Make-or-break moment for middle class

Barack Obama

A year ago Thursday in Osawatomie, Kansas, President Barack Obama delivered a fiery defence 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 pummelled 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 capitalise — literally — on the inventiveness of the American people.

The Centre 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 shovelling 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 favour 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.

Neera Tanden is the president of the Centre for American Progress. She formerly served as an adviser to the Obama administration.

Source: The Daily Star

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