Tags: AEI | Pethokoukis | Democrats | Middle Class

AEI's Pethokoukis: Democrats Have it Wrong on Middle Class

By    |   Thursday, 06 August 2015 08:00 AM

AEI's Pethokoukis: Democrats Have it Wrong on Middle Class
(Dollar Photo Club)
Democrats are overstating the woes of the middle class, says James Pethokoukis, a fellow at the American Enterprise Institute.

The Democrats' line goes like this, he writes in The Week: "America's three-decade, free-market experiment of tax cuts and deregulation was a failure for the middle class." But the evidence doesn't back up that claim, Pethokoukis says.

The pessimists point to Census Bureau data showing that real median income climbed only about 10 percent from the mid-1980s through 2013.

But, "that data paints an incomplete picture," Pethokoukis says. A recent University of Chicago poll of economists showed that 70 percent believe the Census numbers "substantially understate how much better off people in the median American household are now economically, compared with 35 years ago."

Harvard economist Martin Feldstein says the Census numbers don't account for shrinking household size, the increase of government transfers and tax reform. They also may overstate inflation.

When the Congressional Budget Office included those factors, it determined that median household income rose 53 percent since 1980.

Elsewhere on the income front, the idea of a $15 minimum wage, which already has been approved in San Francisco, Seattle and Los Angeles, may sound great, but the impact likely won't be so hot, says Washington Post columnist Robert Samuelson.

To be sure, "some increase in the federal minimum is justified," he writes. "It’s been at $7.25 since 2009. Inflation has eroded its value 10 percent since then."

So what's the problem with a hefty increase? "Raising it to $15 or even $12 would be a radical act that front-loads the benefits and back-loads the costs," Samuelson says.

Job losses would mushroom, he argues. "Some companies would become unprofitable and shrink or close. Others would automate. Some start-ups would be scrapped."

As for how many jobs would be lost, the American Action Forum, a right-leaning think tank, estimates it would be 1.3 million for a $12 minimum and 3.3 million for a $15 minimum.

And unfortunately, "the least-skilled workers might suffer the largest losses, especially if higher wages draw experienced people back into the labor market," Samuelson says.

The economy added 223,000 jobs in June, and the unemployment rate dropped to a seven-year low of 5.3 percent. But the labor participation rate fell to a 37-year low of 62.6 percent.

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Democrats are overstating the woes of the middle class, says James Pethokoukis, a fellow at the American Enterprise Institute.
AEI, Pethokoukis, Democrats, Middle Class
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2015-00-06
Thursday, 06 August 2015 08:00 AM
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