How the middle class became the underclass

**min0 lee** · 02-19-2011, 11:15 AM

NEW YORK (CNNMoney) -- Are you better off than your parents?

Probably not if you're in the middle class.

Incomes for 90% of Americans have been stuck in neutral, and it's not just because of the Great Recession. Middle-class incomes have been stagnant for at least a generation, while the wealthiest tier has surged ahead at lighting speed.

In 1988, the income of an average American taxpayer was $33,400, adjusted for inflation. Fast forward 20 years, and not much had changed: The average income was still just $33,000 in 2008, according to IRS data.

Meanwhile, the richest 1% of Americans -- those making $380,000 or more -- have seen their incomes grow 33% over the last 20 years, leaving average Americans in the dust.

Experts point to some of the usual suspects -- like technology and globalization -- to explain the widening gap between the haves and have-nots.

But there's more to the story.

A real drag on the middle class
One major pull on the working man was the decline of unions and other labor protections, said Bill Rodgers, a former chief economist for the Labor Department, now a professor at Rutgers University.

Because of deals struck through collective bargaining, union workers have traditionally earned 15% to 20% more than their non-union counterparts, Rodgers said.

But union membership has declined rapidly over the past 30 years. In 1983, union workers made up about 20% of the workforce. In 2010, they represented less than 12%.

"The erosion of collective bargaining is a key factor to explain why low-wage workers and middle income workers have seen their wages not stay up with inflation," Rodgers said.

Without collective bargaining pushing up wages, especially for blue-collar work -- average incomes have stagnated.

International competition is another factor. While globalization has lifted millions out of poverty in developing nations, it hasn't exactly been a win for middle class workers in the U.S.

Factory workers have seen many of their jobs shipped to other countries where labor is cheaper, putting more downward pressure on American wages.

"As we became more connected to China, that poses the question of whether our wages are being set in Beijing," Rodgers said.

Finding it harder to compete with cheaper manufacturing costs abroad, the U.S. has emerged as primarily a services-producing economy. That trend has created a cultural shift in the job skills American employers are looking for.

Whereas 50 years earlier, there were plenty of blue collar opportunities for workers who had only high school diploma, now employers seek "soft skills" that are typically honed in college, Rodgers said.

A boon for the rich
While average folks were losing ground in the economy, the wealthiest were capitalizing on some of those same factors, and driving an even bigger wedge between themselves and the rest of America.

For example, though globalization has been a drag on labor, it's been a major win for corporations who've used new global channels to reduce costs and boost profits. In addition, new markets around the world have created even greater demand for their products.

"With a global economy, people who have extraordinary skills... whether they be in financial services, technology, entertainment or media, have a bigger place to play and be rewarded from," said Alan Johnson, a Wall Street compensation consultant.

As a result, the disparity between the wages for college educated workers versus high school grads has widened significantly since the 1980s.

In 1980, workers with a high school diploma earned about 71% of what college-educated workers made. In 2010, that number fell to 55%.

Another driver of the rich: The stock market.

The S&P 500 has gained more than 1,300% since 1970. While that's helped the American economy grow, the benefits have been disproportionately reaped by the wealthy.

And public policy of the past few decades has only encouraged the trend.

The 1980s was a period of anti-regulation, presided over by President Reagan, who loosened rules governing banks and thrifts.

A major game changer came during the Clinton era, when barriers between commercial and investment banks, enacted during the post-Depression era, were removed.

In 2000, the Commodity Futures Modernization Act also weakened the government's oversight of complex securities, allowing financial innovations to take off, creating unprecedented amounts of wealth both for the overall economy, and for those directly involved in the financial sector.

Tax cuts enacted during the Bush administration and extended under Obama were also a major windfall for the nation's richest.

And as then-Federal Reserve chairman Alan Greenspan brought interest rates down to new lows during the decade, the housing market experienced explosive growth.

"We were all drinking the Kool-aid, Greenspan was tending bar, Bernanke and the academic establishment were supplying the liquor," Deutsche Bank managing director Ajay Kapur wrote in a research report in 2009.

