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* It’s no wonder the middle class feels besieged…
Even before the recession hit, economic data backed what the majority were feeling: After a steady climb that lasted more than a generation, the real median income in the United States peaked in 1999 and then dropped. It has yet to return to that peak, making it the longest downturn in modern history. […]
Illinois was not immune to the trend between 2001 and 2008. Weekly wages dropped or remained stagnant in most sectors, according to a December report, “The State of Working Illinois.”
Meanwhile, expenses for things like health care, housing and college have gone up at rates far faster than inflation. Home values (before the recent market crash) in 1970 were typically twice family income; now they are five times as much.
Lincolnshire-based Hewitt Associates reported last month that workers’ yearly health care costs nearly tripled, to $3,800, since 2000; 65 percent of employers plan to reduce health benefits further. That’s if your job offers health care at all, as more than 4 in 10 workers in the state are no longer covered by employer insurance. Employees covered by pensions dropped in Illinois, too.
One problem is that the idea of what a middle class family is has so radically changed over the years. People struggled to keep up with the Joneses while their wages stagnated. That led to a credit overextension, which led to some of the current housing-related woes.
In Chicago, the Heartland Alliance estimated recently that it would take a family of four nearly $50,000 annually just to pay for bare essentials like food, housing and health care — an amount higher than some households at the lower end of the middle class earn. That doesn’t include savings for college or retirement, vacation or preschool or private school costs.
The housing bubble contributed to this problem. For instance, I was looking for a house in 2005 and was appalled at Chicago prices. I just couldn’t see spending that much money for that little house. So, I decided to move back to Springfield (I was also getting sick of the commute during the governor’s seemingly endless OT sessions). But I can live just about anywhere. Not many can do that. Still, if Chicago housing prices forced somebody like me out of the market, imagine the pain of all those who make less than I.
And, considering the financial pressures, it’s no wonder people are so upset at Gov. Quinn’s proposed tax hikes, even if they’re being misinformed or misunderstanding that some of them might actually get a tax cut.
* Some Republicans, like possible US Senate candidate Mark Kirk, are proposing ideas…
Mr. Kirk has scheduled a press conference with several small-business owners at which he is to call for permanent elimination of the inheritance tax. He’ll also call for suspending the mark-to-market accounting rule, arguing that it’s triggered a run on banks. And he wants to reimpose the uptick rule, which bans the short sale of borrowed stocks or bonds.
While Mr. Kirk surely believes in all three populist stances, none would hurt him any in a primary contest for the U.S. Senate next year, a race he appears to be heavily leaning toward.
Would any of that make any difference in the lives of the middle class? I guess it depends on how you define who is middle class.
* GOP Congressman Aaron Schock is touting a different approach to get money into the hands of some who might be struggling…
“As more and more individuals try to increase their household income(s) and a lot of public sector employees take on additional work, whether part-time on the weekends or in the evenings, they are paying into social security,” Schock told News 25.
But because those people (such as public school teachers) have a full-time job with the government, the social security benefits they would receive from their part-time, private employment are reduced. Schock says that has to change.
I know this post is a bit of a ramble, but do you have thoughts about any of this?
posted by Rich Miller
Monday, Mar 30, 09 @ 9:38 am
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America has been living beyond its means for decades as politicians promised something for nothing. The truth is, sooner or later we’re going to have to pay up. And since the middle class is the largest group of earners and wealth holders, they are going to have to be part of the solution, even after readjusting federal taxes back to their Clintonian days. It sucks, but it’s also reality.
Comment by Chicago Cynic Monday, Mar 30, 09 @ 9:44 am
Congress should hold hearings on the overall tax burden.
What it will show is that over the last 60 years the tax burden has been shifted from corporations and the rich to the middle class.
Reversing this is pretty straight forward.
1. Put a tax on transactions of stock and similar monetary instruments.
2. Re-instate the inheritance tax.
3. Increase the tax rate for people who make a bunch of money.
4. Decrease property taxes.
Yeah, this will require the federal gov’t taxing money and giving it to the states, an imperfect system.
