For those of us who grew up when America had a thriving middle class, it has been painful to watch our institutions be subverted to destroy it. The Bob and Roberta Cratchits of the nation are still being paid 1980’s wages even though their productivity has soared and their employers are rolling in cash. What happened and how can we fix it?
The first step is to understand the forces behind the change are multi-national corporations. Through the American Legislative Exchange Council (ALEC), corporations fight pollution standards, pharma pricing restrictions, interest-rate caps, labor laws, and consumer protections. They have convinced a large bloc of voters that government regulation interferes with their freedom and increases jobs. Never mind that the jobs are subsidized by food stamps, the pollution shortens lives and many other negative consequences come from letting profit-maximizers make the law.
Multi-nationals have begun to admit their role as Scrooge in this story. In August, the Business Roundtable renounced shareholder primacy and revised their statement of purpose to declare employee well-being and the environment to be of equal importance with shareholder value.
While a declaration is a good first start, it does little to reverse the idea they have set in motion: that government is a power-hungry entity striving to deny individuals’ freedom. The public must realize the truth; the entities seeking control are companies, like ALEC members, that value profits over people and the planet. Government’s job is to protect public health and well-being over profit-seeking.
Once people recognize the real source of the problem, we can start to undo the actions that have caused middle class demise. For instance, over the last three decades, the percentage of young entrepreneurs has dropped from 10 percent to 4 percent. Given small business employs almost half of workers and small innovative companies provide the best chance for advancement, this has diminished opportunities.
College debt and healthcare costs are two reasons. A third is intellectual property law change.
Before 2013, US patents went to the originator of an idea. This meant that even if a large corporation copied or came up with a similar invention later and filed a patent first, the originator still owned the right to patent. Large corporations lobbied to change this so that small inventors only have the right to their ideas if they patent them first. Because large companies have so much money, they can file many patents, far faster than the little guys. In addition, copyrights were extended beyond their original 56 years. This, similarly, stifles innovation since stalwarts like Disney can revive old characters to crowd out new ones.
But what has affected the middle class even more is corporate rent seeking. For example, most people paid with cash, back in the day. Now credit cards send about 4 percent of revenues away from retailers through complex merchant fees. Credit card fees, like a sales tax, cause consumers to pay more. However, people who have premium credit cards get a kick-back of 1 to 5 percent. Hence, people who cannot qualify for such cards pay higher prices than those who do. Furthermore, those who cannot meet payments end up reducing their buying power even further through fees and interest.
Healthcare billing is another wealth-shifting system. Insurance companies negotiate discounts in secret, and these discounts have increased dramatically over decades. Some purportedly pay less than 50 percent of list cost. This means that hospitals have to raise their list costs high enough that they can at least break even when paid less than half. That leaves everyone else holding the bag for anything up to full pricing, depending upon their insurance carrier. And those who cannot afford insurance? They, typically the less affluent, are billed full price. Again, the wealthiest pay least.
FICA taxes and Social Security payments also cost middle class families relatively more and pays back relatively less, as shown in the figure above. FICA has charged 6.2 percent for decades, but the tax stopped at $72,600 in 1999. In 2019, the cap is $132,900, almost double, even though average incomes have only increased by about 10 percent over the same period. In NH, that means that all but the top 6 percent of earners pay FICA on their entire wage now, whereas far fewer did earlier. Yet when FICA is paid out, more goes to the affluent because they tend to have longer lifespans. In NH, earners with incomes in the bottom quartile may pay FICA their entire working lives, yet only receive benefits a few years, if at all.
These are but a few examples of how, over time, our system of laws and regulations have allowed those with lobbying power to tip the scales toward themselves. In order to regain opportunity and the middle class, we need to start with public education. People need to realize that letting corporations do as they please does not make them free. They need to understand that government’s job is to protect their public health, environment and pocketbooks. Only then can we start to repair the system that once gave us a thriving middle class.
Jeanne Dietsch of Peterborough is the state representative for District 9, Vice Chair of the Senate Education & Workforce Committee and a member of the Senate Ways & Means Committee.