But the story didn't end well. Eventually, it all came crashing down, resulting in the worst economic slump since the Great Depression.

With the unemployment rate still excessively high and the real estate market showing few signs of rebounding, the American middle class is still reeling from the effects of the Great Recession.

Meanwhile, as corporate profits come roaring back and the stock market charges ahead, the wealthiest people continue to eclipse their middle-class counterparts.

"I think it's a terrible dilemma, because what we're obviously heading toward is some kind of class warfare," Johnson said.

**Irishman012** · 02-20-2011, 01:09 PM

The tax laws must apply to everyone equally. The loopholes opened by decades of corrupt elected officials must be closed. These laws are complicated and convoluted for a reason, to give those "in the know" an advantage. A business with a sound foundation will survive without tax breaks, if it can't compete it shouldn't. A fair tax code will be tough to come by, as it would cost Congressman and Senators much of their "acquired" re-election funding.
As far as the deregulation of the banks and stock trading law goes, that is the core reason for this downturn. Fake profits on phony securities, overpriced real-estate sold and resold, make believe "funds" trading commodities back and forth (oil, food). When it all came crashing down under scrutiny, the wealthy and corrupt were bailed out and the "little guy" investor lost his savings and property value. The governments inflation numbers are a joke. They don't include food, energy, healthcare. The real numbers are much much higher.

**irish_2003** · 02-20-2011, 01:32 PM

i could easily solve this by changing the "definition" of both "middleclass" and "super rich".....

**LAM** · 02-20-2011, 01:39 PM

Originally Posted by Irishman012

The tax laws must apply to everyone equally. The loopholes opened by decades of corrupt elected officials must be closed. These laws are complicated and convoluted for a reason, to give those "in the know" an advantage. A business with a sound foundation will survive without tax breaks, if it can't compete it shouldn't. A fair tax code will be tough to come by, as it would cost Congressman and Senators much of their "acquired" re-election funding.
As far as the deregulation of the banks and stock trading law goes, that is the core reason for this downturn. Fake profits on phony securities, overpriced real-estate sold and resold, make believe "funds" trading commodities back and forth (oil, food). When it all came crashing down under scrutiny, the wealthy and corrupt were bailed out and the "little guy" investor lost his savings and property value. The governments inflation numbers are a joke. They don't include food, energy, healthcare. The real numbers are much much higher.

one of the main problems is that the US has never been a truly "capitalist" society...the poor and middle class have been bailing out the rich and Wall Street for over 100 years now since 1907.

**Irishman012** · 02-20-2011, 02:21 PM

Until we get a firm handle on who pays who to get elected at all levels of our government we will be bailing out the wealthy. Greed is the bane of our system, and we do not have it in control now. Id love to see a whole pile of convictions for breaking the oath of office in Washington.

**LAM** · 02-20-2011, 02:47 PM

Originally Posted by Irishman012

Until we get a firm handle on who pays who to get elected at all levels of our government we will be bailing out the wealthy. Greed is the bane of our system, and we do not have it in control now. Id love to see a whole pile of convictions for breaking the oath of office in Washington.

that being said the Supreme Court just about totally fucked us..

**clemson357** · 02-22-2011, 11:30 PM

Originally Posted by LAM

that being said the Supreme Court just about totally fucked us..

Dude, you really need to pull your head out of your ass. Seriously.

The SCOTUS case everyone on the left is bitching about involved the government suppressing the release of a movie. Do you really think the government should be able to suppress the release of a movie simply because it is political and there is an election within 6 months? Well, that is what happened. Hard to believe that could happen in America if you ask me.

Rightfully, SCOTUS struck down the law as violating the freedom of speech. Now granted there were other protections in the law that are no longer in effect because the law was struck down, this is simply because the Supreme Court doesn't rewrite legislation that isn't clearly severable. For instance, the part requiring disclosure of where the funding for political programing comes from. But Congress can pass those portions again.