But it will reduce the taxes on the middle class (who are getting squeezed) and raise taxes on people who have lots of money compared to the rest of us.
Comment by Carl Nyberg Monday, Mar 30, 09 @ 9:48 am
Well the inheritance tax change would make it easier for some businesses to remain in families, and there are lots of folks who work for family owned businesses.
As for the uptick rule, well middle-class folks have 401k and so reducing the ability of shorts to really nail a stock could help those folks. Also middle class people can work for this firms as well.
Comment by OneMan Monday, Mar 30, 09 @ 9:50 am
–And he wants to reimpose the uptick rule, which bans the short sale of borrowed stocks or bonds.–
No. The uptick rule allows for shorting only when a stock price is higher than the last tick that differed from the current price.
As for my opinion on the uptick rule, it could not have less to do with what’s happened. It’s a complete inefficiency added by people who have no idea what they’re talking about, like Kirk or the writer. And if we add the uptick rule, we might as well add a downtick rule, which would ban buying unless the stock is falling.
It’s beyond scary that people who can’t grasp the uptick rule are determining mark to market rules.
Comment by Greg Monday, Mar 30, 09 @ 9:51 am
One Man is right. Middle (and upper class) people who invest in 401k’s and other market investments are being screwed by the Wall Street wizards who just try to come up with the newest way to leverage OPM (Other People’s Money) for their profit.
Small (often family-owned) businesses create jobs and wealth and the scams of the Wall Street crowd have not helped anyone but the super rich.
People are always going to strive to make a better living and will spend to meet their resources. It is prudent for government to help balance the playing field and give the middle class a better chance to move up the ladder.
Comment by Wayne's World Monday, Mar 30, 09 @ 9:57 am
Reimposing the uptick rule would NOT ban short selling. Either Kirk or the reporter or both have misrepresented what this means, which is that shorting is allowed only after the price has moved up (presumably by a penny).
Suspend mark to market with what? Mark to imagination? Yes, I’m being sarcastic, point being the banks could be in worse shape without some sort of valuation of their assets.
Eliminating the inheritance (sic. estate) tax would help the middle class how? Trickle down?
Sorry, but Kirk’s proposed remedies are pretty weak.
Comment by Mike MacD Monday, Mar 30, 09 @ 10:02 am
“Lincolnshire-based Hewitt Associates reported last month that workers’ yearly health care costs nearly tripled, to $3,800″
Wow…almost the cost of a good 65″ LCD TV.
Comment by Leroy Monday, Mar 30, 09 @ 10:03 am
Rep. Kirk - For someone who claims to be a “moderate and fiscal conservative” why have you consistently voted for Bush budgets and now you want to completely repeal the inheritance tax? Way to appeal to your base for your upcoming primary - but your new idea is the elimination of the “death tax”? This is a prime example of why the Repub. Party will continue to have the problems it has. The way the Inheritence tax is imposed currently affects less than 5% of all Americans but its one source of revenue that is relatively painless. AND please spear me the line that family farms will be lost - there is not one family farm that has ever been lost because of the Inheritance Tax. So Mr. Kirk please keep playing to your base - its great news for Alexi!
Comment by Chicago Law Student Monday, Mar 30, 09 @ 10:04 am
One Man,
You’re better than that. I mean, the inheritance tax is controversial, but the uptick rule is plain ridiculous. It sounds good to people like Wayne, who assume that everying on an exchange is a scam.
Comment by Greg Monday, Mar 30, 09 @ 10:04 am
Greg - Without the uptick rule, traders can make a killing just mercilessly pounding a stock. The uptick rule alleviated that problem somewhat, reducing market volatility. That’s a good thing.
Comment by clearly Monday, Mar 30, 09 @ 10:06 am
Clearly,
I only wish traders could make money so easily.
Comment by Greg Monday, Mar 30, 09 @ 10:09 am
I would define the middle class as anybody whose abs do not look like Rep. Schock’s. You cant rest a beer on a six pack!
