Middle-Class Life Under Bush: Less Affordable and Less Secure

 

For millions of hard-working, middle-class families, life under the Bush presidency has grown less affordable and less secure.  President Bush’s record of fiscal incompetence and mismanagement and Republicans’ close ties with special interests have helped lead to both lower wages and skyrocketing costs for basic necessities like gas, health care, and college tuition.  Unfortunately, instead of producing solutions to the problems facing the middle class, Bush Republicans have ignored them and pushed for policies that would make matters even worse. 

 

In addition to tightening the squeeze on families, Republican policies have made our entire nation less financially secure.  Republicans increased our debt to over $9 trillion and have insisted on spending billions of dollars every year on budget-busting tax breaks for special interests and multi-millionaires.  The Bush Administration also continues to compromise our economic security by increasing our reliance on foreign investment from China, Japan, and Dubai.

 

Middle-class families, and our nation, deserve better.  Democrats are committed to protecting middle-class taxpayers, expanding educational opportunities, improving health and healthcare, providing more affordable and sustainable sources of energy, ensuring better pay and protections for working Americans, and restoring fiscal responsibility.  Under Democratic leadership, the Senate has already passed legislation that would make college more affordable and accessible.  In addition, the bipartisan America COMPETES Act, which makes important investments in our students and teachers, has been signed into law.  Democrats have also approved a balanced budget to restore fiscal responsibility and help promote the type of economic growth that provided so many benefits to middle-class families during the 1990s. 

 

Middle-Class Families Squeezed By Skyrocketing Costs

 

 

Health care premiums have increased 78 percent.  The cost of family health insurance has skyrocketed 78 percent since 2001.[1]  This is compared to a 19 percent increase in wages and a 17 percent increase in overall inflation.[2]  When premium growth outpaces increases in wages and inflation, workers typically have to spend a greater portion of their income each year in order to maintain coverage.[3] 

 

 

The number of uninsured Americans has increased every year since President Bush took office, from 39.8 million in 2000 to a record high of 47 million in 2006.[4] 

The number of children without health insurance has also increased.  The percentage of children who are uninsured grew from 10.9 percent in 2005 to 11.7 percent in 2006.  This is the second year in a row that both the number and percentage of children without health insurance has increased.

 

Gas prices have skyrocketed.  Prices at the gas pump have jumped 107 percent from $1.47 per gallon the week President Bush took office in January 2001[5] to $3.04 in the latest week of energy price data.[6]  The price for a barrel of oil has increased 199 percent during the Bush Administration from $30.63 in January 2001 to $91.69 in December 2007.[7]  The average household with children will spend about $4,487 on transportation fuel costs in 2008, an increase of 136 percent or $2,584 over 2001 costs.[8]

 

 

Natural gas and electricity prices are also straining the pocketbooks of middle-class Americans.  Since President Bush took office, the cost of heating a home with natural gas during the winter has increased by 90 percent (from $465 to $884)[9] and the annual electricity costs for an average American home[10] has increased from $972 ($81 per month) in 2001 to $1,148 ($96 per month) in 2006.[11]

 

College education costs have risen by over 60 percent.  Average tuition, fees, room and board costs at four-year private universities have increased by $10,067, from $22,240 in the 2000-2001 academic year to $32,307 in the 2007-2008 academic year.[12]  Tuition, fees, room and board charges at four-year public colleges jumped from $8,439 for the 2000-2001 academic year to $13,589 for the 2007-2008 academic year – an increase of $5,150, or 61 percent.[13]  

 

 

The cost of a college education is rising faster than family income, but key federal tuition assistance programs such as the Pell Grant program have failed to keep pace with the rising cost of college.  While the maximum Pell Grant covered 51 percent of the cost of tuition, fees, room, and board at a public four-year college during the 1986-1987 school year, it covered only about one-third of those costs in the 2005-2006 school year.[14]  

 

Housing affordability remains pervasive problem.  According to the Washington Post, “the scarcity of affordable housing is a deepening national crisis, and not just for inner-city families on welfare.  The problem has climbed the income ladder and moved to the suburbs, where service workers cram their families into overcrowded apartments, college graduates have to crash with their parents, and firefighters, police officers and teachers can’t afford to live in the communities they serve.”[15]  

