Middle-class blues - Census Bureau report on 1992-93 decline in middle class income - Editorial

THE "Contract with America" has taken some nasty hits. Most Democrats, and not a few Republicans, view the mixture of tax cuts and spending restraints as warmed-over Reaganomics. If you loved the Decade of Greed, say the critics, you should like the Contract.

For a different slant, there is the government's latest report on family income. It could have been written by the Republican National Committee. Census Bureau data show that in 1992-93 the median American household--the very middle of the middle class--saw its income shrink by about $300, to $31,241. The decline since 1989, the peak of the 1980s expansion, adds up to $2,344 (in constant 1993 dollars) or 7 per cent.

The decline in middle-class incomes, occurring at a time of economic growth, surprised most analysts. It is not without precedent, however. Living standards for the middle class and lower income groups also shrank in the late 1970s, while overall economic averages were rising. Then, as now, all income groups except the very richest suffered declines despite (or rather because of) explicitly redistributionist policies.

The Reagan years were conspicuously different. Median household income rose every year between 1982 and 1989, a cumulative real advance of $3,200, or 10.5 per cent. The unprecedented longevity of the Reagan recovery forced journalists to find something else to write about. They discovered inequality, stressing the fact that the share of income earned by the poorest fifth of American households fell. Most journalists overlooked the more important reality, namely that the average income of the poorest fifth of American households shot up 14 per cent between 1982 and 1989. Those gains have since been lost.

In 1980 Ronald Reagan could appeal to the middle class and the wealthy together as victims of excessive taxation. By the end of the decade the alliance had broken down. Middle-class aversion to tax hikes no longer included an aversion to taxes paid by the wealthy. Five years and two tax hikes later, the middle class is poorer, and perhaps wiser. Americans want tax cuts. And insofar as the Contract with America is meeting some skepticism, it's because people have learned to doubt the sincerity of politicians.

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