Bloomberg News

American Middle Class Slipping Behind Leans Toward Obama

August 22, 2012

American Middle Class Slipping Behind Leans Toward Obama Plans

President Barack Obama speaks with Jason McLaughlin, principal of Center Point-Urbana High School, his wife, Ali, an account manager for a document scanning company, and their son Cooper, as they hold a discussion on middle class tax cuts at their home in Cedar Rapids, Iowa, July 10, 2012. Photographer: Saul Loeb/AFP via GettyImages

The middle class is shrinking and is now barely a majority in the U.S., underscoring the challenge President Barack Obama and Mitt Romney face as they argue over who can best protect the wealth of struggling Americans.

The proportion of middle-income earners, or those making from $39,000 to $118,000 for a family of three, narrowed over the decade as the housing-market crash erased more than 20 years of gains in wealth and average incomes fell for the first time since World War II, according to a Pew Research Center report released today. The middle class shrank to 51 percent of adults in 2011 from 61 percent in 1971.

“We think of ourselves and pride ourselves as being a middle-class society,” said Paul Taylor, the center’s executive vice president and the editor of the report, in an interview. “But there’s a sense that the middle class is getting smaller. It’s hollowing out.”

Middle-class people are reluctant to lay much of the blame on Obama, with Congress, banks, corporations, the Bush administration and overseas competition more commonly cited as the cause of their problems, according to the survey. More than half, 52 percent, say Obama’s policies would aid the middle class, a 10-percentage-point advantage over Romney.

‘Lost Decade’

The report, “The Lost Decade of the Middle Class,” highlights the effects of the longest recession since the Great Depression that left 12.8 million currently unemployed and pushed more into poverty. The plight of middle-income Americans in an economy that has yet to fully rebound more than three years after the recession ended is a central theme of the presidential race.

“This is the first decade in modern history where median household income hasn’t returned to an earlier peak,” Taylor said in a conference call. “Just about everyone has taken a hit.”

Romney, who co-founded private-equity firm Bain Capital and served as Massachusetts’ governor, has faulted Obama for failing to spur a stronger recovery. Obama has cast himself as a defender of the middle class and criticized his opponent, who has an estimated net worth of as much as $250 million, for seeking to cut taxes on higher-income Americans.

Obama’s pitch may resonate with middle-income voters, the Pew poll indicates. Republicans favor the rich, according to 62 percent of self-described middle-class respondents. That compares with 16 percent who said the same of Democrats. The survey showed 37 percent said Democrats were more likely to favor their interests while 26 percent said that of Republicans.

Romney’s Challenge

“Obama is perceived as more sympathetic to the middle class,” said John Sides, who teaches politics at George Washington University in the nation’s capital and is working on a book about the election. “The challenge for Romney is that he is seen as someone who’s competent, but you want to be seen as someone who’s in touch. There’s enough of a gap there that it may be a liability for him.”

In Columbus, Ohio, Marla Caslin, 62, said she blamed the economic collapse on Republican policies that fostered Wall Street excesses. She was fired from her $44,000-a-year job in the accounts-payable department of a gas company five years ago, and wound up on public assistance until she landed a job at the YWCA last year.

She said Obama has done the best he can with a crisis he inherited, while Romney’s wealth distances him from the plight of typical Americans.

“He can’t relate to us,” Caslin said as she waited for Obama to appear at a campaign rally.

Declining Wealth

The past decade was a drain on middle-income earners, the Pew study shows. Median household income, adjusted for inflation and household size, dropped 6.6 percent to $59,127 in 2010 from $63,277 in 2000, according to the Washington-based center.

The median wealth of all U.S. families, adjusted for inflation, dropped 39 percent from 2007 to 2010, when it stood at $79,431, just 7 percent higher than it was in 1983, according to the Pew report.

For middle-income families, which have almost half their wealth tied up in their homes, their median wealth increased 2 percent in 2010 from 1983. By comparison, the wealth of upper-income families jumped by 87 percent, the study shows.

Retirement Savings

It’s not just nongovernment workers who are feeling the pinch. In Atlanta, Rick Lagotta, 48, who has worked for the fire department for the past eight years and is a member of its union, said he has had to forgo raises, or use them to pay for higher health-care costs, as the economic rout hit the city’s tax collections.

He now earns about $38,000 a year, less than half of what some firefighters make because they started at a time when raises were common. With one child in college and another in high school, Lagotta has drawn on retirement savings from his prior job at a car dealership to avoid taking on a second job.

“Everybody is out there trying to get part-time jobs, putting even more stress on their families,” he said.

The Pew study is based on an analysis of Census Bureau and Federal Reserve Board data, as well as a telephone survey of 2,508 adults from July 16-26, 1,287 of whom identified themselves as middle class. The poll has an overall margin of error of plus or minus 2.8 percentage points, and 3.9 percentage points for the middle-class segment.

Blaming Lawmakers

Most who consider themselves middle class say it’s a struggle to maintain their standard of living. Eighty-five percent say it’s harder to do than it was a decade earlier, according to Pew. Tight finances led 62 percent to reduce spending in the past year, compared with 53 percent who said so in 2008, soon after the onset of the recession.

Rich Morin, a senior Pew editor, said in the conference call that widespread dissatisfaction with Congress may become evident in November. Ninety-one percent of middle class respondents in the Pew survey pinned “a lot” or “a little” blame for the poor economy on lawmakers.

“Everybody’s ready to point the finger at Congress,” he said. “And if you restrict the respondents to registered voters, fingers blame Congress even more. So this is not particularly good news for incumbent members of Congress.”

Tempered Optimism

The rout has tempered middle-income Americans’ optimism. When asked about their children’s future, 43 percent said they would have a higher standard of living than their own, while 26 percent said it would be worse. That’s less sanguine than four years earlier, when 51 percent said the kids would be better off, and 19 percent said they wouldn’t.

In Lower Makefield Township, Pennsylvania, Frank Arcoleo, 59, who has relied on his wife’s income since his consulting business slowed, said he’s afraid his two teenagers won’t be able to match his standard of living when they’re older.

“I just don’t know what life is going to be like for my son,” Arcoleo said. “He’s having to be much more practical about his education than I ever had to be, because being well-educated isn’t enough. You have to have specific skills these days.”

Such worries aren’t uncommon. “It’s been a lot of years of bad times,” said Taylor, the Pew executive. “The mood of optimism is still there, but there’s a little less optimism than there used to be.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Frank Bass in New York, at Fbass1@bloomberg.net.

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net.


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