There seems to be pretty general agreement on the good news from the WH budget office–the news, that is, that the 2006 deficit will be lower than anyone expected, at around 2.3 percent of GDP. The agreement is that the main factor here is a huge gush of tax revenue; and that that gush comes mainly from (a) taxes on profits, with profits at a record high, and (b) income taxes from high earners, who are doing very well. The agreement extends to conservatives too–both The Economist and the Wall Street Journal have said the thing I just said.
While I am glad to see good news on the deficit, there may be some dark linings to these silver clouds. Should conservatives cheer massive flows of tax revenues into the federal govt? What happened to “starve the beast”?
Worse, there is the matter of income inequality. Now, you get howls of outrage if you raise this in a roomful of conservatives. (I did, yesterday). The opposite of income inequality is income equality, i.e. socialism. Sure, sure, I know that, and I’m no friend of socialism. It is nonetheless true that America’s glory and strength is our middle class, and the ease of getting into the middle class by working hard and shunning antisocial habits.
If the rich get richer while the middle class thrives, and some decent provision is made for the poor, I’m a happy man, living in a society I consider healthy and am proud of. If, however, the rich get richer while the middle class is struggling, or actually declining, I am not a happy man. There are some reasons to think that is happening, and you don’t have to be a socialist to worry about this.
The Economist, for example, offers the opinion that: “The prominence of corporate tax revenue is due largely to the peculiarities of the current cycle, in which wage growth has been remarkably weak and the share of the national economic pie going to firm’s profits has hit a record high.”
I think there is more to be said there. For example: Wage growth may indeed be “remarkably weak,” but well over 50 percent of us are share-owners now, either directly or through mutual funds, so that corporate profits benefit the middle class, too.
Even making those kinds of allowances, though, I believe there are reasons to think our middle class is in trouble. Randall Parker lists some here. Yeah, yeah, he’s quoting a Center for American Progress report (i.e. lefty think tank), but the numbers look good and agree with what I hear from friends and neighbors. (And Randall himself is a conservative, though no fan of the current administration.) Young, married, both-working couples who are living with their parents also seem to be an ever-more-common feature of the demographic landscape, at least here in the NY burbs.
I am fine with income inequality. I am not fine with a choking, shrinking middle class. I am really not fine with Latin-American-style class structures. Is that where we are headed? Let’s hope not.