In the State of the Union, President Obama proclaimed the good economic news. He declared 2014 a “breakthrough year for America,” noting “our economy is growing and creating jobs at the fastest pace since 1999.” He also made the case for “middle-class economics,” promising a budget that would focus on “lowering the taxes of working families and putting thousands of dollars back into their pockets each year.”
Things appear far less rosy a week and one-half later. The Commerce Department’s growth figures for the final quarter of 2014 (released Thursday) reveal a slowing economy: 2.6 percent for the fourth quarter, compared with 4.6 percent in the second quarter and 5 percent in the third. That places real GDP growth for 2014 at 2.4 percent. The “breakthrough year” seems to be but a marginal improvement over 2.2 percent (2013) and 2.3 percent (2012). The Commerce Department also released the figures on the seasonally adjusted homeownership rate: 63.9 percent, the lowest level in 20 years.
Perhaps these figures only strengthen the case for “middle class economics”? Unfortunately, the Tax Policy Center’s analysis of the tax provisions in the SOTU reveal that the middle class (the middle quintile) would actually incur a tax increase of $7. Certainly, the provisions would have a significant impact on the top quintile (an average increase of $1,818) with the greatest hit on the top 0.1 percent ($168,006). But the increased revenues would give the greatest relief to the bottom quintile ($174), rather than the middle class. As Max Ehrenfreund (Washington Post, Wonkblog) notes: “There’s no point in calling this tax plan ‘middle-class economics,’ since its main effect is to help the poor. After all, they’re the ones who need it most, and there’s no reason to shy away from policies that benefit them.”
Well, there is a reason for calling this “middle-class economics” just like there is a reason for calling 2014 a “breakthrough year.” Unfortunately, the reason is not grounded in the empirics.