**Big Pimpin** · 02-23-2011, 06:46 AM

50% of the country doesn't even pay net income taxes, so how the fuck are the rich screwing the middle class and the working poor?

**Dale Mabry** · 02-23-2011, 07:00 AM

Originally Posted by Big Pimpin

50% of the country doesn't even pay net income taxes, so how the fuck are the rich screwing the middle class and the working poor?

Because 1 of those percentage points that pays no income tax belongs to the top 1% who make 70% of the income in this country. That leaves the 50% remaining, ie, the middle class, to come up with 100% of government revenue out of 30% of net income.

**LAM** · 02-23-2011, 09:05 AM

Originally Posted by clemson357

Dude, you really need to pull your head out of your ass. Seriously.

my thinks your head is in your ass...Citizens United v. Federal Election Commission overturned 2 two precedents:

* Austin v. Michigan Chamber of Commerce: a 1990 decision that upheld restrictions on corporate spending to support or oppose political candidates

* McConnell v. Federal Election Commission, a 2003 decision that upheld the part of the Bipartisan Campaign Reform Act of 2002 that restricted campaign spending by corporations and unions.

so if you like you can explain how this is a good thing for Americans?

**Big Pimpin** · 02-23-2011, 09:21 AM

Originally Posted by Dale Mabry

Because 1 of those percentage points that pays no income tax belongs to the top 1% who make 70% of the income in this country. That leaves the 50% remaining, ie, the middle class, to come up with 100% of government revenue out of 30% of net income.

Who cares? Why should the rich be penalized for being prosperous? After a certain point, say $1 million in personal income, one should no longer have to pay more income taxes.

**LAM** · 02-23-2011, 09:24 AM

Originally Posted by Big Pimpin

Who cares? Why should the rich be penalized for being prosperous?

you have no problems with one american getting rich off the job loss of another American? and the funds used to gamble by the American getting rich were from tax money from the American that just lost their job...you have no problem with this system?

**Big Pimpin** · 02-23-2011, 09:51 AM

Originally Posted by LAM

you have no problems with one american getting rich off the job loss of another American? and the funds used to gamble by the American getting rich were from tax money from the American that just lost their job...you have no problem with this system?

WTF are you talking about? The rich dweeb who created Facebook made his billions off people losing their jobs? How about Bill Gates? Phil Knight of Nike? Truett Cathy of Chic fil A? Steve Jobs of Apple?

Just because someone is rich doesn't mean they received some big tax advantage and in exchange laid a bunch of people off.

The small percentage of rich in this country should not have to shoulder the tax responsibility of the majority just because they are rich and class warfare is the cool thing to do right now.

**LAM** · 02-23-2011, 10:39 AM

Originally Posted by Big Pimpin

WTF are you talking about? The rich dweeb who created Facebook made his billions off people losing their jobs? How about Bill Gates? Phil Knight of Nike? Truett Cathy of Chic fil A? Steve Jobs of Apple?

Just because someone is rich doesn't mean they received some big tax advantage and in exchange laid a bunch of people off.

The small percentage of rich in this country should not have to shoulder the tax responsibility of the majority just because they are rich and class warfare is the cool thing to do right now.

you are talking about a select few billionaires that all made their fortunes off technology..the overwhelming majority of new billionaires and millionaires in the US work on Wall Street

some examples of their pay are below:
http://www.ritholtz.com/blog/2010/04...s-2009-salary/

and if you think there is any positive outcome as the result of hedging you haven't been following US economic history

**sprayherup** · 02-23-2011, 02:00 PM

It's common sense. Of course those people making a lot of money will have more of it years later. Just like someone in your office making 100K, lets say they get a 5% raise that's 5,000. Someone making 40K getting the same raise is only 2,000. So should the person making 40K get a 12.5% raise just to even the score?

Or should the person making 100K only get a 2% raise so it's even with the other employee?

**DOMS** · 02-23-2011, 02:12 PM

Originally Posted by sprayherup

It's common sense. Of course those people making a lot of money will have more of it years later. Just like someone in your office making 100K, lets say they get a 5% raise that's 5,000. Someone making 40K getting the same raise is only 2,000. So should the person making 40K get a 12.5% raise just to even the score?

