Opinion

The Great Debate

Make-or-break moment for middle class

By Neera Tanden
December 5, 2012

A year ago Thursday in Osawatomie, Kansas, President Barack Obama delivered a fiery defense of the middle class. It marked a turning point in the president’s economic argument — and helped him win reelection, despite historic economic headwinds.

“This is a make-or-break moment for the middle class,” Obama told the crowd, hundreds of whom had lined up overnight in frigid conditions.

The middle class faces another make-or-break moment in the intensifying fiscal showdown. If congressional Republicans deny tax relief for 98 percent of Americans to preserve a tax windfall for the top 2 percent, then the failed dogma of trickle-down economics has won again — despite being pummeled in the election last month.

Obama in that Kansas speech identified the middle class — not the moneyed “job creators”— as the real engine of economic growth. “When middle-class families can no longer afford to buy the goods and services that businesses are selling,” Obama said, “it drags down the entire economy, from top to bottom.”

From the seeds of that speech came Obama’s “middle-out economics,” an alternative to the supply-side thinking peddled by GOP nominee Mitt Romney. But the president’s campaign pledge of “an economy that grows from the middle out” wasn’t just good politics. It’s also good economics and good policy.

Leading economists and our own researchers have shown that strengthening the middle class is a superior growth  model to the supply-side approach, which largely means conferring tax privileges on the already privileged.

Consider: People in the middle-income level spend nearly 85 cents of each dollar they earn, compared with less than 70 cents for the upper brackets. So strengthening the middle class gives the economy more of a demand-boosting bang for its buck than does further enriching the rich.

States where the middle class gets a higher share of overall income also have higher school test scores. This is also true in country-by-country comparisons. Why? Because a stronger middle class demands and gets better education for its children. Education is, of course, the essential building block for an economy’s human capital — which economists agree is a crucial ingredient for economic growth and competitiveness.

Strong middle class families also provide the financial stability needed for successful risk-taking, which is why three-quarters of current U.S. entrepreneurs come from middle-class backgrounds. An innovation-driven economy cannot afford to squander talent by kicking its kids out of the middle class. Indeed, we must expand our middle class if we want to capitalize– literally– on the inventiveness of the American people.

The Center for American Progress Tuesday released a comprehensive tax reform and deficit-reduction plan based on strengthening the middle class. It aims to make the income tax more progressive and tame deficits and debt while making hundreds of billions in upfront job-creating investments.

There’s a crucial role for government in nurturing a stronger middle class. A role beyond just shoveling capital into the hands of the rich and praying the fruits of their investment trickle down to everyone else.

That’s why our tax reform plan — whose authors include former Treasury and Commerce secretaries, National Economic Council chairmen, and White House chiefs of staff — addresses the inefficiencies in today’s tax code by converting major tax deductions that tend to favor those in top tax brackets into uniform credits that give equal benefits to all taxpayers.

We also propose a large “standard credit” to protect middle-income filers. And we budget for $400 billion in upfront job-creating investments, in areas such as infrastructure, teacher hiring and training, home and commercial energy efficiency retrofits and middle-class-targeted tax cuts.

That’s what a government grounded in middle-class economics must do, and why the fiscal showdown presents such an important opportunity.  Any deficit-reduction plan must be grounded in a strategy that bolsters the middle-class engine of growth.

A year ago in Osawatomie, the president made his case for the middle class. Last month, the American people responded by reelecting him. We are still waiting for congressional Republicans to get the message.

 

PHOTO: President Barack Obama spoke about the economy and a payroll tax cut compromise in Osawatomie, Kansas, December 6, 2011. More than a 100 years before, President Teddy Roosevelt made a major speech in Osawatomie in which he railed against big corporations and the privileged while arguing for “fair play” for ordinary Americans. REUTERS/Kevin Lamarque

 

 

Comments
17 comments so far | RSS Comments RSS

Exactly what we must do. Steamroll the tea-bagger clown show and let’s move this economy forward !!!

Posted by JohnnyRacer | Report as abusive
 

Trickle down economics doesn’t work. But, I’ve got news for you, trickle up economics doesn’t work either.

