This Labor Day weekend new reports by economists in Oregon and Washington, D.C. show that the strong national and state economy of the last few years has failed to lift the economic fortunes of middle class workers. The reports question the impact of state and federal tax cuts on the economic plight of middle class workers.
The Washington, D.C.-based Economic Policy Institute (EPI) and the Silverton-based Oregon Center for Public Policy (OCPP) each released reports today analyzing the economic status of the middle class. The two reports note that middle class workers across the nation and in Oregon have not seen improvements in wages and benefits nor enjoyed the income gains realized by low wage workers and the wealthiest households during the economic expansion of the late 1990s.
The OCPP’s report on the middle class in Oregon, When Prosperity Passes By, documents the following:
- Census data shows that middle-class incomes in Oregon have grown in the past several years, but only narrowly surpass levels from the late 1980s and early 1990s. The median income for four-person families has yet to reach the 1989-1991 levels.
- The real median household income — the income of the typical Oregon
household — reached $37,287 in 1995-97, nearly four percent greater than the 1992-94 level, according to Census data.
- Despite some recent growth, the hourly wages of the middle class generally have been stagnant during the expansion of the 1990s, with real median hourly wages for Oregon workers lower in 1998 than they had been in 1989. Across this period, the real median wage fell more than seven percent, going from $12.01 in 1989 to $11.16 (1998 dollars).
- The most likely explanation for the rising incomes despite the downward wage trend is that more family members have been working and they are working longer hours.
- The percent of Oregonians receiving health insurance coverage through their employer has declined over the course of the economic expansion of the 1990s. More than 71 percent of Oregonians received health insurance through their employer in 1989-91, but only 67 percent did by 1995-97.
- Oregon’s income distribution has become increasingly more unequal over the course of the 1990s.
- While the middle 60 percent of households earned 45 percent of Oregon’s income in 1989, this share fell to less than 41 percent by 1997. The growing share of income held by the most affluent Oregon households accounts for the entire decline.
- The share of income held by the most affluent fifth of Oregon households expanded from less than 53 percent in 1989 to more than 57 percent in 1997.
- In 1997, the richest 10 percent of households controlled more income (41 percent) than the bottom 75 percent (39 percent).
- Both low and high paying jobs are growing rapidly in Oregon, with middle income jobs on the decline. The long decline of manufacturing jobs-typically middle income jobs-has continued through Oregon’s most recent economic expansion.
The Oregon Center for Public Policy questioned whether tax cut proposals from Washington, D.C. and Salem would help the middle class. The OCPP’s report notes that “not having reaped the benefits of our economic expansion, many middle-income families might be tempted to support the kinds of tax cuts debated in Washington, D.C. and Salem. However, the income tax cuts will not solve middle income families’ economic dilemmas.”
The report notes that the declining wages that many workers have experienced are pre-tax declines. The tax burden has no impact on declining wages, the major source of income for middle class families. In addition, the OCPP report notes that because Oregon’s income tax system is basically progressive, middle-income families pay a relatively small portion of total state and federal income taxes collected.
The authors use the distribution of the Oregon income tax “kicker” as an example of how across the board tax breaks provide little relief to the middle class. According to the OCPP’s analysis:
- Middle income taxpayers-the middle quintile, or 20 percent, of taxpayers-are slated to reap just 10 percent of the kicker refunds; their average kicker refund will total just $53.
- The top quintile-the wealthiest 20 percent of households-will reap 65 percent of the kicker refunds, with a $348 average kicker refund.
“Middle income taxpayers pay a small portion of state and federal income taxes and receive an equally small portion of across the board income tax cuts such as the kicker,” noted OCPP economist Jeff Thompson. “While the average kicker refund will be $107, the typical Oregonian will receive only $53. Averages can be misleading.”
The OCPP report also noted that the middle class will reap little benefit from a tax cut proposal the Oregon Legislative Assembly referred to the November 2000 ballot. The measure would increase the amount of federal income taxes subtracted from state taxable income from $3,000 to $5,000, and:
- Middle income Oregonians would on average see a $24 cut in annual taxes, providing them with less than nine (9) percent of the of the tax cut’s benefits.
- The wealthiest 20 percent of Oregon households, with an average income of about $132,000 a year, will reap 57 percent of the tax break and have their tax bills reduced by $166 on average.
“The small benefit to middle income taxpayers will do little to solve the problem of the middle class workers being left behind in the economic recovery of the 1990s,” said Thompson.
“State and federal tax cut proposals will not seriously impact the middle class’ economic well-being and will do nothing to reverse the larger economic trends that have resulted in falling wages, declining health insurance coverage, and the decline of well-paying middle class jobs,” said Thompson.
“The tax cuts will largely benefit those with the greatest ability to pay taxes, while threatening the state’s capacity to invest in education, workforce programs, and economic development that can improve the standard of living of middle income Oregonians,” Thompson concluded.