Or should the person making 100K only get a 2% raise so it's even with the other employee?

If someone makes more money than you, it's unfair.

**sprayherup** · 02-23-2011, 02:14 PM

Originally Posted by DOMS

If someone makes more money than you, it's unfair.

That's basically what I'm understanding in this thread.

**Zaphod** · 02-23-2011, 04:21 PM

Originally Posted by Big Pimpin

50% of the country doesn't even pay net income taxes, so how the fuck are the rich screwing the middle class and the working poor?

Your source for that percentage?

**LAM** · 02-23-2011, 10:16 PM

Originally Posted by Zaphod

Your source for that percentage?

Nearly half of US households escape fed income tax - Yahoo! Finance

this doesn't mean escaping from all taxes..there can still be city or state wage taxes, local taxes, etc.

a good portion of low income earners actually get more money back from the Fed then they pay in, this surely doesn't help things...

**Zaphod** · 02-24-2011, 04:26 AM

No, it doesn't help. On the other hand with their income being that low odds are they need every penny they can get.

**Dale Mabry** · 02-24-2011, 05:02 AM

Originally Posted by Big Pimpin

Who cares? Why should the rich be penalized for being prosperous? After a certain point, say $1 million in personal income, one should no longer have to pay more income taxes.

They're not being penalized, they are skirting the system and effectively paying no income tax. Buffet said himself he pays less in taxes than his secretary. The same people you are defending effectively pay no income tax just like the poor, but they have the means to pay and don't. Obviously fixing the tax code will resolve this issue, but with these guys pumping millions in to the pockets of the politicians to not do it is why it will never happen. I think any intelligent person can look at what cleaning up the tax code would do to the rich and figure out that it would effectively RAISE taxes on them. Can't really blame them, who wouldn't want to use every legal recourse to pay less taxes? That doesn't change the fact that it is bad for the country.

**LAM** · 02-24-2011, 08:09 AM

Originally Posted by Big Pimpin

Who cares? Why should the rich be penalized for being prosperous? After a certain point, say $1 million in personal income, one should no longer have to pay more income taxes.

high wage earners on Wall Street, CEO's, etc. receive the majority of their yearly compensation in the form of bonuses which are only taxed at the capital gains rate of about 15-20%, so they pay very little personal income tax.

**DBowden** · 02-24-2011, 06:10 PM

Originally Posted by Big Pimpin

WTF are you talking about? The rich dweeb who created Facebook made his billions off people losing their jobs? How about Bill Gates? Phil Knight of Nike? Truett Cathy of Chic fil A? Steve Jobs of Apple?

Just because someone is rich doesn't mean they received some big tax advantage and in exchange laid a bunch of people off.

The small percentage of rich in this country should not have to shoulder the tax responsibility of the majority just because they are rich and class warfare is the cool thing to do right now.

Hedge fund managers compensated in the 100s of millions of dollars a year, some of them making 900k an hour, pay a less effective tax rate than someone making 80k a year.

Hedge Fund Managers Win at Tax Time - The Blotter

Hedge Fund Managers Win at Tax Time

April 16, 2007 12:04 PM

The custodians at Wall Street hedge fund offices may be paying more in Social Security taxes than the multi-millionaires they work for under a tax law loophole that some public interest groups say threatens to undermine the integrity of the system.

"This is an attitude issue that taxes are for idiots, and the uber-rich guys are above it," said Jack Blum, a Washington, D.C. tax lawyer and U.S. co-chair of the Tax Justice Network, a non-profit group that seeks to identify tax loopholes worldwide.

According to Blum, many hedge fund managers are taking their yearly earnings, in the hundreds of millions of dollars, as stock profits, instead of salary. Social Security taxes are not levied against stock profits.

"This means the guy sweeping the floor is paying more in Social Security tax than the manager running the fund," Blum says. Even worse, Blum says, is that the fund managers dramatically lower the rate at which their income is taxed because stock profits are taxed at a much lower rate that salary.

