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What Can Government Do To Protect The Shrinking Middle Class?


Used to be most Americans were middle-class - 61 percent back in 1971. Now, it's just half, not even the majority. Those are the findings of a new Pew Research Center survey we've been talking about this week. And today, we'll take a look at what to do about the shrinking middle class. And NPR's Scott Horsley joins me now to talk more about it.

Hey there, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you, Audie.

CORNISH: OK so to start, the Pew survey we've been talking about deals mostly with income. And we use, like, middle-income and middle-class interchangeably, but there are actually distinctions there, right?

HORSLEY: Yeah. There's a lot of different ways to look at this, Audie. One is a sort of absolute standard of living. You know, you might think you're middle-class if you've got a solid roof over your head, plenty of food in the fridge. You get to take a vacation once in a while, maybe you have some confidence about your retirement. Another way to look at it, though, is how does your income compare to that of other Americans? And these are related questions, but they're not the same thing. The Pew researchers were very clear in defining the middle class in relative terms - that is, if you make between two-thirds of the middle income and twice the middle income, you're middle-class. For a family of three, that's between around $42,000 a year and $126,000 a year. So if that middle class is shrinking, it doesn't necessarily mean absolute standards of living have fallen, but it does mean that income's getting more stratified or stretched out. Most of us used to be bunched up somewhere in the middle. Now we've got more Americans making a lot more, and in some cases a lot less.

CORNISH: And, of course, politicians are always, like, campaigning on protecting the middle class. But what tools really does the government have to address this? How could they fix the slide?

HORSLEY: A big tool that has been used is taxes and transfer policies. The Pew points out that one of the big winners over the last four decades has been the elderly. More generous Social Security benefits help move a lot of seniors into the middle class from the lower rungs on the economic ladder. And, of course, a progressive taxation can whittle away at the top end. That's the most direct way the government can influence this distribution of income around the country, but there are some drawbacks. It can be inefficient so when you take a dollar from a wealthy person, it's worth less by the time it gets to a poor person. And politically, there are also limits to have anything that smacks of redistribution.

CORNISH: So what are politicians looking at instead?

HORSLEY: On the Democratic side, you're starting to hear about more ways the government could rewrite the rules. So the market itself divides the economic pie more equitably. So much of the pie in recent years has gone to the wealthiest Americans. A lot of those ideas have to do with boosting workers' bargaining power, whether through collective bargaining or things like mandatory overtime or maybe a higher minimum wage. Now, as we have seen under President Obama, none of those things is easy to do politically. But they are the kind of policies that could make a difference. Trade policy, immigration policy also come into play here, although the effects of those can be pretty complicated.

CORNISH: What about Republicans?

HORSLEY: In general, Republicans don't like talking about how the economic pie is divided. They prefer to talk about the overall size of the pie and how to grow it faster. One GOP prescription for that has been overhauling the tax code, which they argue has been holding the economy back. Now, making the tax code flatter, though, could exacerbate income stratification. In other words, the division of the pie could get even more lopsided. But, as Margaret Thatcher used to argue, the gaps in the ladder are less important to Republicans than the absolute height of every rung. Another proposal you often hear from Republicans has to do with workforce education and training. And certainly one of the findings of the Pew study is that Americans without a college degree are most at risk of falling out of the middle-class on the low end.

CORNISH: That's NPR's Scott Horsley.

Scott, thanks so much for explaining it.

HORSLEY: Good to be with you Audie. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.