March 07, 2013 at 16:47 PM EST
Washington Lets Shrinking Middle Class Twist in the Wind
Letting sequestration happen is just the latest burden Washington's politicians have dumped on a struggling and shrinking middle class . Unless our bickering lawmakers come up with a solution, the Congressional Budget Office estimates that sequestration could knock 0.6% from the nation's gross domestic product and cost up to 750,000 jobs. And this comes while most middle-class families are still struggling to adjust to the 2% reduction in their paychecks that occurred when Congress allowed the payroll tax break to expire on Jan. 1. If it seems that Congress doesn't care about the plight of the shrinking middle class, it's probably because they're so far removed from a middle-class lifestyle. They earn $174,500 a year, far above the U.S. median salary of $50,000, and nearly half are millionaires. Meanwhile, life keeps getting worse for the shrinking middle class - yes, shrinking. To continue reading, please click here...

Letting sequestration happen is just the latest burden Washington's politicians have dumped on a struggling and shrinking middle class.

Unless our bickering lawmakers come up with a solution, the Congressional Budget Office estimates that sequestration could knock 0.6% from the nation's gross domestic product and cost up to 750,000 jobs.

And this comes while most middle-class families are still struggling to adjust to the 2% reduction in their paychecks that occurred when Congress allowed the payroll tax break to expire on Jan. 1.

If it seems that Congress doesn't care about the plight of the shrinking middle class, it's probably because they're so far removed from a middle-class lifestyle. They earn $174,500 a year, far above the U.S. median salary of $50,000, and nearly half are millionaires.

Meanwhile, life keeps getting worse for the shrinking middle class - yes, shrinking.

A study last year by the Pew Research Center found that the middle class - defined as those households earning between two-thirds and double the median income - fell from 61% of U.S. families in 1971 to just 51% in 2011.

Thanks to the Great Recession, which the federal government has for the most part failed to reverse, median household income has dropped by 4.2%, or nearly $2,300 (adjusted for inflation).

And the longer-term trend is no better: Median U.S. household income is down more than $4,000 since 2000.

At the same time, inflation keeps creeping higher. The price of many daily necessities such as gasoline (up from $2.75 in 2007 to $3.75 today), food (expected to rise another 3% to 4% in 2013), and health care (premiums are up 97% since 2002).

"Their [middle-class families] economic future isn't very bright," Timothy Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin-Madison, told U.S. News and World Report. "Wages and income are flat. Transportation, childcare costs, and health care costs are going up, and your income isn't."

What's Behind the Shrinking Middle Class

Multiple factors, many related to the Great Recession, are responsible for the shrinking middle class in America.

One of the biggest was the collapse of the housing bubble. A home is the biggest investment most middle-class Americans ever make. Home equity accounts for two-thirds of middle-class assets.

Even with the mild recovery in the housing market, national home prices are still 29% below their 2006 high, according to Case-Shiller data.

That enormous loss of wealth has helped push the median net worth of U.S. households down 47% from 2007-2010, from $107,800 to $57,000 (figures adjusted for inflation). That's the lowest level in more than 40 years.

And that loss of equity also added to the middle-class debt burden. A study by Edward Wolff, an economist at New York University, found that middle-class families had 41cents in debt for every dollar of wealth they possessed; by 2007, that had risen to 61 cents per dollar.

Another factor contributing to the shrinking middle class is what's happened with jobs. It's not just that unemployment rose past 10%, and is still hovering around 8%.

Of all the jobs lost during the Great Recession, about 60% were in middle-wage occupations. But only 22% of the jobs gained during the recovery fall into the mid-wage category.

In addition, the number of people working part-time jobs who would rather be working full-time has spiked from 4.8 million five years ago to 8 million today.

Is Washington Helping the Shrinking Middle Class?

Since the middle class is the engine of U.S. prosperity - consumer spending drives 70% of the economy - you'd think Washington's leaders would be doing more to help the average American.

But it's almost as if they're deaf to the pain of the shrinking middle class, instead bragging about the number of jobs created or how well the stock market is doing.

A recent report by the Economic Policy Institute blamed the government for not doing enough to create jobs.

"We have made very little progress in the past two years towards full recovery, and spending cuts coming down the pike might actually throw the economy into reverse," said EPI Research and Policy Director Josh Bivens.

Spoiled by a cocoon of wealth and outlandish perks, Washington's elite simply don't feel the pain of the shrinking middle class.

"[After the Great Depression], we made major policy changes to ensure we have a strong middle class. We let too much of it wither on the vine," David Madland, director of the American Worker Project at the Center for American Progress, told U.S. News and World Report. "We need something approaching that kind of effort."

If you think Congress is just a collection of fat cats who have let the middle class down, you can click here to vote in our Money Morning poll.

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