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February
15
2019

The Democratic Party's Secret Attack On The Middle Class
Charles Kadlec


Democrats repeatedly claim their goal is to promote middle-class prosperity.  Yet, their policy of increased spending financed by higher taxes and rising debt are a direct threat to the middle-class standard of living and economic security.  That is the conclusion of new research I have just completed based on an analysis of state taxes, spending and debt policies and their economic consequences based on data provided by the Tax FoundationSales Tax InstituteU.S. Census Bureau, and the U.S. government.

States are a perfect laboratory for cutting through the political spin and observing the actual economic policies of the nation’s two major political parties, along with their consequences for the average American.  Democratic states – defined as those 18 states and District of Columbia won by the Democratic candidate for President in the 2000, 2004 and 2008 elections – are true to the Democratic Party’s rhetoric.

First, they spend more than the 22 states won by the Republican Presidential candidate in the past three elections and the 10 Swing states.  In 2011, state and local spending per capita in Democratic states averaged $11,742 – nearly 20% more than in Republican states and 27% more than in swing states.  Moreover, between 2000 and 2011, per capita spending in the Democratic states grew by 54% compared to only 21% in Republican states and 38% in swing states.

But, the Democratic Party’s claim that all this can be paid for by taxing the rich turns out to be a sham.  And, it’s not for a lack of effort.  The highest personal income tax in the 19 Democratic states in 2011 averaged 7.0%, more than 50 percent higher than the 4.6% average rate in 22 Republican states, and more than 70 percent above the 4.1% average in the 10 swing states.

Democratic states have also run up their debt at a more rapid pace.  Between 2000 and 2011, Democratic states increased their average debt per capita by 54% to $10,590, compared to only a 21% increase on average for the Republican states, and a 38% increase for the swing states. As a consequence, the per capita debt burden in Democratic states in 2011 was 48% higher than in Republican states, and 36% higher than in swing states.

But, taxing the rich and increased borrowing have not been enough to keep up with Democrats’ ambitious expansion of the size and scope of government.  When faced with the choice between their vision of government and their promise to the middle-class, Democrats have chosen to attack middle-class families with significantly higher income and sales taxes.

An analysis of each state’s median family income for the years 2009-2011 and its July 1. 2012 personal income tax rates as provided by the Tax Foundation showed the following: The marginal tax rate on families with median income – the heart of the middle class – in Democratic states averages 5.4%, a rate significantly higher than the average rate imposed on those with the highest incomes in Republican and swing states.  When compared to the tax rate on median family incomes, it is 24 percent above the 4.3% rate imposed by Republican states, and more than 40% above the 3.8% rate imposed in the 10 swing states.

Democrats haven’t stopped the attack on middle-class families there.  Sales taxes, too, are important because they further reduce living standards by raising the price of goods and services that can be purchased with after-tax income.  Sales tax rates can differ within a state because local governments often impose an additional sales tax within their jurisdictions.  As a consequence, the minimum combined state and local sales tax as reported by the Sales Tax Institute was used in this analysis.

Once again, Democrats impose higher taxes on middle-class families.  The minimum sales tax in Democratic states averaged 5.4% compared to 5.0% in Republican states and 5.1% in swing states.  These results understate the relative impact on middle-income versus high-income families for the simple reason that middle-class families spend a greater share of their income than do those with higher earnings.

At the extremes, some states impose no income tax, but a high sales tax.  Other states impose a high income tax and no sales tax.  For example, the state of Washington has no income tax, but a minimum state and local sales tax of 7%.  By contrast, its neighbor, Oregon, imposes a 9% income tax on the median family income, and a zero sales tax.  Both states are among the 19 Democratic states. And, except for those few states that have neither an income nor sales tax, the other states have some combination of these two major taxes.

When looking at the combined income and sales tax, not only does the pattern remain the same, but the sheer magnitude of the numbers are startling.  The combined tax imposed on families with a median income averaged 11% in Democratic states, 17 percent above the still high 9.4% in Republican states and nearly 25 percent above the 8.9% in swing states.  Remember, these tax rates do not include property taxes, nor additional sales taxes imposed by local governments, sin taxes, and other fees used to raise revenue by state and local governments.

The economic results show the Democratic Party’s policy mix of higher spending, higher debt and higher taxes have hurt, rather than helped middle-class incomes and economic security.  When compared to Republican and swing states, respectively during the 11 years ending 2011, Democratic states suffered:

  • loss of 1.6 million jobs (including government jobs) compared to a gain of 1.3 million jobs in Republican states, and a loss of only 139,000 jobs in swing states,

  • loss of 1.9 million private sector jobs compared to a gain of 671,000 private sector jobs in Republican states, and a far smaller loss of 515,00 jobs in the swing states;

  • Greater declines in real median family income in both absolute and percentage terms than in Republican states, though they fell less than in swing states.  In Democratic states, real median family income fell on average $4,460 to $55,325 (2011 dollars) in 2011 – a 7.5% decline since 2000.  Over those same 11 years, average real median family income in Republican states fell by less -- $2,603 to $46,730 – a 5.3% decline.  Swing states suffered a more severe average decline of nearly 10%, due in large part to greater than 20% declines in Nevada and Ohio.

In the states Democrats dominate, the need for revenue to support their belief in the primacy and goodness of government have been used to justify imposing significantly higher taxes on middle-class families.  In exchange for their votes, Democrats promise greater economic security and a more just society.  But, as the results show, this is a false promise that leads to a less secure economy, less opportunity for low and middle-income people, and higher middle-class taxes.

There is every reason to believe the pattern at the state level will be repeated if President Barack Obama is re-elected and the Democrats retain control of the Senate. Only a small fraction of the increased spending promised by the President would be paid for by his higher taxes on those who make more than $250,000 a year, while these promised tax hikes are likely to destroy more than 700,000 jobs, reducing the tax base and tax revenues.  If the Democratic Party’s agenda of increasing the size and scope of the federal government is not stopped, the middle-class will face not only higher unemployment, but inevitably, higher taxes, lower real incomes and less liberty to pursue happiness as they see fit.


 

I cover economic/political issues with liberty as my polar star.

I am the Founder of Community of Liberty, a chapter based organization committed to pursuing the art of living in liberty, a member of the Publication Committee of the Claremont Review of Books, an Advisor to TheGold StandardNow.org, and a juror for the Bastiat Prize for Journalism. I have just published with my co-author Ralph Benko the booklet, "The 21st Century Gold Standard: For Prosperity, Security and Liberty," now available as a free download at AGoldenAge.com.

I bring to my columns an extensive background in the investment management business, including my experience as an equity portfolio manager, strategist, president of my former firm’s retail sales and marketing subsidiary and member of the parent firm’s management committee. As such, I have been a student and observer of the political/economy and its affects on markets, businesses, and my own business for more than 30 years.

 

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