 

The Joint Center for Housing Studies of Harvard University has predicted that housing affordability will continue to be a “pervasive problem.”[16]  Current data indicates that median principal and interest payments have increased 49 percent since January 2001 and that the percentage of median income spent on mortgage payments has risen from 18.6 percent in January 2001 to 24.1 percent in July 2007.[17]  In addition, between 2004 and 2005, the number of households with housing cost burdens in excess of 30 percent climbed by 2.3 million, hitting a record 37.3 million in 2005.”[18]  According to the Center, “five years of stagnating or declining incomes have added to housing affordability problems”[19] and “the need to address housing affordability problems is intensifying as the pressures grow more acute and spread up the income scale.”[20]

 

Meanwhile, there has been an alarming increase in foreclosures as subprime borrowers’ loans reset to higher rates.[21]  Congressional Quarterly reported that “[o]ne of every 92 U.S. households faced foreclosure last year and the number is expected to get larger.  Over the next two years, monthly payments on millions of loans will surge as their low introductory interest rates balloon by as much as 50 percent.”[22]  An analysis by the Center for Responsible Lending estimates that, of subprime mortgages made in recent years, an alarming one out of every five (19 percent) will fail, resulting in a 2.4 million in projected foreclosures on homes purchased with subprime loans made during 1998-2006.[23]  And “[d]ata is beginning to reveal that it was not only, not even mainly, the credit unworthy taking out exotic mortgages.  Rather many middle- and upper-middle-class people with good credit took out exotic mortgages.”[24] 

 

Subprime borrowers are not the only victims of this crisis.  Even homeowners with strong credit, who are in safe, fixed-rate loans are suffering from the reduction in property values and home equity wealth that result from foreclosures within their neighborhood.  A recent study of home prices in the Chicago Metropolitan area estimated that one single-family home foreclosure lowered the value of homes located within a one-eighth mile area by 1.5 percent, which equals approximately $3,000 in that market[25].  As a result, entire communities, especially those that are already vulnerable to economic disruptions, are at significant risk.  Moreover, the resulting credit crisis in the mortgage markets is making safe, affordable mortgages less available for aspiring homeowners or borrowers in need of a refinancing alternative.  As a result, the American dream of owning a home is becoming less and less of a reality for millions of Americans and their families.

 

Middle-Class Families Squeezed By Declining Income and Fewer
Job Opportunities

 

While families work harder, their wages continue to decline.  Middle-class families are working harder and earning less today than they were at the start of the Bush Administration.  Median household income, adjusted for inflation, has declined $962 from $49,163 in 2000 to $48,201 in 2006.[26]   

 

 

The real median earnings of both male and female full-time, full-year workers declined between 2005 and 2006 by 1.1 percent and 1.2 percent, respectively.[27]  Between the first quarter of 2001 (when President Bush took office) and the fourth quarter of 2007 (the most recent period for which data is available), median weekly earnings (adjusted for inflation) fell 0.62 percent, compared with 7.1 percent growth between 1996 and 2000 under the Clinton Administration.[28]

 

Meanwhile, employment compensation has lagged behind productivity gains.  While the productivity of the American worker (output per hour) rose by 18.7 percent between the first quarter of 2001 and the third quarter of 2007, average hourly compensation (wages

plus benefits, adjusted for inflation) increased by only 9.1 percent during this period.[29] 

 

 

Between the second and third quarters of 2007, productivity in the non-farm business sector further improved by 4.9 percent,[30] but real hourly compensation increased by only 2.7 percent.[31]  In sum, Americans are working harder – and more productively – but are not receiving proportionally increased rewards for their hard work.  