Comment by Anon Monday, Mar 30, 09 @ 10:16 am
Greg,
Do I think it would a cure, no. Do I think it might reduce naked shorts a bit, yeah. Do I think it might give some breathing room to an equity that is getting hammered due to rumor and such, yeah.
Comment by OneMan Monday, Mar 30, 09 @ 10:18 am
Representative Kirk and the Republican party continue to try to convince middle class people to vote against their economic interest with the use of good branding and media campaigns that confuse the issue. Just the use of the term “death tax” to describe the transfer tax is part of the scheme. As Obama has proposed, the transfer tax would be retained at the 2009 levels, which shelters the first 3.5 million of taxable estate. By using the unlimited marital deduction, all property transfered at death to a spouse goes tax free. I am not sure that 3.5 million should be the amount excluded (I would be more comfortable with 7-8 million-then index the amount), but not many middle class people accumulate more than 3.5 million of assets during their life. And even if some do, because of the tax free step up in basis rules, property acquired from a descendant can subsequently be sold at no or very little taxable gain. And for those inheriting businesses or farms, there are installment plans available to lighten the cash flow obligations resulting form transfer taxes.
To convince someone making 50,000 per year that the death tax will get them and it is in their interest to support its demise is a master stroke. They ought to be ashamed of themselves.
Comment by SIUPROF Monday, Mar 30, 09 @ 10:22 am
“After a steady climb that lasted more than a generation, the real median income in the United States peaked in 1999 and then dropped. It has yet to return to that peak, making it the longest downturn in modern history.”
This is a pet peeve of mine. The authors are cherry picking statistics to suport their argument. Median HOUSEHOLD income dropped from 1999 to 2007, but in many categories incomes have increased. For instance, the median PERSONAL income has increased by about 4% during the same period. The median income of a two earner family increased by around 6%. I think we would all like to see incomes grow faster, but to suggest that a majority of middile income Americans have seen a real drop in incomes is simply untrue. If you are curious, there ia a lot of income information available from the census bureau:
http://www.census.gov/hhes/www/income/histinc/incfamdet.html
Comment by Pelon Monday, Mar 30, 09 @ 10:25 am
Individuals, I think, will be forced to re-evaluate what’s really valuable, worth their money and more importantly, what’s worth borrowing money to purchase. How big a house, how many cars, etc. Thrift and frugality got a bad rap somewhere down the line. Debt is a useful tool, but not for buying a lot of junk you don’t need.
Significant pullbacks in consumer spending would force a restructuring of the economy. Since the end of WWII, the main economic engine has been consumer spending: New housing, cars, appliances, etc.
I’d advise everyone to reexamine their 401ks and investment portfolios, as well, and protect a good chunk of their principal in lower interest instruments. There’s been a psychology that markets never go down and that there are only winners and never losers. Doesn’t last.
And all the financial wizards, spare us the lectures on the magic of unfettered markets. The first think the Super-Capitalists did when they screwed the pooch was hold a gun to the taxpayers heads and threaten to ruin the world economy if they didn’t get bailed out. Then they cried about socialism when there were conditions to the government money.
Everybody knew there was market bubble, but they still flogged the easy money scam through advertising, business media and investment “advice” to keep new 401k and pension money pouring in to keep the Ponzi scheme going.
Happens about every 20 years or so.
Comment by wordslinger Monday, Mar 30, 09 @ 10:28 am
My parents moved to Bolingbrook in the late 70s. I now make more than my dad did at that time, adjusting for inflation. At that time, he had a wife and two kids and was able to purchase the house that I grew up in.
Now, I’m single, no kids and I cannot afford, at this time, to purchase the house I grew up in. While I might be earning more at the same point of my life as my dad when he bought the house, I am not in a better position due to this ridiculous housing market.
I plan on moving in a couple of years, I’ll know by October whether I’ll be moving out of Illinois. If Chicago gets the 2016 Olympics, that will be the final nail in the coffin. With the deficits that Chicago, Crook County and the state cry about every year, I feel that taxes, whatever taxes they are, are going to have to go through the roof to pay for everything, and not just in Chicago and the collars.
