy are renouncing citizenship for Swiss bank accounts and Caribbean beach-front, but not yet in attention-demanding numbers) but the State data –see the 2012 Pew study on this subject –the “lost decade of middle class economic growth”– show which States are losing their middle class (think Vermont, California, and Michigan) and which are gaining in that cohort (think almost any of the “heartland” states) and are simultaneously (cause and/or result?) showing gains in household income and wealth. Some stats are still being built, aren’t yet publishable as middle-class gains: think the natural-gas boom in shale-blessed States, where huge gains in less-than-middle-class labor are being posted along with wage scales which will soon boost them and their children into true middle class status. There’s an historical precedent for this upward mobility: think Detroit in the 1950’s and early ‘60’s, when assembly-line labor was earning the highest hourly wages in the country, and re-making that city into the middle class standard for the nation. Not any more.

Historians and economists don’t agree on middle-class flight, after the race riots of 1963 and 1967, as the proximate cause of Detroit’s subsequent decline; some trace the start of their departure to the various City tax increases of the early ‘60’s, some to the building of the suburban-access Interstates, also in the ‘60’s, and some to the decentralization of manufacturing to lower-labor-cost States and even countries. Nor do they agree on the essentiality of middle class presence to central-city success; it’s not widely publicized, but even in its present preparation-for-bankruptcy status, Detroit still has a gleaming (admittedly, mostly Federal-subsidized) downtown with glass-and-chrome office towers filled with daily-commuting middle- and upper-middle-class information-sector workers who shop during their lunch break for their artisanal and organic food demands at a centrally-located, just-built Whole Foods supermarket.

Other urban centers, from Connecticut’s Hartford to Tennessee’s Memphis, show the same pattern: urban cores with(out) a largely-vanished middle-class, but surrounded by middle class suburbs which support a central city sufficiently for it to support an unproductive, expensive, service-demanding, inner-city under-class. It’s only when the nearby wealth-creating (and taxable) class moves further on, to escape onerous urban jurisdiction, that cities (or major parts of them, as in Detroit) collapse. The politician love-song for the middle class is, as these examples illustrate, a love-song for the tax-plusses, people who are profitable to government because they demand less in public services that they consume, than they contribute in wealth that they create and taxes that they pay. Of course, it wouldn’t do to say so directly, lest they move a bit further out.

It’s interesting that the shale State politicians –think the Dakota’s and Pennsylvania—don’t much engage in professions of middle class love. They’re creating wealth locally just as Detroit did in the 50’s: encouraging upward mobility of labor into the middle class, via new high-wage industries for oil- and shale-field working class labor, which is now earning and saving enough that their kids will be college grads and professionals, in a virtuous cycle of upward mobility and economic improvement. And, of course, better tax targets for politicians.