The Middle Class – How Do We Get There from Here?

Elleanor Chin

By Elleanor Chin of Portland, Oregon. Elleanor is a Board member of Family Forward Oregon and the Oregon chapter of the National Organization for Women. She is an attorney, writer, mother and gardener.

When folks say, “the middle class is going extinct” what does that actually mean?

Americans in the aggregate really prospered economically when large amounts of people were making living wages and there was both a “blue collar” and a “white collar” middle class. This happened in the two or three decades after the Second World War, but ever since then it's been eroding. “Middle class” is in part a product of government regulation. In particular regulation that allocates wage and income resources. That's contrary to fundamental tenets of free-market economics and even older American views about success being a product of individual effort, good character and work ethic. Assuming you are willing to buy-in at all to the premise that having a large and stable middle class requires concerted policy effort, then the opposite is also true. Shifting regulatory priorities (and de-regulation) results in less of a middle class.

What we have now in the United States, including in Oregon, is a prolonged period of wage stagnation and policies that focus on corporate shareholder value, and short term profit rather than other forms of investment and re-investment in innovation, infrastructure or work force. (Something that policy analysts have known since the early 90s). Costs of living relative to wage value have been climbing for decades.

As a state we have choices on where to invest, both in terms of economic resources and legislative bandwidth. True living wages mean two wage earners (and ideally even one) in a household can pay for the cost of a roof over the family's head (including utilities), buy groceries, have access to adequate transportation, and child care. One way to do that is through promoting or mandating living wages. It's well established that the federal minimum wage is not a living wage, or even close. Recently Vermont passed legislation to increase the minimum wage to $10.50 by 2018 (next year it will go from $8.73 to $9.15). In a real dollar sense, that means a wage earner working full time would go from making roughly $15,000 a year, to roughly $21,000 per year (before taxes). That is still less than the poverty threshold for a family of four.

Increasing actual wages is just one way to increase family income and prosperity. Making the dollars go farther is another. Making available housing accessible to families with lower incomes is another. Likewise making childcare more accessible and affordable. A $10.50 minimum wage won't go far if childcare costs $10 per hour on average. Protecting the stability of employment through paid family leave and sick time also promotes economic well-being.

We already live in a highly regulated society. There are tax incentives, protective measures, civil and criminal laws, administrative regulations and other mandates that incentivize or reward socially desirable behavior. So the regulatory choice is not whether to regulate but how. Minimum wage, paid sick leave and affordable housing are not “middle class promotion” measures. They are “poverty avoidance”.

What might “middle class friendly” regulations look like? As an example of a current regulatory choice, our tax code provides unlimited second home mortgage interest deduction and various favorable capital gains and passive income treatment. These are only available to people who are fortunate enough to have enough money to do nothing with it, except maybe buy a second home.

What about unlimited deductions for childcare costs? Currently my husband and I are permitted to claim $5000 pre-tax income credit per year for dependent care costs. That's not $5000 per child, it's $5000 per family. It's not even $5000 per wage earner. $5000 doesn't go far with three kids (and Oregon has some of the highest child care costs in the country).

What about unlimited deductions for student loan interest? While federal tax policy typically has a greater effect on individual income than state, Oregon and other states make different tax choices, such as allowing campaign contribution deductions (or the lack of income tax in Washington). What about subsidizing costs for higher education? Contrast the current accessiblity, cost and value of college today to the post-WWII GI Bill, which is credited with helping to create the American middle class.

These aren't questions that are going to get answered easily or quickly, but at the very least we should be thoughtful about what our goals are as a society. We can vote for candidates who support policies that benefit all working families. And we have to learn how prioritize and choose. When we can make a choice that pushes social and economic momentum towards economically secure families, are we willing to do so? If we have to trade something else for it, would we?

By Elleanor Chin May 19, 2014 Posted in guest column.