Posted by GLK | Report as abusive
 

Denying relief to the middle class is not the Republican agenda, and shame on you for claiming that as focus of the issue. The issue stems from the fact that the current regime is putting a majority of their hopes on higher taxes for the upper class without making an equal amount of cuts in spending. I don’t know about most US homes, but that is not how I balance my budget.

Posted by bean2.0 | Report as abusive
 

Is there actually a need for a trickle-up effect though?

Posted by roboticowl | Report as abusive
 

Correct me if I’m wrong, but Barry and Geithner have basically just printed 2.5 trillion dollars and given it to rich people under the label of quantitative easing. As a reuters article noted the worth of the fortune 500 went up 13% last year, meanwhile middle class incomes dropped 8% over the last 4. Dodd Frank has in practice, taken away access to credit for many low-income people, while furthur entrenching power in the top 10 biggest banks. This article advocates for the tax reform mitt romney campaigned on, yet you seem to be completely in the bag for your pal BB. Why are you allowed to potentially influence people again?

Posted by DHGIII | Report as abusive
 

A significant part of any reform must be to progressively reduce the drag of “preferred” peoples on middle class families.

These financial preferences and subsidies aid “desirables” to increase their share of the population and of national income at the expense of existing “undesirables”, who are generally defined by national origin, race, ethnicity and sex. There is no basis for engineering the demise of any particular racial, ethnic, religious or sexual group. This unfortunate system is the result of self-serving alliances that date back over a half century.

As long as current discriminatory policies continue, the country will continue its economic, social and cultural decline. Simple fact. Watch it unfold before your eyes.

Posted by usagadfly | Report as abusive
 

Its alarming that so many supposedly bright people are coming up such faulty logic. If you take a dollar from a person who will spend 70% of it, you don’t give it directly to someone who will spend 85%. After the government appropriates it from the person who earned it, they will waste perhaps 20% of it. The CBO now says government simply mismanages approx. 115 BILLION dollars/yr.

It doesn’t then give it to the person who didn’t earn it; it provides some other mismanaged service, where most waste occurs. I guess the hope is that this will somehow save the downstream person a dollar who will then spend 85% of it. Its hard to imagine how doing research on the effects of cocaine on monkeys directly saves anyone a dollar. This is a farce.

What the author really means is let us liberals (who are smarter than you??) take your money and we will spend it more wisely than you would. Although we weren’t smart enough, strong enough, driven enough, to earn that money in the first place.

Posted by tiredmd | Report as abusive
 

I am all for the middle class, since even though I make 250,000 a year I consider myself only upper middle class and not rich. I have yet to hear how raising taxes on people like me (or anyone actually) will help the economy. Supposedly this tax increase on the rich will generate 80 billion dollars a year, which is less than the money that could be saved in the medicare program if tort reform were enacted and is certainly a drop in the bucket with a two trillion dollar budget.Why not just not raise taxes on anyone till the economy recovers a little more. It seems that it is not the republicans alone, but also president obama who is gambling with the fiscal cliff over relative peanuts in the big picture.

Posted by zotdoc | Report as abusive
 

The 1% don’t give a darn about anyone else but themselves.
They are multinational (their bank accounts & business) and they will only invest where the high profits are, in third world countries, which we have almost become one ourselves, here in the US.
Fiscal cliffs and all else is just plain BS.

Posted by EthicsIntl | Report as abusive
 

Let’s fast forward to a year, two years, five years from now–let’s pretend the fiscal cliff is averted, the rich have to pay 39.6% taxes, and no recession occurs BUT our deficit and thus our debt continues to grow. Then what are we doing to do? 50%, 75% 90% taxes?
The problem I have with the majority voting away money from a minority is that I can’t explain it in good faith to my 3rd grade son. Do you remember how the Virginia House of Burgesses said the inalienable rights were “life, liberty, and the pursuit of property?” Taking away people’s property is immoral. Stealing someting from someone, no matter how many people say it is okay, is NOT okay.
And even though we are desperately trying to reassure our creditors that we are going to be responsible and pay off our debt, this is not the solution.