Comment by Anon in BB Monday, Mar 30, 09 @ 11:04 am
==who assume that everying on an exchange is a scam.==
That is exactly what it is. Trading is an inside game designed to make club members rich. Outsiders eventually get burned.
Money for nothing and their chicks for free.
Comment by Bill Monday, Mar 30, 09 @ 11:08 am
I’d advise everyone to reexamine their 401ks and investment portfolios, as well, and protect a good chunk of their principal in lower interest instruments. There’s been a psychology that markets never go down and that there are only winners and never losers. Doesn’t last.
That was good advice a year ago:-)
Over the long haul, markets do go up. If someone invested $1000 every year in the stock market in the 1920’s, 1930’s and 1940’s, they’s still be money ahead in 1950 even after going thru the biggest financial collapse in the middle of their investment period. And the nation’s economy depends on private investment to provide growth and innovation.
With the caveat that investing for greedy monetary gain, expecting no pain, will usually leave one holding the bag at some given moment.
Comment by Six Degrees of Separation Monday, Mar 30, 09 @ 11:12 am
Yes, my thought is I’m sick of targetting “the middle class” and “families” over the best interests of the nation as a whole. Here are two things that should be done asap
1) Nationalize banks that are insolvent and stop the kabuki about “stress tests” and “cash for crap” plans. This is a prerequisite to the economy recovering.
2) Long term but just as vital: summer vacation for schoolkids is an unconscionable waste of brain power that goes to reteaching them. I understand we can’t afford to pay teachers for the extra 2.5 months, but we could disperse that time over the course of the school year.
Comment by lake county democrat Monday, Mar 30, 09 @ 11:18 am
For those highly (un)educated people on what you propose with taxes, inheritence and class warfare. It was tried before.
Dateline 1872 Germany -Communist Manifesto
PREFACE
10 Conditions For Transition To Communism
Abolition of property in land and application of all rents of land to public purposes.
A heavy progressive or graduated income tax.
Abolition of all right of inheritance.
Confiscation of the property of all emigrants and rebels.
Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.
Centralisation of the means of communication and transport in the hands of the State.
Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
Equal liability of all to labour. Establishment of industrial armies, especially for agriculture.
Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equal distribution of the population over the country.
Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c., &c.[6]
Comment by Dudeman Monday, Mar 30, 09 @ 11:19 am
Statistically speaking, the “middle class” are the folks in the middle three quintiles (60% of the population) or middle two quartiles (50% of the population). The shocking thing for most people is finding out how low the salary is for someone that is in the “upper class” (top quintile or quartile depending on how you look at it).
Comment by Statistician Monday, Mar 30, 09 @ 11:19 am
/agree with what Carl Nyberg said. While we shed voodoo economic after regan, we still passed many of its concepts. We tax income from investments and stocks much much lower then for income earned by working. The theory, this will trickle money down and make us all happy. The relaity, the more money you have, the less tax you pay.
We need to be tax investment income at least at the same rate as money people work for. We need a tax system which draws greater percentages from those with truly high incomes. There are so many tax doges for large corporations we need to consider revamping the code to remove these shelters.
You could almost throw out the income tax and replace it with a graduated sales tax based on the price of the item purchased. This would help pull in revenue from those who shelter income or live on cash earned illegaly.
We ened to stop hoping the wealthy will use lower taxes to trickle money onto the rest of us and just have them pay up.
That said, I will be bold and proclaim that the middle class today includes families earning 300k a year or less.
Comment by Ghost Monday, Mar 30, 09 @ 11:22 am
Six, it was good advice a year ago. It’s always good advice to diversify and sacrifice return on a portion of your portfolio to guarantee principal.
You’re assuming that the market will go back along it’s merry way soon. Factor into your 100 years of historical market performance, there’s never been a time when there’s been so much government, corporate and consumer debt at the same time.
Where’s the cash going to come from to pump up the market? I don’t think we have clue at the moment.