Salary in the highest tax bracket is taxed at 35 percent, but profits from stocks held long enough to be called "long-term capital gains" are taxed at 15 percent. A hedge fund manager making $100 million in a year would pay $15 million to the government if he is able to take his income as capital gains, not the $35 million he would have to pay if the income was considered salary.

**LAM** · 02-24-2011, 08:26 PM

Originally Posted by DBowden

Hedge fund managers compensated in the 100s of millions of dollars a year, some of them making 900k an hour, pay a less effective tax rate than someone making 80k a year.

Hedge Fund Managers Win at Tax Time - The Blotter

Hedge Fund Managers Win at Tax Time

April 16, 2007 12:04 PM

The custodians at Wall Street hedge fund offices may be paying more in Social Security taxes than the multi-millionaires they work for under a tax law loophole that some public interest groups say threatens to undermine the integrity of the system.

"This is an attitude issue that taxes are for idiots, and the uber-rich guys are above it," said Jack Blum, a Washington, D.C. tax lawyer and U.S. co-chair of the Tax Justice Network, a non-profit group that seeks to identify tax loopholes worldwide.

According to Blum, many hedge fund managers are taking their yearly earnings, in the hundreds of millions of dollars, as stock profits, instead of salary. Social Security taxes are not levied against stock profits.

"This means the guy sweeping the floor is paying more in Social Security tax than the manager running the fund," Blum says. Even worse, Blum says, is that the fund managers dramatically lower the rate at which their income is taxed because stock profits are taxed at a much lower rate that salary.

Salary in the highest tax bracket is taxed at 35 percent, but profits from stocks held long enough to be called "long-term capital gains" are taxed at 15 percent. A hedge fund manager making $100 million in a year would pay $15 million to the government if he is able to take his income as capital gains, not the $35 million he would have to pay if the income was considered salary.

it kills me when you hear "poor" people champion for excessive compensation of those in high finance..if only more people understood how hedge funds operate and they damage they do and how little they are regulated (that's a shocker)...

**CobraNinja** · 02-24-2011, 08:49 PM

politics politics politics

**oufinny** · 02-24-2011, 09:23 PM

This whole tax system is fucked, it was written to benefit those in power and has become so full of loopholes it is beyond repair. America is a nation of consumption, if you want fairness, tax based on that. Yes there needs to be income tax as well but it needs to be a flat system, possibly with 2 tiers such as 15% for say 250,000 and under and 25% for more. Sure, that seems like a lot but the tax rate for a 250K family it is over 30% now (it was 39% which was ridiculous).

Tax people on what they consume with a national sales tax, that will produce more revenue and there are no loopholes, hiding or complaining that some rich guy buys a Gulfstream when he has to pay the same proportional tax you do on that $10 shirt at Walmart. Until something like this happens, there will never be parody, people will never shut the fuck up (mainly the democrats, god they just don't get it) and we can get a hold of this debt that is crippling the nation. Washington has a spending problem, not a revenue problem but we created a revenue problem with ignoring entitlement problems and that FUCKING STUPID healthcare bill. I will not expand anymore but if you can do math and have seen what a flat tax system with a consumption tax will do for tax revenue, it will startle people. Oh yeah, even with all the loopholes removed, you will still pay less and save more which is what grows the economy in the long term (if banks have money from people saving, they don't have to do risky investments to generate it and develop even more dangerous default swaps that brought the financial system to its knees).

For all of you out there that say I am some ultra right wing trying to talk down the democrats, yes I think democrats are destroying our country at the moment, but its time to be realistic not partisan (god forbid our elected officials do that).

**lnvanry** · 02-24-2011, 10:31 PM

Originally Posted by LAM

Nearly half of US households escape fed income tax - Yahoo! Finance

this doesn't mean escaping from all taxes..there can still be city or state wage taxes, local taxes, etc.

a good portion of low income earners actually get more money back from the Fed then they pay in, this surely doesn't help things...

