Closing the Gap: The Story of the Middle Class

While the middle class is more of a state of mind than a voting block, both presidential candidates are promising prosperity for these crucial voters. Obama talks about "a rescue plan for the middle class" and McCain has designated himself the spokesmen of the middle class by adopting the plight of Joe the Plumber. How do we keep the American dream alive? Does recent history provide any insights? A piece by The Wall Street Journal's Stephen Moore in The American, looks at the progress of the middle class and comes to an important conclusion.

• After-Tax real comprehensive household income has increased since 1993 for every class including the middle class.
  
• Those in the highest income bracket have gained the most wealth partly because those in lower brackets move up when their wealth increases, but the richest have no place to go.
  
• America is still the land of opportunity, 270 on the Forbes 400 richest list amassed their own fortunes.
  
• The average salary up for a middle class American increased from $40,000 in 1967 to $60,000 in 2005 (even without adding health benefits, increased vacation time and other perks).
  
• Economists estimate the purchasing power of the middle class has increased a third and those in the middle class who earn $75,000 or more have tripled since 1967.
  

If the middle class is doing so well why are the poor always with us?

• The constant flow of immigrants replenishes the poor class and disguises upward mobility.
  
• Most of the poor households in the United States are headed by senior citizens, because the elderly have many assets but very little income.
  
• A 2007 study by the Treasury Department based on family incomes between 1987-1996 and 1996-2005, found a correlation between the extent of poverty and rapid income gain. At the end of each study the average family had doubled their original income.
  
• Another explanation for the exaggerated gap between the rich and the poor is the exclusion of government benefits and from official calculations. When you include all sources of income the poor saw a 9% rise from 1993-2005. And the number of people in low-income housing has been shrinking as a result of the family breakdown.

More good news . . .

• Income gaps between races and sexes are closing. Moore estimates the remaining gaps are likely to be a result of one's skills and productivity.
  

Finally, Moore asks if higher taxes on the wealthy would help the middle class continue this positive trend?

"In 1972 when tax highest tax rate on the rich was 70% and the top capital gains tax rate was 35%, the richest 1% of Americans paid 17% of the income tax burden. Today, with a top income tax rate of 35% and capital gains at 15%, they pay 39%." What's the point? "With higher income tax rates the rich shelter more of their income through tax carve-outs, they invest less in the United States and more abroad, and they work less."

Bottom Line: The best way to ensure prosperity for the middle class is to allow every person to keep more of their money, regardless of their income bracket.