The Shrinking Middle Class

Michael Barone, writing about problems with public sector unions in New Jersey, touched on a favorite subject of mine--the myth of the shrinking middle class.

Third, many on the political left complain about the disappearance of the middle class, the alleged tendency of our economy to produce hefty income growth for those at the upper end of the economic scale and relatively little income growth for the large number at the lower end. Interestingly, this tendency toward income inequality is most pronounced in states that have been voting Democratic in presidential elections—especially New York, New Jersey, Connecticut, and California. Income inequality tends to be much less in many states that vote heavily Republican. New York, New Jersey, Connecticut, and California have imported many high-income earners and low-income immigrants and have been exporting many more middle-income earners. This process is accelerated when, as in these four states, high-income earners have been eager to vote for Democrats backed by public-employee unions: The same people who have been complaining about this trend have been causing it.

The middle class in America is larger than anyone would care to admit. For example, if you took a random sample poll nationwide, and asked people to describe their socio-economic status in one term, the most popular response-unsolicited--would be "middle class." I have no scientific proof, but I think my gut feeling on this is pretty solid.

Next, although we can see that in some cases, the rich do get richer, the poor in this country also get richer. Perhaps not at the same growth rate, but they do get richer and the impact is more real. Let us take a person making $100,000 per year and one person makeing $25,000 per year. If each has an income growth of 5 percent, the rich person makes an extra $5,000 per year, the poor an extra $125 per year. But that is not the only impact. The rich person will pay taxes on that $5,000, to the tune of about 35% on the margin or $1750. The poor person will pay no taxes at all on his extra money. So the real growth for the rich person is only a little above 3 percent.

So when you consider tax rates, you actually get a higher percentage increase among the poor. But that is not the whole story of course. Rich income increases tend to be a higher percentage rate than the poor. I will readily admit this fact. So what does it mean. Among the rich increases in income, comes a concurrent increase in spending on consumer goods.

But one thing that most people forget about America--the single most prosperous country in the world. Even the poor among us have homes with electricity, indoor plumbing and cable TV. The poor family in America would live like kings in many of hte world's poorest countries. We have done more to support the poor in this country and perhaps we should. But out of good old-fashioned Christian charity, we suppor the poor in this country beyond belief. Furthermore, in this nation, we are not beholden to any socio-economic caste system--we can break out, we can do better than our ancestors--all this takes is talent and hard work.

So when we hear about the shrinking middle class--all I see and hear is spin.