http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=175284

The Fragile Floor Below the Middle Class

by Jenna Churchman and Radha Chaurushiya

August 27, 2004

For low- and middle-income families, the nation's prolonged economic
recovery has offered little economic security.

Despite the economy's growth, occasionally even at a very strong rate,
the labor market has struggled for the past three years to regain its
footing.

Real wages remain stagnant and employment relatively scarce.

The result is not surprising: the Census Bureau's most recent consumer
income report shows that the poverty rate rose for the third
consecutive year in 2003, while median family income failed to rise.

At the same time, important benefits such as health care are becoming
scarcer. In this climate of economic insecurity, opportunities to
expand the middle class have ceased to exist, and middle-class
families are facing the heightened chance of falling into poverty.

The Census Bureau report released yesterday shows the economic
conditions of low-income families have worsened.

The number of people living in poverty in 2003 reached 35.9 million,
an increase of 1.3 million over the previous year.

The poverty rate now stands at 12.5 percent, the highest rate since
1998.

Children under the age of 18 living below the poverty line rose to
17.6 percent in 2003, up from 16.7 percent in 2002.

The report also found that 45 million Americans lacked health
insurance coverage in 2003, an increase of 1.4 million from 2002 and
5.2 million from 2000.

In addition, the percentage of people covered by employment-based
health insurance declined for the third straight year to 60.4 percent,
reaching its lowest level since 1993.

This continued decline reflects the reduction in employer-sponsored
benefits during the weak labor market recovery.

In 2003, health insurance premiums also rose by 13.9 percent, a rate
much higher than the rate of inflation, which added yet another cost
burden to families.

At a time when costs are rising, working families are also facing
stagnant wage and job growth.

Throughout the recovery, employment has been weak; by the end of 2003,
the economy still had 2.5 million fewer jobs than at the start of the
recession in March 2001.

Anemic employment growth also translated into low income growth.

In fact, the data released by the Census Bureau show that median
income remained unchanged in 2003.

More recent data show that these trends continued.

Aside from one month, March 2004, employment growth in this recovery
has continuously been below average, and we still have 1.2 million
fewer jobs than at the start of the recession.

Not surprisingly, earnings have been weak, as well.

Real weekly earnings have declined 0.9 percent since the start of
2004.

These statistics demonstrate that the average middle-class family is
significantly worse off today than in 2000, the last year in which
poverty rates declined.

The trend is especially troubling given that the economy is almost
three years into a recovery that has failed to generate jobs and
income growth.

On top of these concerns, households have taken on record amounts of
debt to sustain their consumption in the face of unemployment and low
wage growth; the impending increase in interest rates could exacerbate
these debt burdens.

One important source of debt is college.

For many families, this is a necessary expense to move up the income
ladder and achieve a middle-class lifestyle.

Tuition and fees at colleges are soaring, while federal aid programs
are experiencing cuts.

When adjusted for inflation, the maximum Pell Grant was worth $500
more in 1975-76, when tuitions were significantly lower, than in
2002-03.

Rising costs and decreasing aid require students to take out more and
larger loans.

Student debt has risen rapidly in the past few years; according to
Nellie Mae's National Student Loan Survey, average undergraduate
indebtedness rose 66 percent from 1997 to 2002.

Increasing college tuitions and decreasing financial aid create
obstacles for middle-class families and their children.

The Bush administration's response to the stagnant economy has been to
enact tax cuts targeted toward the wealthy.

By several measures, these tax cuts have failed to create a strong,
growing and durable economy.

They have also failed to show compassion to those who have struggled
most over the last few years and are either mired in poverty or
teetering on the edge.

A recent report from the Congressional Budget Office showed that the
top 1 percent of earners received a tax cut that reduced their
effective tax rate by more than four times the rate reduction for
low-income families earning an average of $14,900 a year.

The difficulties that low- and middle-income households will encounter
paying the rent, affording health care, and sending their children to
school is in and of itself a cause for concern.

And from a macroeconomic perspective, a faltering middle class also
means a large number of consumers will no longer have the resources to
continue buying goods and services to sustain the economy.

The decline in consumption growth during the second quarter of this
year, to its lowest level in three years, is an indication that the
almighty American consumer may finally be reaching her capacity to
spend.

The increase in the portion of Americans living in poverty last year
is, unfortunately, no surprise given the disappointing performance of
the labor market over the last few years.

And the growing anxiety of middle-income families struggling to make
ends meet is also sadly reflected in yesterday's numbers.

The Census Bureau's report should be a wake-up call to policymakers
that unless they embrace the policies that firm the floor for the
middle class and reaffirm the possibility of upward growth for
low-income families, economic insecurity is here to stay.

________________________________________________________

"And then you say, well, why, Mr. President, do you need to talk about
making the tax relief permanent? Because a quirk in the law in the
United States Senate says that you won't -- we're going to cut your
taxes, but in 10 years it will have come back. It's hard for me to
explain. I mean, how can you say, on the one hand, we're cutting your
taxes, on the other hand, it goes away after 10 years?"

Georgie W. Dimwit -- Makes you wonder how he gets through more
complicated matters, Louisville, Kentucky, Sep. 5, 2002