f middle-class families have more money and aren’t spending themselves into oblivion for the sake of designer water and DVDs, how did they get into so much financial trouble?
The answer begins with the most expensive and most important thing most Americans will ever buy: a home. Homes define the lives of the children who grow up within them. A home’s location determines whether there will be computers in the classrooms, sidewalks to ride bikes on, and a safe front yard to play in. And a home will consume more of the family’s income than any other purchase—more than food, more than cars, more than health insurance, more than child care. (Because the overwhelming majority of middle-class families are homeowners, this discussion focuses on the costs of owning rather than of renting.)
Apart from high mortgages, three other major types of expenses are worth singling out as new burdens for the middle class. We have considered one of them already: the higher cost of cars. Yes, the per-car cost has dropped, but with Mom joining the work force and families living farther than ever from city centers, the second car has become essential for many. The family on average now spends an additional $4,000 every year to buy, lease, and maintain all its cars.
The rising cost of health care has also taken a bite out of the family budget, even for healthy families. In one generation, the average out-of-pocket cost of employer-subsidized health insurance has jumped by about 90 percent. And a growing number of families are offered no employer-subsidized health insurance at all; they must either buy health insurance on the open market or forgo it altogether. In recent years, the number of middle-class families with no health insurance has grown precipitously.
One last inescapable expense is taxes. With two people in the work force and a higher income, today’s median-earning family pays more in taxes. Indeed, here’s where the adjusted-for-inflation comparison of families across generations paints a misleading picture. Families making less back in the early 1970s were paying less in taxes; today, inflation has also pushed them into a higher income bracket, and they are paying more in sales taxes, property taxes, Medicare, and a host of other taxes.The total tax burden for today’s two-income family is about 38 percent larger than that of their one-income counterparts of a generation ago.
Forum
What’s Hurting the Middle Class
Opening the Debate | Responding | |
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If families are making more money than ever and are still in financial trouble, surely the critics are right: Americans are overspending, then overborrowing, and then avoiding the consequences by declaring bankruptcy. But the data tell a different story.
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Thursday, September 1, 2005
On April 20, 2005, George W. Bush signed into law a bankruptcy bill that had been pending in Congress for eight years. The bill was written by credit-industry lobbyists, shopped to their friends in Congress, and supported by tens of millions of dollars in lobbying and campaign contributions. It might be dismissed as just one more piece of highly focused special-interest legislation except for the damaging vision of middle-class America that it reinforced: irresponsible people consumed by appetites for goods they don’t need, who think little of cost, and who would rather file for bankruptcy than repay their lawful debts. More than just a giveaway to the credit-card companies, the bill was a moral judgment against the bankrupt.
As American families have sunk deeper into debt, they have endured relentless criticism from economists and sociologists, lobbyists and politicians, and the popular media. The accusations are sharp, the assertions are confident and unambiguous, and the tone of condemnation is unmistakable.
The economist Robert Frank claims that America’s new “luxury fever” forces middle-class families “to finance their consumption increases largely by reduced savings and increased debt.” The documentary filmmaker John de Graaf, the Duke economics professor Thomas Naylor, and the former EPA analyst David Wann write in Affluenza: The All-Consuming Epidemic (2001), “It’s as if we Americans, despite our intentions, suffer from some kind of Willpower Deficiency Syndrome.” The economist Juliet Schor, a frequently cited documenter of consumer irresponsibility, writes that American families are buying “designer clothes, a microwave, restaurant meals, home and automobile air conditioning, and, of course, Michael Jordan’s ubiquitous athletic shoes, about which children and adults both display near-obsession.”
Senator Orrin Hatch (R-UT) has said that millions of Americans are bankrupt or near-bankrupt because “they run up huge bills and then expect society to pay for them.” He is joined by the federal judge Edith Jones—long rumored to be a potential Bush appointee to the Supreme Court—who has written (with the law professor Todd J. Zywicki) that “bankruptcy is increasingly seen as a big ‘game,’ with the losers being those who live within their means, while the bankrupts pursue more interesting and carefree lives.”
http://bostonreview.net/forum/what%E2%80%99s-hurting-middle-class The press sounds the same notes. Newsweek ran a cover story in 2001 about Americans drowning in debt. The reason for families’ distress? “Frivolous shopping is part of the problem: many debtors blame their woes squarely on Tommy, Ralph, Gucci, and Prada.” Money magazine, in 1990, focused on the home: “A generation or so ago . . . a basic, 800-square-foot, $8,000 Levittown box with a carport was heaven. . . . By the 1980s, the dream had gone yupscale. Home had become a 6,000-square-foot contemporary on three acres or a gutted and rehabbed townhouse in a gentrified ghetto.”
And what have Americans gotten for all their spending? Schor writes that as the brand-name competition among neighbors has intensified, “support for public goods, and for paying taxes, has eroded”—“public goods” that include “education, social services, public safety, recreation, and culture.” De Graaf, Naylor, and Wann sum it up in their definition of “affluenza”: “a painful, contagious, socially transmitted condition of overload, debt, anxiety, and waste resulting from the dogged pursuit of more.” Americans’ profligate spending has dug them into a hole from which they may never climb out. Or so say the critics.
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