This election was a victory for the middle class. Here’s why.
“Middle-out” economics defeated supply-side economics
Politicians have always paid lip service to the middle class, but voters in this election were offered a clear choice between a vision of economic growth that magically trickles down from the top and one driven by a strong middle class.
President Barack Obama’s campaign presented a sharp alternative to the supply-side dogma that has dominated Washington, D.C., since the late 1970s—and continues to hold conservatives in thrall. Supply-side thinking, embraced by 2012 Republican presidential nominee and former Massachusetts Gov. Mitt Romney, holds that cutting taxes on the rich will unleash a torrent of investments that will spur economic growth.
Overwhelming evidence shows supply-side economics doesn’t work. So the president instead articulated a powerful new theory that combines a critique of rising inequality with emerging evidence that a strong middle class is the key driver of economic growth—not just a happy byproduct of it.
“We don’t believe in an economy that grows from the top down,” President Obama has repeatedly said in recent months. “We believe in an economy that grows from the middle out.”
This is a position the Center for American Progress has long espoused and one that the White House embraced with full-throated enthusiasm, which voters have clearly responded to. Here’s a timeline depicting the evolution of Obama’s middle-out economics.
Tax hikes for the wealthy defeated middle-class tax hikes
Gov. Romney’s “revenue-neutral” plan to massively cut taxes for the rich would have inevitably meant higher taxes for households with incomes lower than $200,000, according to a now-legendary—and never refuted—study by the nonpartisan Tax Policy Center.
Requiring a still-struggling middle class to pay for tax giveaways to the rich is neither fair nor good economic policy. It’s unfair because the richest Americans are already historically undertaxed even as the gap between rich and poor widens. It is bad policy because the way to make the economy grow for everyone is to strengthen the middle class, not to burden it with more than its fair share of taxes.
Instead, voters threw their support behind the president’s proposal to ask the wealthiest Americans to pay a little more as part of a deal to avoid the so-called fiscal cliff, while bringing the deficit under control in the long term. The 2012 election results give a clear mandate for this policy framework to guide Congress as it addresses tax reform in the coming months.
Main Street defeated Wall Street hubris
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is the most sweeping reform of the U.S. financial sector since the days of President Franklin D. Roosevelt. It was also the bill most in danger during this election. According to his chief economic adviser, Gov. Romney was prepared to repeal Dodd-Frank and dismantle or weaken the Consumer Financial Protection Bureau created by the law.
This election is therefore a victory for Main Street taxpayers, who will retain the protection of the powerful consumer watchdog guarding against abusive practices that contributed to the financial crisis that caused the Great Recession in 2007. Dodd-Frank will also decrease the likelihood of future systemic failures and ensure that bank investors—not middle-class taxpayers—foot the bill when important financial institutions fail.
The financial sector is a crucial part of the U.S. economy but the government has an important role in ensuring financial markets are fair and stable. Voters in this election made clear that Congress consider the interests of Main Street as much as or more than those of Wall Street. Lawmakers should come together to strengthen, not weaken, financial regulatory reform.
A win for the middle class is a win for everyone
An electoral victory for the middle class should translate into middle-class-focused policies. Those policies will help more than just middle-class families.
To be sure, a government that recognizes the middle class as the key driver of economic growth is more likely to boost infrastructure, education, scientific discoveries, and other parts of the economy that nurture the broad middle class.
But policies that recognize the dangers of rising inequality will also help restore the American Dream of social and economic mobility for lower-income people.
As a stronger middle class consumes more goods and services, produces a more talented workforce, and incubates more innovative entrepreneurs, the beneficiaries will include businesses and the people who own and invest in them.
That’s why yesterday’s electoral triumph of the middle class is a policy victory for all Americans, regardless of party or income level.
Gadi Dechter is the Managing Director of Economic Policy at the Center for American Progress.