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Why Hit The Middle Class? That's Where The Money Is


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WHY HIT THE MIDDLE CLASS? THAT'S WHERE THE MONEY IS

All through the Presidential campaign, when candidates Paul Tsongas and Ross Perot called for middle-class sacrifice, Bill Clinton fought back. "The rich get the gold mine, and the middle class gets the shaft," he said often. On the stump, Clinton vowed to cut the budget deficit but said he would do it on the backs of foreign corporations and the rich. Average Janes and Joes would get a break, he promised. "People who would be eligible for some sort of tax relief--and would be immunized from paying any more--would be families with family income of $80,000 a year or less," Clinton told voters only five days before the election.

Wrong. It turns out that the very middle-class voters who signed on to Clintonomics and gave George Bush the boot will end up footing a good chunk of the bill for Clinton's budget plan. The only real surprise is that they're not going to have to do more. Whether deficit reduction comes from higher taxes or lower spending, notes Stanley E. Collender, a budget expert at Price Waterhouse, "there's just no way to do it without disproportionately affecting the middle class. Because most government programs disproportionately benefit the middle class."

If Clinton's whoops-I-lied budget makes it through Congress, the middle class--families who earn between $20,000 and $80,000--will face new levies, mostly in the form of a tax on energy, a measure Clinton discounted in his campaign. In May, they may take on more new taxes on medical benefits, when Clinton reveals his health plan.

WHAT TO CUT? But Clinton, paradoxically, hasn't gone far enough. Indeed, the President would be doing the middle class a bigger favor if he simply cut their spending programs instead of raising their taxes. Taking more money from the middle class, only to send it back in the form of government largess, is inefficient. Besides, the federal government's true role should be to provide a strong defense, while it helps those who really need it--the poor, the sick, the homeless. Let the Walsh family of television's Beverly Hills 90210 pay their own way.

The reality is that the federal government spends less than $100 billion a year on poor folks. That's less than 7% of the total budget. Compare that with the $303 billion spent on the largest middle-class entitlement program, Social Security. Fewer than 10% of those recipients live in poverty.

Poverty rates for children, meanwhile, are twice as high as for the elderly, yet Washington spends 10 times as much on programs for oldsters as for youth. "The growth in federal spending has been on the middle class, and someone has got to be willing to stand up and say, 'These are the facts, folks,' " says Carol G. Cox Wait, president of the Committee for a Responsible Federal Budget.

What could be cut? Plenty. Consider tax loopholes, commonly thought to be the province of the greedy rich. Guess again. The federal government will forgo $65 billion this year alone by not taxing workers for the health insurance premiums paid by employers. None of the benefit goes to the poor.

Similarly, only people who can afford to own houses benefit from another huge middle-class handout--deductions for interest on up to $1 million in mortgage debt for primary and vacation homes. Want a break on a couple of cars, too? An additional $100,000 worth of a second mortgage can be deducted and spent on most anything you want. Next year's cost to the Treasury: $52.8 billion. Other big-ticket preferences aimed at the middle class include exemptions for employer contributions to pension plans and life insurance.

The list goes on. The federal government will give $6 billion through 1997 to colleges to distribute to students as loans, scholarships, or work-study grants without regard to need. Much of it is spent by colleges chasing middle-class high achievers. Customers of suburban and rural electricity cooperatives--mostly middle-income--will receive subsidies worth nearly $600 million over that period. Favored homeowners will pay $1 billion less for below-cost power from federal hydroelectric projects.

'MISERY INDEX.' True, the middle class has been working harder simply to run in place. In his new book, Boiling Point, political analyst Kevin P. Phillips notes that during the 1980s, the "New Misery Index" for the middle class skyrocketed. The combination of income and payroll taxes, medical payments, and interest payments as a percentage of personal income went from 34% to 40%.

But the angst-ridden middle class sent its champion Bill Clinton to the White House looking for real change. He needs to do better by them--even if it means asking Middle America to save for their own retirements, pay the true cost of their mortgages, and spring for their own college tuitions.Paul Magnusson


Reviving Keynes
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