For middle-class Americans, 2015 is the new 1999.
That’s the last year that the middle class saw any increase in household median income. It’s hard to believe, but today’s middle-class family is no better off than they were in 1999. And it gets even worse when inflation is factored in: According to the Federal Reserve, the average net worth of an American family is actually lower now than it was in 1989, the longest stagnation recorded since the Great Depression. American families are paying their 21st-century bills with 20th-century wages.
And yes, the stock market has been on an incredible tear since 2009, with the S&P 500 and the Dow surging to all-time highs. But those massive gains have not benefited the working class. More than 95 percent of the gains in the first three years of the bull market have lined the pockets of only one percent of the population. Those working on Main Street have yet to see much yield out of the riches that have poured out of Wall Street. Wall Street has been partying alone during the latest bull market.
Not that we advocate robbing the rich to pay the poor, but it seems when Wall Street does well with its risk-taking, most of the nation doesn’t see much benefit, but when the investment banks, financial institutions and hedge funds implode, everyone gets the privilege of feeling their pain. During the last recession, Americans at every income level were hit by the excesses of Lehman Brothers, Bear Stearns, AIG, Goldman Sachs and other financial firms. In fact, Americans were told that they had to bail out some huge endangered businesses because they were “too big to fail.” Now that many of these same firms are earning record profits, very few Americans, other than shareholders and traders, are getting a chance to participate in those gains.
And while the housing market has started to crawl back from its spectacular bust during the recession, for most of the middle class, home values have never recovered to pre-recession levels. Many are still underwater or have taken severe hits in value, depriving homeowners of the equity lines of credit they once had to pay bills. American homeowners are still feeling the pain from Wall Street’s mortgage-backed securities fiasco. In fact, home equity lines of credit are down 25 percent since the recession hit, this while interest rates are historically low.
Clearly, the average American family desperately needs a financial break, which is why we welcome President Obama’s proposal to provide tax relief for the middle class and for a more equitable tax on the wealthy. The president’s plan will cut taxes by $175 billion for the middle class. The middle class tax break would be in the form of an outright $600 tax credit for married couples, with additional tax breaks for child care, education and retirement. The proposal is to triple child tax benefits for up to $3,000 per child, an amount that would be a great boon to families with two working parents. Full-time college students, under the president’s proposal, would be granted a $2,500 credit towards educational costs. Part-time students would also be eligible for a tax credit.
Where will the money come from? The bulk of it will come from closing loopholes currently used by the wealthy to pass on wealth to heirs. Under the current law, known as the “trust-fund loophole,” assets passed on to heirs after death aren’t taxed for capital gains. For example, if a parent bought $1 million in stock, which subsequently doubled, the heirs don’t have to pay tax on the capital gain. Neither do the heirs have to pay any capital-gains tax should they decide to sell the stock. In effect, that’s $1 million of income that evades the radar of the IRS.
The president is also proposing to raise the capital-gains tax to 28 percent, up from its current 20 percent. Certainly, many Republicans and Wall Streeters will cry foul, predicting that such a hike will dampen investment, but that was the rate under President Reagan, and the stock market didn’t have any trouble climbing more than 50 percent during his time in office.
The last decade and a half have been lost years for the middle class. Alleviating the tax burden for working families, and creating a more equitable tax structure, will go a long way to ensure that working families can have a path to more prosperity in their future.