 

This is counter to historical trends:  “Economic theory holds that when output per worker rises, so should wages , and hence living standards.  In practice, that’s what transpired so impressively in the United States during much of the last century.  But recent data suggests that for many workers, the elixir has lost its potency…many observers contend that the link between productivity and pay is broken.  Employees are working harder and smarter, they charge, but are reaping no reward for the extra effort.”[32]

 

So who has benefited from these productivity gains?  The New York Times reported that:  “an outsized share of productivity growth, which expands the nation’s total income, is going to Americans at the top of the income scale.  In 2005…the top 1 percent of Americans – whose average annual income was $1.1 million – took in 21.8 percent of the nation’s income, their largest share since 1929.”[33]  According to the Wall Street Journal, “[s]ince the end of the recession of 2001, a lot of the growth in GDP per person – that is, productivity – has gone to profits, not wages.”[34]  Economists at the National Bureau of Economic Research concluded that:  "[t]o the extent that the productivity growth ‘explosion’ of 2001–2004 was achieved by cost-cutting, layoffs, and abnormally slow employment growth...the historical link between productivity growth and higher living standards falls apart.  Not only have the bottom 90 percent of American workers failed to keep up with productivity growth, many have been harmed by it."[35]

 

Earnings for workers with college degrees declining.  The New York Times has observed that “a college degree does not ensure a bigger share of the economic pie for many graduates.”[36]  In addition, the Los Angeles Times reported that: “[w]age stagnation, long the bane of blue-collar workers, is now hitting people with bachelor’s degrees for the first time in 30 years.  Earnings for workers with four-year degrees fell 5.2 percent from 2000 to 2004 when adjusted for inflation, according to White House economists…Not since the 1970s have workers with bachelor’s degrees seen a prolonged slump in earnings during a time of economic growth…trends for people with master’s and other advanced degrees…have found that their inflation-adjusted wages were essentially flat between 2000 and 2004”[37]  And, according to U.S. Census data, “the number of college graduates earning below the poverty line has more than doubled in the past 15 years to almost 6 million people.”[38]

 

Job creation among the worst since Hoover Administration.  A growing economy should be good news for those seeking jobs.  But over the course of his term in office, President Bush is in a statistical dead heat with his father for the worst overall job creation record since Herbert Hoover more than 70 years ago.

 

 

Overall non-farm payroll employment has increased by just 6 million since President Bush took office in January 2001 compared with 22.7 million during the Clinton presidency.[39]  Overall employment growth has averaged just 72,600 jobs per month under President Bush[40] – not even half of the 150,000 jobs needed each month to keep up with population growth.  It was not uncommon to see monthly job gains of 300,000 and even 400,000 during economic expansions under previous Administrations.[41]

 

Private sector job creation has been especially poor during the Bush presidency, with only 4.47 million new non-governmental jobs created since 2001, an increase of only 0.6 percent per year.[42]  The Washington Times compared the slow job creation growth rate of private sector jobs under the “Bush era” with the 23 percent increase in private sector jobs during the Clinton presidency (an increase of more than 21 million new jobs).[43]  The manufacturing sector, often the source of jobs with good pay and benefits, has lost 3.1 million jobs since the start of the Bush Administration.[44] 

 

Meanwhile, the economy added a meager 18,000 jobs, the smallest monthly increase in four years.  Worse yet, the nation shed 49,000 construction jobs and 31,000 manufacturing jobs.[45]  Given the turbulence and uncertainty in the economy today, the pace of private-sector job creation is an ominous sign for future job creation for America’s middle-class families.

 

The unemployment rate has increased 19 percent and long-term joblessness has doubled.  In part because of this failure to create a sufficient number of jobs, the national unemployment rate stands at 5 percent,[46] a two-year high that is 0.8 percentage points, or 19 percent, higher than the 4.2 percent rate when President Bush took office.  This represents 7.7 million people who are officially counted as unemployed – over 1.6 million more people than were unemployed in January 2001.

 

Unfortunately, once they lose their job, America’s workers also are staying unemployed longer.[47]  Over one in six of the unemployed (17.5 percent) had been unemployed for more than 26 weeks, an increase of 97.9 percent since President Bush took office (from 676,000 in January 2001 to 1,3338,000 in December 2007).[48]  And this doesn’t even count the Americans who have been discouraged from looking for work (to be counted as unemployed by the government, a person must be actively looking for work), but does count those who want to work full-time but can only find a part-time job.    And “[t]he problem is ensnaring a broader swath of workers than before.  Once concentrated among manufacturing workers and those with little work history, education or skills, long-term unemployment is growing most rapidly among white-collar and college-educated workers with long work experience.”[49]