Comment by wordslinger Monday, Mar 30, 09 @ 11:23 am
Taxing consumption along with decreasing taxation on income would go a long way toward easing the current class warfare problem.
Comment by Bill Monday, Mar 30, 09 @ 11:26 am
Oh lordy Bill, I agree 100% about the consumption tax. And its incentives are more aligned with what the US generally needs. But how will everyone react when Buffet and Gates’s effective tax rates are .0001%?
Also, lest my trader stuff be mistaken for stock optimism, let me make an important point about the so-called long run historical average, borrowed partially from Nasim Taleb: This is an average performance of one country during one period. Oh, and that country and period happens to include the greatest advancement of propersity in the history of the world.
Comment by Greg Monday, Mar 30, 09 @ 11:42 am
Let’s first stop calling people stupid, or ignorant victims. Fingerpointing at families living under viaducts, or moving out of McMansions, or losing money in Wall Street gambles, does not empower the rest of us, or annoint us as geniuses who should be listened to.
A young couple signing a mortgage for a $500,000 condo so they can be closer to Coronado Beach than their friends living in San Diego suburbs, went into debt knowing the risks. To have qualified for such a debt, they were also probably college educated, and had student loans to prove it. These wonderful people are not victims of GOP political conspiracies, or misled by devious rich people.
They are functioning adults who took a risk. Every day we have the freedom to take risks, and we have a high level of faith among ourselves to give this freedom to one another. When risks do not work out as planned, we do not ostracize the risk-takers, throw people in debtor’s prison, or lock up the bankers who helped create the risk. Other cultures do this - not us.
That is, until recently. We are seeing an elitist mentality among certain groups who feel an obligation to “solve” problems created by risk-taking. Their solution is to build super-organizations that will somehow magically eliminate risks and promise citizens enlightened bureacracies of selfless bureaucrats, dedicated to proving services to all. They promote a belief that if everyone would be forced to give parts of their income, everything would be fair, everything would be handled efficiently, and no one would suffer.
In practice, these elitists have an attractive theory. In the real world however, we have witnessed attempts to put these theories into practice, to watched them fail. Our self-annointed experts, however, always claim that their solutions failed because they were not administered correctly, or that powerful business groups foiled them by steering citizens against them on Election Days, or that not enough money was spent on their solutions. The only thing they consistently get correctly is the fact that their ideas fail. We have had a century of tail chasing, and no society has had success creating a fail-safe world. Bottom line - sincerity doesn’t change reality.
So whether you call them the Middle Class, the Working Class, the Lower Class, the Suburban Class, or another ever-changing label, what we do see with each economic challenge is a boat-load of self-annointed experts claiming that Nirvana can be created if only we gave up some of our freedoms and, of course, our cash for their solutions. We blow Billions on their lastest fads, and fortunately capitalism bails us out before these experts do more damage.
Beware of experts, living off your wages, dazzling governmental office holders, also living off your wages, with plans on how to spend even more of your wages. They are today’s con-artists.
Comment by VanillaMan Monday, Mar 30, 09 @ 11:43 am
V-Man, who are these con artists you’re talking about, Bernie Madoff and the derivatives wizards? Because I, for one, would have thought it would have been helpful for an elite at, say, the SEC, to have kept on eye on them for the protection of investors.
Comment by wordslinger Monday, Mar 30, 09 @ 11:51 am
==But how will everyone react when Buffet and Gates’s effective tax rates are .0001%?==
Well, right now they pay 0% so that would have to be an improvement.
Comment by Bill Monday, Mar 30, 09 @ 11:55 am
I would like to address Schock’s idea about social security. Does it matter if you earned 50,000 full time and 10,000 part time? You still earned 60,000 right? So why shouldn’t you pay social security on all 60,000? In fact, there should be no top stop. If you make 200,000 you should pay ss on all of that. We also need to stop paying those who never paid in. Such as spouses who do not qualify for social security because they did not work enough quarters. Those people can still claim 1/2 their spouses ss at retirement. Why? Often times those are women who did not work outside the home. While their contributions to their family are certainly important, they are no less important than those made by women who did work outside the home and paid ss on their incomes. If a spouse does not work, but wishes to receive a check in the amount of half of their spouse’s, shouldn’t they be paying in 1/2 the amount their spouse pays? Why do we make self-employed people pay 14% if these people don’t pay anything and are allowed to collect?
