| January 3, 2013

Five ways to raise the standard of living for the middle class

The president and congressional Republicans have consistently disagreed about whether to allow taxes to go up on those the president deems "rich," but, to judge by rhetoric alone, they have apparently always agreed that the so-called "Bush tax cuts for the middle class" must not be allowed to expire.

To be sure, the last-minute "fiscal cliff" package Congress passed Jan. 1 -- and that the president signed by autopen in Hawaii -- didn't exactly spare the middle class. Nevertheless, it's instructive that politicians on both sides of the aisle at least pay lip service to the historic importance of the aspirations and abilities of middle-income earners to America.

In a free market, neither "the rich" nor "the middle class" is a static group of people. Today's "1 percent" is not necessarily tomorrow's "1 percent." In the same way, today's 50th percentile is not tomorrow's 50th percentile. The market propels those who create something of value for their friends and neighbors to ever higher standards of living.

Incidentally, free markets also propel the friends and neighbors of those who create something of value to ever higher standards of living, too. Even should a person remain in the "50th percentile" his entire life, then, he will still experience varying standards of living. So it is that "the poor" are still with us in America -- but, today, many considered "poor" have TVs, refrigerators, cars and other modern conveniences that would amaze "the rich" of previous centuries.

What policies legislators adopt affect that all-important potential for economic mobility. At OCPA, we know income equality -- while appealing to some on its face -- is actually worth precious little if all incomes are depressed to achieve that "equality." Instead of mitigating the motivation of the able-bodied to earn success with tax-and-spend policies, we'd prefer to allow that motivation to manifest itself -- and to subsequently result in a rising standard of living for those who exercise it. How to do that? A handful of ideas:

1.) Further reduce the income tax

As we at OCPA never tire of repeating, Oklahomans have a right to retain the fruits of their labors. That right -- the right to keep and acquire property -- is fundamental to the entire American political system. It's worth noting that the U.S. Congress had to pass an amendment to the U.S. Constitution to levy a federal individual income tax. Such a tax was not constitutional, in other words, until 1913. Oklahoma first enacted an individual income tax in 1915 -- but that doesn't mean state legislators have to retain it. As Texas and Florida routinely prove, state budgets can and do function without revenue from an individual income tax. Simply put: A reduction in the income tax means more money in the pockets of middle-income earners.

2.) Promote marriage

And the survey says? Married people are happier, healthier and wealthier than their single counterparts. Children from intact married families are 50 percent less likely to experience poverty as adults when compared to children living in single-parent homes. Today, "the marriage debate" primarily refers to whether the state can or should confer marital status on same-sex couples, but, as R.R. Reno writes in this month's edition of First Things magazine, even those on opposite sides of that issue should be able to work together to promote and strengthen marriage:

The sociological data indicate that divorce is a socially destructive behavior. Why don’t we treat it like smoking? Or sugary drinks? Deterring divorce is a cause that Michael Bloomberg should care about.

And we have many things to do ourselves. For example, what about fighting for dramatically enhanced tax benefits for married couples? We have very generous tax credits for investors who rehabilitate historically significant buildings, and we do so because we think preserving the architectural fabric of the past is a social good. Why not give very generous treatment to individuals willing to renew the culture of marriage by venturing its commitments? Why not tie these tax benefits to new laws that create an option for covenant marriages, nuptial contracts that forgo the option of no-fault divorce? ...

Marriage is vitally important. It’s one of the most essential ways we make the kinds of commitments and accept the kinds of responsibilities that make us adults, and it provides us with the most reliable social safety net of all. For these and other reasons, by most measures, in spite of its perils and difficulties, marriage is one of the surest sources of personal happiness. It’s also the single most reliable institution for the renewal and transmission of social capital, which is why a healthy culture of marriage is such a crucial component of the common good.

3.) Encourage and reward the parents of young children

Parents benefit Oklahoma by producing and maintaining human capital. Even as Oklahoma continues to chip away at the personal income tax, let’s expand and increase the trailblazing (and popular) child tax credit signed into law by Gov. Brad Henry in 2007. Second, let’s diversify our preschool portfolio: create Education Savings Accounts that empower families with more educational choices for their children.

4.) Embrace the higher education revolution

Saddling young people with student-loan debt to finance ever-more-expensive college education does them a disservice. Where and how a student takes his degree is less important than what he learns. It's time to rethink the accreditation process and to acknowledge that "more money spent" does not necessarily mean "more knowledge obtained." The days of the $10,000 bachelor's degree are upon us -- and that's a good thing.

5.) Reduce health care inflation

Rising health care costs are a problem nobody denies. Unfortunately, the misleadingly-named Affordable Care Act hits the middle class with new taxes and provides perverse and unintended incentives to insurance companies to increase the costs of premiums or drop out of the game entirely. The better option? Empower patients to be better health care consumers by, say, providing audited information about quality and price -- and by structuring government programs like Medicaid and Medicare to reward patients who choose wisely and save taxpayer dollars.

With less hard-earned income diverted to taxes, higher education costs and health care costs, middle-income earners would have more money to, say, take a much-needed vacation – and, in the process, reconnect with the spouse and children who up their overall health and happiness quotient in the first place.

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