My daughter holds a managerial post with a significant local manufacturer with a worldwide reach. At age 31 she faces (with luck) another 37 years in the work force before retirement.
Alas, the tax changes threatened by Donald Trump and the Republican Congress seem designed to damn her – and most all middle-class Americans – to near poverty. This is not collateral damage, no, it is a major goal in the scheme to make the rich richer at expense of most of their fellow citizens.
Let’s start with a definition for Middle Class. Remember, the national median household income for 2016 was $57,617 with Missouri coming in at $51,746. [ https://www.census.gov/content/dam/Census/library/publications/2017/acs/acsbr16-02.pdf ] Per the Tax Policy Center, in 2015 the middle quintile of American households by income went from about $43,500 to $72,000. [ http://www.taxpolicycenter.org/statistics/household-income-quintiles ] From that data, “middle class” rests on a teeter-totter with around $60,000 in annual income at the center with $40,000 and $80,000 at the edges.
Okay, where do most middle-class families get their money? From paychecks and, late in life, from retirement payments from Social Security, pensions and 401 (k) plans…
1.) Paychecks & Income Tax
While the Trumpettes tax reform plan is still to be detailed, the outline promises the elimination of tax deductibility on federal filings for state and local taxes paid. Missouri’s income tax rates run a hair below the national average, meaning us in the Show Me State won’t be shaved as close as workers in high tax states such as New York, California, Iowa or Maine. [tax rates: https://taxfoundation.org/state-individual-income-tax-rates-brackets-2017/ ] Still, Missouri workers get almost 6% more of their gross earning subject to federal tax. St. Louis city residents who pay earnings tax will take a bigger hit.
Yes, the Trumpettes promise a higher Standard Deduction – which will be largely offset by the death of the Personal Exemption for each household member.
Not yet known is what other common deductions die. Home mortgage interest and charitable gift deductions have been said to be continued, but, don’t bet that.
2.) Social Security Payments
For the record, Social Security is pretty secure. It needs some minor math revisions over the next decade but the overall system is strong. [ https://www.fool.com/retirement/2017/07/24/5-social-security-myths-debunked.aspx ]
Now, a strong system has not dissuaded your average Republican from wanting to raise the retirement age to 70, take scissors to disability payments to former workers and downsize the payment structure for retirees. [ https://www.theatlantic.com/politics/archive/2017/07/house-gop-budget-plan-puts-medicare-and-social-security-on-the-line/533991/ ] Remember, most middle-class retirees depend on that monthly Social Security payment for the bulk of their living expenses: 35% of retirees depend on Social Security for 90% of their income. [ https://www.cnbc.com/2017/10/19/heres-how-bad-your-retirement-will-be-if-the-government-is-right.html ] OUCH! That means each dollar in “saved” benefit payments takes a can of green beans out of some senior’s grocery cart.
3.) Pensions
Remember them? Let’s take as a given that a growing number of employers continue to abandon traditional defined benefit and defined contribution retirement plans. [ https://www.towerswatson.com/en-US/Insights/Newsletters/Americas/insider/2016/02/a-continuing-shift-in-retirement-offerings-in-the-fortune-500 ] Also, many retirement plans – such as my wife’s from her employer of 32 years – dissolved into the Pension Benefit Guaranty Corporation [www.pngc.gov ], meaning the checks still come but they’re really downsized.
4.) 401 (k) Plans
As pension plans melted away, employers pushed individual 401 (k) plan participation as a replacement. The carrot? The employer would match the employee’s contribution, up to a few percentage points of income.
Two-thirds of Americans aren’t in their employer’s 401 (k) plan. [ https://www.bloomberg.com/news/articles/2017-02-21/two-thirds-of-americans-aren-t-putting-money-in-their-401-k ] It’s a pretty safe bet the highest paid employees participate – and that many middle-class earners feel they can’t afford to deduct even a few dollars a day from their take-home pay.
Employers control plan oversight, leading to sweetheart deals and poor choices for many workers [ https://www.forbes.com/sites/greatspeculations/2013/03/26/dealing-with-a-crummy-401k-plan/#2a9b1e861b97 ].
The Trump plan will seriously limit how much workers could put aside for their retirement. [ https://www.marketwatch.com/story/theres-talk-of-capping-401k-contributions-at-2400-per-year-2017-10-20/print or original Wall Street Journal article at https://www.wsj.com/articles/talk-of-retirement-savings-cap-rattles-financial-industry-1508497200 ]. Today workers can put up to $18,000 per year in their 401 (k). The ceiling may drop to $2,400 for 401 (k) plans – and Individual Retirement Accounts!
So, a quick review…Employers (largely controlled by Republicans) abandon traditional pension plans, allowing them to keep more money. Congress encourages 401 (k) plans and now wants to reduce what employees can contribute by more than 85%. That means employers pay less in their match, allowing them to keep more money. Meanwhile, the sturdiest leg in most middle-class worker’s retirement – Social Security – gets whittled.
As all this happens, Congress plans to gut social safety net programs such as food stamps, heating grants, public housing, student loans, etc. to partially offset tax rate cuts, overwhelming for the rich. If middle-class family falls on hard times they’ll land on concrete studded with broken glass.
As promoted in the budget bill as passed by the Senate last week, the GOP also allows $1.5 trillion in new federal debt to pay for those tax cuts to the wealthy. [ https://www.washingtonpost.com/news/powerpost/wp/2017/10/19/republicans-have-the-budget-votes-they-need-but-democrats-prepare-to-make-it-painful/?utm_term=.a4efc874ae2b ] The deficit hawks in the Republican Party have morphed into wrens.
Think about that. Republicans intentionally increasing the national debt not to pay for war or to help struggling Americans but to cut taxes on people who can most afford to pay taxes.
Back to my daughter: she has a fine college education, a very good job and excellent prospects for a stable middle-class life style. With hard work and luck she may ascend into that top 20% of wage earners or, I hope, join the top 10%. If she can’t climb, however, what future does she face?
As I often note, half of all Americans are below average. Many of them now live towards the $40,000 edge of that teeter-totter. They can’t salt away thousands of dollars a year for their retirement because they struggle today to pay the bills.
I don’t think it’s a coincidence that average wages have not increased at the same rate as corporate profits and CEO pay. Big business and their Republican co-conspirators don’t want to share the wealth: Donald Trump and friends want most people to have to work at the lowest possible wage until they die. They now in power are consciously working to concentrate even more of the wealth of this nation in the hands of the few – consequences (and suffering) be damned.
Stay tuned.
Submitted by Glenn Koenen, WCD Member