Posted by rob3rt | Report as abusive
 

Social Justice & Redistribution of Wealth…that will fix it….

Posted by Crash866 | Report as abusive
 

OK – so why don’t you let small business pay for employees student loans – and means test the family of the employee. This allows a graduate and the employer to help each other – moving the graduate out of debt and the employer has a motivated employee. I am afraid – there is no one at home on the White House staff. There is not enough graft in helping the middle class – it is all talk.

Posted by xit007 | Report as abusive
 

There’s a big difference between an individual making $250K+ and a household income just reaching that threshold. My husband and I both work. We’re just one pay raise away from crossing that threshold, and would likely bring home less after the pay raise than before if the proposed tax increases take effect. We live in a modest home in a very average neighborhood. We commute long distances to work because we can’t afford the housing closer to work centers. We cannot afford to drive fancy cars and are (after all the fiscal upheaval) just making it month-to-month. The tax increase would hurt us in significant ways – unlike Mr. Obama who seems to think that we would continue living the same lifestyle after he takes what he thinks we don’t need, we would have to cut back. I thought wealthy would be $500+. Does the 2% apply to individual incomes? Because it hardly seems fair that I work so hard – very different from a family who has one income over $250K where the spouse can stay home to take care of the home and family. Seems like this new tax law punishes anyone in my position.

Posted by suzgalexy | Report as abusive
 

let’s let the government determine our fate. we can all have government jobs. (the largest employer in pittsburgh, pa is the government in one form or another)

Posted by tougar | Report as abusive
 

Some one said about that neither trickle up or trickle down work. True.

However, this isn’t all that complicated. It really isn’t.

1) Allow the rich to make their money by starting business, not by buying bonds or t-bills and living off the 4%. Start a business make 8% profit keep 50% – that’s your 4 douche. Do better, keep more.

2) Tax them correctly. No loop-holes, no rates about 50%. Make them pay their fair share.

3) Government spending on projects that get the most “bang for the buck” – Smart Grid, Power-plants, Internet 3.0, Clean Energy (wind, solar, tidal, geo-thermal) – high speed raid – really high speed – mag-lev no more of this Acela BS. High quality commuter-rail everywhere. 20 minutes Atlantic City to Down-town Manhattan,

4) No more foreign wars of convenience. Assad uses chemical weapons on his own people? Oh well, sucks for them. Iran gets an A-Bomb and threatens Israel, sorry not my problem.

5) Cut all benefits to the rich. Net-worth over 2.5 million? Sorry, no medicare, social security – whatever.

6) No more welfare state. Period. Doesn’t work. No more Welfare, no more medicaid, no more of these BS programs for anyone. Too many live off it as a life-style (mostly drug users), it’s not enough to survive anyway and when the middle-class needs it, it’s never there – or one has to jump through 1000 hoops to get it.

7) Right to work, replaced with the right to UNION-IZE. Protections for BOTH the right of association and the right to workplace speech.

8) Reasonable regulation. Cut all the licenses and fees and silly government things that require 100 people to approve the painting of a bridge. BUT! and it’s a BIG “but” couple it with enough government inspectors to make sure the rules kept on the books for safety, quality and the environment are followed.

and so forth and so on…

you know a “COMMON SENSE” based system that actually works.

No more of this crazy insane Bovine Scat that’s been going on for 40 years.

Posted by Foxdrake_360 | Report as abusive
 

I’m all for going off the fiscal cliff. It’s apparently the only way to reduce spending. Oh, and in 2-3 months I’m also for disapproving any increase in the federal deficit. That would certainly put a damper on any increases in spending. The problem with giving Washington any money is they’ll figure out how to spend 2X any revenues they receive. Therefore tax increases (to anyone) is entirely pointless.

Posted by DTX | Report as abusive
 

It’s time to break the stranglehold that selfish few hold over the nation through entitlement to influence government actions and elections with wealth and to own news media when their control poses flagrant conflict of interest. Show me a nation that once had fair media, that conscience of nations and I’ll show you a nation that once had good government!

Posted by donee | Report as abusive
 

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