Comment by lincolnlover Monday, Mar 30, 09 @ 11:56 am
My favorite part is where the inheritance tax is referred to as populist. Power to the people (who inherit wealth).
Comment by BriRei Monday, Mar 30, 09 @ 11:57 am
V-Man, who are these con artists you’re talking about, Bernie Madoff and the derivatives wizards? Because I, for one, would have thought it would have been helpful for an elite at, say, the SEC, to have kept on eye on them for the protection of investors.
So, you expected those wonderful bureaucrats in the SEC to magically make the boogie men like Madoff disappear? You depended on - the government? Like those poor folks in New Orleans expecting former President Bush to show up in a helicopter to lift them to safety, instead of walking out of the bottom lands during the days Hurricane Katrina was threatening the City, you sat on a rooftop and waited for the SEC?
As a citizen, we depend on you to hold a pitchfork to the necks of our public officials. Their smooth talk, charts and pressers caused most of us to believe they knew what they were doing. When the watch dogs don’t bark or help keep out the robbers, we have to wonder why we are giving the watch dogs Trillions from our wages. Madoff took millions, (no one still seems to know!), but Dobbs-Frank-Reid-Pelosi-Obama has taken Trillions.
So, whom should keep an eye on whom? And whom should we be placing our trust?
Comment by VanillaMan Monday, Mar 30, 09 @ 12:00 pm
,i>My favorite part is where the inheritance tax is referred to as populist. Power to the people (who inherit wealth). M/i>
How green are your eyes, oh jealous one?
Comment by VanillaMan Monday, Mar 30, 09 @ 12:02 pm
I expect the SEC to act on evidence of fraud when its presented to them. And that was years and billions of lost investor dollars before he was indicted.
So yes, I expect the SEC to do its job, as I expect FEMA to do its job. You have a problem with competency? Where do you work?
Childish tantrums about “bad” Democrats and “good” Republicans really doesn’t advance the debate. And can we retire the fiction of “small government” conservatives. I missed that part of Bush-Hastert-Frist Era.
And who is Dobbs?
Comment by wordslinger Monday, Mar 30, 09 @ 12:08 pm
For those who still believe the foreclosure problem is largely limited to yuppies overextending on a condo closer to the beach, I urge you to read this Time article from about a month ago.
http://tinyurl.com/clp2ez
Comment by JonShibleyFan Monday, Mar 30, 09 @ 1:51 pm
Six, it was good advice a year ago. It’s always good advice to diversify and sacrifice return on a portion of your portfolio to guarantee principal.
Yes, and still a good time to be diversified today. Meaning, there are some good “buy” opportunities out there for your aggressive investments today, and some good safe investment opportunities, too.
You’re assuming that the market will go back along it’s merry way soon. Factor into your 100 years of historical market performance, there’s never been a time when there’s been so much government, corporate and consumer debt at the same time.
Not necessarily soon. The 1930’s lasted a whole decade:-)
Where’s the cash going to come from to pump up the market? I don’t think we have clue at the moment.
Right now, the Obama administration seems to be coming up with the lion’s share. But there is plenty of money on the sidelines, even if a lot of it is from overseas.
Comment by Six Degrees of Separation Monday, Mar 30, 09 @ 2:30 pm
Childish tantrums about “bad” Democrats and “good” Republicans really doesn’t advance the debate.
I agree, but where in my postings do I refer to either party in the manner you claim? I have learned that if we read what is intended by a poster, and then re-read it giving them the benefit of a doubt, we can have a very nice debate indeed, so while your suggestion is relevant, your posting is the only one displaying childish tantrums.
I found myself doing that too. Try to be more open minded before you attack what you think I wrote instead of reading what I wrote.
Comment by VanillaMan Monday, Mar 30, 09 @ 4:47 pm