Friday, September 23, 2011

Trying to prop up middle class with tax breaks doesn't work especially when there are few middle class jobs

Ever increasing tax breaks for families eclipse benefits for special interests reads headline in Washington Post and as government revenues decline, more middle class jobs go on the chopping block.

I say maybe it's time to stop trying to prop up the middle class with tax breaks. The problem is, there aren't enough "family wage" jobs so the middle class is disappearing anyway. More tax breaks may just exacerbate this problem by robbing governments of needed revenue, thus causing said governments to eliminate more middle class jobs as well as the funding for needed infrastructure which helps the private sector create jobs.

The middle class is declining because there aren't enough jobs that pay a mid level "family wage." In the private sector, it seems like the bulk of the jobs are low wage while a few extremely high wage jobs reside at the top. This contributes to growth at bottom and top of wage scales, but not much in the middle class.

Government tends to be a "last bastion" of middle class jobs. The jobs that are reasonably well paid for teachers and so forth. Many of these jobs are on the chopping block.

How can we bring back the middle class? That's a puzzle for sure. Put on your thinking cap.

Taxing the rich and redistributing that wealth to lower income people might get us part way there, but i doubt this solution would get us that far.

Another way to bring back the middle class might be to "grow the economy." Yes, rev up the economy. In an economic boom, wages eventually go up. One hears that a rising tide floats all boats.

This is a popular solution, but it's problematic as well.

Does the rising economy also push up prices? Does the gap between rich and poor just get wider and life becomes even more unaffordable for those close to the bottom?

Also one has to look at the environmental ramifications of a booming economy.

I'm not necessarily against increasing prosperity if changes in technology can provide this without destroying the environment. It's a solution we have to be careful with however.

Another solution might be to make living at low wage jobs more dignified. Maybe low wages are here to stay, so how can one still live, and even thrive, in spite of not being middle class?

Learning to live without the automobile, for instance. Can save lots of money.

Also healthier lifestyles. Living healthier so there can be less need for costly medical care.

Living in smaller, more dense residential settings is another part of this solution.

A lot of creative planning can go into what people call "downshifting."

All these solutions have some pluses and minuses, but at least we're using our thinking caps.

Tax breaks for the middle class are popular, but probably not such a good idea. For instance, the interest deduction on home mortgages is designed to, supposedly, make home ownership more affordable. Problem is, it may just toss money into the market, thus inflating the cost of houses. Government looses the tax revenue while house prices inflate. Home ownership is not necessarily any more affordable.

I hear that the mortgage deduction does not exist in Canada yet the percent of population being able to own a home is still comparable to USA.

Another problem with this deduction is that the high end houses get more. It tends to support McMansions for the wealthy as well as houses for the average person.

There are proposals to phase out the home mortgage deduction, or at least make it less available to "high end" homes. For instance as recommended by the Bowles-Simpson Commission.

Many of the tax breaks, designed for the middle class, end up doing more to help the wealthy in the long run as inflation and bracket creep take place.

Of course we should discuss more taxes on the wealthy, but as some Republicans point out, this might not net that much total revenue. How much total revenue can we squeeze out of just 1 percent of the population?

I'm for taxing the rich, but I realize it may not be a panacea in terms of revenue. Taxing the rich is very important, symbolically however. If the rich get off with low taxes, others become cynical.

If nothing else, taxing the rich creates the feeling of a more level playing field. That could do wonders for people's attitude and sense of fairness, if nothing else.

Still, the middle class (especially the upper middle class) is where a large chunk of the money still resides. We may have to look here if we want to increase revenue.

The main thing that would help the middle class is not more tax breaks, but an economy that creates more middle class jobs. Figuring out how to do that is the real challenge.

1 comment:

apartment for rent in makati said...

It's about providing the right balance of tax. This aids the middle class.