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New Income and Poverty Data Underscores Administration’s Failure to Respond to the Economic Struggles of Low- and Middle-Class Families

Yesterday, the Census Bureau released the 2004 numbers on income, poverty and health insurance coverage in the United States. Although the Census referred to the figures as signs of economic stability, the numbers actually showed that the weak economic situation of America’s middle-class families continued. Incomes of typical middle-class families were at their lowest level since 1997, another 1.1 million people slid into poverty, and an additional 860,000 people were without health insurance (there would have been more had not lower incomes meant that more people qualified for Medicaid). Hence, perhaps the biggest story from yesterday’s report was that there really was no “new” news. For four years running, the data have shown continued economic weaknesses for America’s middle-class families, with little indication that they will end anytime soon. Yet, in the face of widespread economic troubles, the Bush administration has pursued policies that have benefited the fortunate few rather than America’s middle class.

For the fifth consecutive year, real median household income failed to increase, settling in at $44,389, its lowest level since 1997. This is the only time since 1967 (the first year for which data are available) that median household income failed to increase for five consecutive years. The lack of income growth mirrors the weak labor market. By the end of 2004, the share of the population that was employed was lower than at the start of the business cycle in March 2001 and even less than at the start of the current recovery in November 2001. As of July 2005 this remained unchanged. In addition, private sector employment just reached its pre-recession levels again in May 2005 – more than four years later. At the same time, wages remained stagnant. Yesterday’s Census figures show that in 2004 the inflation-adjusted earnings for full-time, year-round workers declined for both men and women, with male earnings falling almost $1,000 and female earnings dropping by $327.

Outcomes, however, were distributed unevenly. For instance, incomes for African Americans declined by 1.0 percent in 2004, while those of Asian Americans and Hispanics rose. In addition, the share of aggregate income received by the 40 percent of families with the lowest incomes remained at its lowest levels since 1967 (the first year for which data are available) with 12.1 percent. By contrast, the share of aggregate income going to the 20 percent of families with the highest incomes grew to 50.1 percent, a record high reached on only one other occasion (in 2001).

The flip side of the continued concentration of income at the top of the economic ladder is that poverty expanded. In 2004, the number of people living in poverty reached 37 million, an increase of 1.1 million since 2003 and 5.4 million since 2000. This was enough to raise the poverty rate from 12.5 percent to 12.7 percent, its highest level since 1998. Among the poor, an additional 161,000 children slipped into poverty, raising their poverty rate to 17.8 percent – its highest level since 1998.

It was not all an income story. Middle-class families also lost access to crucial benefits, such as health care. An additional 860,000 people went without health insurance all year in 2004, raising the number of the uninsured to 45.8 million. Importantly, the share of people with employer-provided health insurance has declined to less than 60 percent for the first time since 1993. At the same time, the share of people covered by Medicaid has risen, reflecting the rise in poverty. With the shift from employer-provided to government-provided health insurance, the “Walmartization” of America’s middle-class continues.

As much as anything, the data released yesterday demonstrated that the story of the past few years remains unchanged – with falling incomes, rising poverty, and declining health insurance. In light of these trends, it is difficult to understand why the current administration has failed to take any meaningful steps to respond. Part of the reason may be that the administration does not view these trends as problematic= Several news reports quoted administration officials as characterizing yesterday’s data as “good news” or “not a bad sign.”

A more direct reason may be the administration’s approach to economic problems. By and large, the Bush administration has focused on tax cuts (which it consistently tilts towards the rich) to combat any economic problem. Not only have these tax cuts contributed massively to rising inequities and a large swing from government surpluses to deficits, but they have also failed to let America’s middle class share equitably in the economic expansion.

Aside from massive tax cuts, the Bush administration has pursued policies with the stated purpose of improving the economic condition of the average American that in fact are more likely to harm than to help America’s middle class. For instance, the Central American Free Trade Agreement (CAFTA) – which at one point was touted by the president as a “weapon against poverty” – aside from addressing a very small part of the U.S. economy, has many design flaws which make it unlikely that working families can equitably share in any gains from more trade with the affected countries. Also, President Bush’s push for Social Security privatization has contributed to heightened anxieties among middle-class families as it has become clear that privatization would mean massive new deficits and lower benefits in the future.

That is not to say that there have been no winners. During the recent recovery, corporate America and those at the very top of the economic ladder have experienced great times. Corporate profits have reached record highs, and in 2004, the average CEO was paid 240 times more than the average worker. In fact, for the first time in any recovery, the share of additional income going to corporate profits was greater than the share of income going to employee compensation.

The reports on the recently released Census data have effectively pointed out that we are still heading in the wrong direction when it comes to the economic condition of low- and middle-income families. Hopefully, over the next days and weeks, more attention will be paid to the fact that we are in the fourth iteration of this decline with no serious response from the current administration. Until the administration responds to the economic concerns of low- and middle-income families with policies that have a legitimate chance of making a difference, there is no reason to think that this story will be any different next year.

Derek R. B. Douglas is associate director for economic policy at the Center for American Progress.

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