I was one of those households this year

**Dale Mabry** · 02-25-2011, 04:47 AM

Originally Posted by oufinny

This whole tax system is fucked, it was written to benefit those in power and has become so full of loopholes it is beyond repair. America is a nation of consumption, if you want fairness, tax based on that. Yes there needs to be income tax as well but it needs to be a flat system, possibly with 2 tiers such as 15% for say 250,000 and under and 25% for more. Sure, that seems like a lot but the tax rate for a 250K family it is over 30% now (it was 39% which was ridiculous).

Tax people on what they consume with a national sales tax, that will produce more revenue and there are no loopholes, hiding or complaining that some rich guy buys a Gulfstream when he has to pay the same proportional tax you do on that $10 shirt at Walmart. Until something like this happens, there will never be parody, people will never shut the fuck up (mainly the democrats, god they just don't get it) and we can get a hold of this debt that is crippling the nation. Washington has a spending problem, not a revenue problem but we created a revenue problem with ignoring entitlement problems and that FUCKING STUPID healthcare bill. I will not expand anymore but if you can do math and have seen what a flat tax system with a consumption tax will do for tax revenue, it will startle people. Oh yeah, even with all the loopholes removed, you will still pay less and save more which is what grows the economy in the long term (if banks have money from people saving, they don't have to do risky investments to generate it and develop even more dangerous default swaps that brought the financial system to its knees).

For all of you out there that say I am some ultra right wing trying to talk down the democrats, yes I think democrats are destroying our country at the moment, but its time to be realistic not partisan (god forbid our elected officials do that).

It will fix most of our problem, but it will never happen.

**bandaidwoman** · 02-25-2011, 07:39 AM

First, of all, I have never understood how my personal income tax breaks helps me provide jobs, the trickle down theory does not work . I am not the one sustaining the luxury car market. I have a saying "I've always wanted a BMW until I could afford one."

Like the article said, a true middle class cannot exist in a free market system. Americans have been living a middleclass lifestyle on workingclass wages and bridging the gap with credit. And it's over.

My opinion, the decline of the middle class can also be attributed to the following:

1. No true affordable health care, since 3/4 of all personal bankruptcies due to medical costs started with health insurance one major injury or sickness can send a upper middle class family into the ranks of poverty. We employers are also finding it harder and harder to afford health care coverage for our employees. And my premiums went up 300% over ten years before obama was elected.

2. What middle class american can afford to send their kid to college? ( and not a web based) I personally don't expect my kids to get full academic scholarships like I did since a perfect grade point average is not a true measure of a person's capabilities in say engineering, sceintific research, architecture etc. ( In fact many brilliant Ph.d scientists I worked with had relatively poor GPAs compared to their pre med counterparts.) And I mean real colleges, not web based. There is no way I could have learned analytical chemistry and advanced organic thermodynamics over the web. I needed the laboratories and personal one on one with my professors. Before you discourage your kids from going to college, I thought I was going to major in business or linguistics ( and I do have a knack) but fell in love with chemistry and mathmatics. Without an upper level college degree with some extraordinary skills, your potential for income is much, much less. Our colleges and grad schools are some of the best in the world and the average, potential brilliant Joe, cannot afford it.

3. As the above said, the declining power of lobbying power by unions. They were necessary during the robber baaron age of true liberterian abuse of power and they did artificially inflate wages.

4. We are not preparing our kids to compete globally, from basics such as not promoting solid mathmatics and science education, valuing getting a law degree over a degree that actually makes and produces new products, to the insane notion that our kids don't need to be taught multiple languages . My brother is trilingual ( english, mandarin, spanish) and just doubled his 6 figure salary because he joined a actuarial company and they needed him to develop some acturial corporate offices in the Pacific Rim and the beautiful city of Santiago. ( his major was physics and mathmatics and spanish). He will never hurt for a job.

**min0 lee** · 02-25-2011, 08:13 AM

Yankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side.

Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.

Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said.

Read more: Tax breaks on real estate deals for people like A-Rod cost city 900M a year

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