 

Bush’s deficit-financed tax cuts have widened the income gap between millionaires and middle-class workers.  Recently released data from the Internal Revenue Service indicates that the wealthiest one percent of Americans (with an average income of $1,316,000) earned 21.2 percent of all income while the bottom 50 percent earned only 12.8 percent of all income in 2005.  A Wall Street Journal article entitled “Income-Inequality Gap Widens” observed that “[t]he richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers.”[50]

 

The Wall Street Journal has attributed the widening income gap to President Bush’s tax policies:  “[I]t appears that the highest-salaried workers – executives, managers and professionals – are widening their lead on the typical worker…The Bush tax cuts appear to have widened the income gap, according to many analyses.”[51]  The New York Times observed that IRS data “showed that over one-quarter of the investment tax cut savings went to just 11,433 taxpayers, (those who made $10 million or more) saving them almost $1.9 million each.”[52]  The Times also reported that a White House spokesman said that “the fact that nearly all of the growth in incomes was among those in the upper reaches of the income ladder and that the majority of investment tax breaks went to those making more than $1 million ‘is not a very interesting story.’”[53]  The St. Louis Post Dispatch summed it up:  “The Bush tax cuts for the wealthy have thrown the federal budget deeper into deficit while doing little for ordinary Americans.”[54] 

 

In fact, President Bush’s capital gains and dividends tax cuts will cost $2.349 trillion billion over ten years,[55] with most of the benefits going to the richest one percent of Americans.[56]  In an analysis by the Tax Policy Center, economists found that the immediate effect of the Bush tax cuts has been “skewed in favor of those with high incomes,” benefiting the most wealthy households the most.[57]  In 2006, for example, “families making more than $1 million a year saw their after-tax income increase by 6 percent because of the tax cuts, while families making $40,000 to $75,000 saw after-tax income rise by about 2.5 percent.”[58]

 

More American families and children face severe financial problems. 

In 2006, 36.5 million Americans were living in poverty,[59] an increase of 4.9 million over the 2000 level, the year before President Bush took office.[60] 

 

 

The average annual increase in the poverty rate during President Bush’s first term is second only to that during George H.W. Bush’s administration and contrasts sharply

with the declines in the Clinton and Kennedy-Johnson Administrations.[61] 

 

 

 

Poverty has hit America’s children particularly hard.  According to the latest Census report, almost one out of every six American children lives in poverty.[62]  The number of children living in poverty increased 10.06 percent during the Bush Administration.[63] 

 

Middle-Class Families Squeezed By Record Levels of Debt

 

Bush Republicans turned record budget surpluses into record deficits.  President Bush inherited a unified budget surplus of $236 billion from President Clinton, the largest surplus in American history.[64]  Budget surpluses were expected to continue for another ten years when President Bush took office in January 2001.[65]  By 2002, however, the unified federal budget had returned to a deficit of $160 billion and has since reached historic highs.[66] Last year, the budget deficit was $163 billion, or 1.2 percent of GDP.[67]

 

Bush Republicans, addicted to borrowing, increased the national debt by over $3 trillion.  President Bush is the most fiscally irresponsible American president, having presided over the largest explosion of debt in our nation’s history.  Every year since taking office, President Bush requested that Congress increase the statutory debt limit, resulting in a $3.2 trillion, or 57 percent, increase.[68]  At the end of 2007, the federal debt was $8.9 trillion,[69] or roughly $30,000 for every man, woman, and child in America.[70] 

 

 

Enormous trade deficit is undermining U.S. competitiveness.  In 2006, the annual U.S. trade deficit was at an alarming record high of $758.52 billion – twice the size of the trade deficit in 2001.[71]  In November 2007, the Commerce Department reported a monthly trade deficit of $63.1 billion – an 89 percent increase since George Bush took office in January 2001 when the trade deficit stood at 33.3 billion.[72]  As troubling, our trade in Advanced Technology Products, a strong indicator of U.S. competitiveness, which was in surplus as recently as 2001, experienced an annual deficit of more than $38 billion in 2006, and a monthly deficit of 4.18 billion in February 2007.[73]

 

 

