The Problem With Middle-Class Populism

Excerpts. For the full article go to
http://www.nytimes.com/2015/02/04/opinion/the-problem-with-middle-class-populism.html?mabReward=R4&action=click&contentCollection=Asia%20Pacific&region=Footer&module=Recommendation&src=recg&pgtype=article

In his State of the Union address last month, and in four subsequent addresses to the public, President Obama used the phrase “middle class” (approvingly) a total of 49 times, and the term “superrich” (in an accusatory sense) eight times. It sounded like this:

For far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways that the superrich don’t need, while denying a break to middle-class families who do. We don’t just want everyone to share in America’s success, we want everyone to contribute to our success.

The problem for Democrats is that the party’s newfound emphasis on benefits for the middle class and contributions from the rich threatens to alienate the upscale wing of the party, which fears that it will be left to pick up the tab.
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Middle-class populism, however, raises a host of problems for the Democratic Party. When the middle-class populist message is turned into actual legislative proposals, the costs, in the form of higher taxes, will be imposed on the affluent. Such a shift in the allocation of government resources threatens the loyalty of a crucial Democratic constituency: well-off socially liberal voters.

Over the past two decades, the Democratic Party has successfully won over – or perhaps it’s better said that the Republican Party has lost – many well-educated, well-paid, fiscally moderate men and women. These voters are repelled by a social conservatism that is anti-abortion, anti-gay rights and anti-women’s rights. But they are not eager to see their taxes raised.

In 1992, Bill Clinton lost the most affluent segment of the electorate, voters with household incomes over $75,000, by 12 points. In 2008, Obama lost voters with household incomes from $100,000 to $200,000 by 2 points, 50-48, and actually carried voters making over $200,000, 52-46.

Even more significant: In 1992, voters from households making from $15,000 to $75,000 a year – a very rough estimate of the working and middle class – made up 74 percent of the electorate. By 2012, voters from households making $30,000 to $100,000 (again, a rough estimate of the working and middle class) made up 52 percent of the electorate. By 2012, nearly three of every 10 voters, 28 percent, came from households making in excess of $100,000, the upper middle class and beyond.

In other words, the size of the target constituency for a political strategy emphasizing middle-class populism has grown substantially smaller, while the size of the affluent voting population that would bear many of the costs of financing the new populism has grown larger.

The perils of a middle-class populist strategy were demonstrated in the aftermath of the State of the Union address.

With what can only be called a surprising display of political naïveté, Obama lit a fuse under his upscale allies with one item in the message accompanying his Jan. 20th speech. The president, as a part of his assertive redistributionist agenda aimed at shifting benefits from rich to middle-income citizens, called for the effective end of tax-advantaged 529 college saving accounts.

Robert Greenstein, president of the liberal Center on Budget and Policy Priorities, wrote in a post on the center’s website on Jan. 22 that more than two-thirds of the tax breaks in the 529 program went to households with incomes in excess of $200,000.

The savings from cutting back the 529 program would be used “to strengthen and make permanent the education tax incentive best targeted on low- and middle-income families: the American Opportunity Tax Credit,” according to Greenstein.

As anticipated, Republicans were critical. But what killed the plan was Democratic opposition from an unexpected quarter: the party’s leading advocates of middle-class populism: Nancy Pelosi, House Democratic leader; Chris Van Hollen, ranking Democrat on the House Budget Committee; and Charles Schumer, chairman of the Senate Democratic Policy and Communications Center. All three members have large constituencies of upper-income Democrats.

Schumer told The Washington Post that the president’s overall plan “has the puzzle pieces necessary to bring the middle class back, but this particular piece didn’t fit.”

Within a week, on Jan. 27, Obama was forced to abandon the proposal.

Jared Bernstein, who also works at the Center on Budget and Policy Priorities, was blunt in his assessment of the politics of the 529 controversy, telling the Washington Post that the Obama proposal was like “kicking a ball in your own goal.”

“Democrats depend nearly as much on upper-class voters as Republicans do,” wrote Josh Kraushaar, political editor of National Journal. Of the 10 congressional districts with the highest per capita income, eight are represented by Democrats.

In an email, Greenstein wrote to me that:

The implications of this debacle are troubling. If we can’t reform a tax break that is highly inefficient and gives the overwhelming share of its benefits to high-income people who don’t need the benefits to engage in the desired activity (in this case, going to college) because a modest share of middle-income families also use that tax break — and we can’t do so even when the savings would be rechanneled to make middle and lower income families better off — then it’s going to be awfully difficult to address a number of the challenges the nation faces in the years ahead.

While Greenstein may be correct in his belief that the affluent are going to send their kids to college with or without 529 tax breaks, there is no question that elimination of the benefit would inflict real pain on an influential class, and provoke substantial anxiety among those who earn less but enough to disqualify them for meaningful financial aid.

Many of those in households making from $100,000 to $250,000 do not, in fact, believe they are affluent and consider themselves merely middle class.

Such parents, and those headed that way, are determined that their children will have every opportunity. A looming roadblock is the spreading awareness that since 1978, college tuition and fees have risen by 1,225 percent, nearly five times the rate of growth of the Consumer Price Index.

A family of four living in Illinois in 2015 with a gross annual household income of $225,000 – that is, an after-tax income of $180,000 – with $225,000 in savings, would be very likely to pay the full freight of $62,850 a year (with no financial aid), just over a third of their total take-home pay, to send a son or daughter to Harvard. Over four years, the cost would be over $250,000, a quarter-million dollars.

Should a brother or sister enroll after child No. 1 graduates, it’s another unassisted $250,000 plus.

The kind of family making a gross household income of $225,000 could include two married professors, a nurse anesthetist and a dentist, a marketing manager and an air traffic controller, a podiatrist and a veterinarian, or an optometrist and an engineer.

In many respects, the Democratic Party is in the midst of a class-based upheaval. In 1981, after Ronald Reagan won the presidency, Republicans took control of the Senate and a conservative alliance dominated the House.

As Tip O’Neill used to tell reporters, “We in the Democratic Party raised millions out of poverty into the middle class, and made them so comfortable they could become Republicans.” Now, three decades later, the Democrats’ dilemma grows out of the fact that they have won back the loyalty of many who have reached the upper rungs of the middle class.

These developments do not bode well for the party’s new priorities. If such a simple and straightforward proposal as the shift of government dollars from affluent families to far less advantaged families scraping to pay college tuition gets an instantaneous thumbs down from Pelosi, Schumer and Van Hollen, the realistic prospects for a middle-class agenda, if the Democrats return to power, are marginal at best.

Last edited by Goose (2/08/2015 12:34 pm)