Debt owed to foreigners climbs to record levels.  In order to finance record budget deficits, the United States has had to borrow at unprecedented rates from foreigners.  As of September 2007, the United States had accumulated $1.33 trillion more in debt to foreigners than this country had accumulated in its first 224 years.[74]  By contrast, during the last three years of the Clinton Administration, the United States paid off more than $200 billion in debt to foreigners.[75]

 

 

 

Record government and personal debt levels threaten economic future.  Record federal deficits and debt create record interest costs for Americans.  In 2006, interest costs on the federal debt amounted to $405.9 billion and this figure will grow to $645 billion by 2017.[76]  Personal debt levels have also reached a modern record.  The Washington Post noted that “[f]lat wages and rising debt nationally have converged to leave millions of middle-class households feeling acutely vulnerable to bumps in their financial planning.”[77]  According to the Federal Reserve, last year the ratio of financial obligations to disposable personal income reached an all-time high since the data was first collected in 1980.[78]  The ratio, which accounts for mortgage, consumer, and other obligations, has remained high.  In the third quarter of 2007, 19.32 percent of disposable income was spent on debt.[79]

 

Average student loan debt soared to more than $19,000.  Interest rates for Stafford student loans have risen substantially over the past three years, from 3.4 percent to 7.14 percent for outstanding loans and 6.8 percent on new loans.[80]  As a result, loan payments will be considerably higher for students taking out new loans and for those who did not consolidate loans in recent years.  Without adequate federal grants funding, students and their parents must rely more on student loans to finance their college educations.  According to the Institute for College Access and Success, more than 60 percent of college seniors graduate with debt, with an average $19,200 in debt per graduate.[81]  And, according to the Institute for Public Policy and Higher Education, 31 percent of the median family income is needed to pay for one year at a four-year public college after financial aid.[82] 

 

Erosion of employer-provided pensions threatens Americans’ retirement security.  Workers’ retirement planning once took place primarily within the context of the employment relationship: workers committed a certain number of years to the company and the company committed to providing retirement income.  This is no longer the case.  The movement from defined benefit to defined contribution plans has meant that workers are increasingly responsible for ensuring adequate income during their retirements – it has also meant that these workers solely bear the investment risks. 

 

Workers should be able to count on retirement promises made by their employers.  An analysis by the Pension Benefit Guaranty Corporation (PBGC), the federal entity created by Congress to protect employee pensions, determined that nearly 10 percent of pension plans halted benefit accruals in 2003 alone, the latest year for which complete data is available.  According to PBGC Executive Director Bradley Belt, anecdotal evidence suggests that this number has been even higher since then.  A study by the Employee Benefit Research Institute found that in the past two years, over one-third of surveyed companies froze their pensions and another one-third will be looking to close or freeze their pensions in the next two years.[83]  

 

Moreover, recent investor surveys and research indicates that there is a troubling racial disparity in the participation rates in 401(k) plans and retiree savings, suggesting that “the decline of pensions may disproportionately affect blacks” and other people of color.[84]  One company found that “race was a more powerful predictor of an employee’s retirement plan activity than age, gender, work experience or income.”[85]  This can also be true for blue-collar workers, who are at greater financial risk as a result of the shift in their retirement from defined benefit to defined contribution.

 

Even individuals who invest their retirement savings may not experience sufficient growth to retire comfortably.  Someone who invested in a recommended 401(k) account indexed to the S&P 500 the day before President Bush was sworn into office in 2001 would have lost money (after accounting for inflation) if they withdrew those funds this month.  When adjusted for inflation,[86] the S&P 500 has actually declined by 17.3 percent between January 19, 2001 and January 22, 2008.[87]  Meanwhile, “the Nasdaq Composite Index is now again 50 percent below its peak of 2000”[88] and the “Dow [Jones Industrial Average] has started 2008 on a sour note, down 10 percent since the beginning of the year.”[89]  A columnist recently expressed concern over the “negative return for the S&P 500 over the eight years since the dot.com bust.  After three months of selling, the most widely-watched domestic market benchmark is back below where it was in February 2000…Baby Boomers planning to dip soon into their life savings are quickly running out of time to recoup their losses.”[90]