It’s just a slide…in both senses of the word…of the real earnings—pretax, which is important—of middle-wage workers: blue collar workers in manufacturing and non-managers in services, adjusted for inflation. And it’s not inflation holding back these wage rates—it’s the weak economy. This series starts in 1964, and in nominal terms, it’s never grown more slowly than it has this year.
So it is to his great credit that the President proposed another round of the payroll tax break, or something like it, as part of his opening bid for the cliff negotiations (here’s some background from my CBPP colleague Chuck Marr on this venerable idea). With unemployment still way too high, we need to continue to support workers’ paychecks and temporarily offset some of the fiscal contraction from the tax increases and spending cuts that are likely to come out of the cliff negotiations.
I know that adding a spending program to a deficit reduction package may sound counterintuitive, but it’s really countercyclical. And by dint of being temporary—we could even write in the legislation that it expires when unemployment goes (and stays) below 7%–it won’t affect the medium-term deficit.
Finally, a brief word on the politics. Along with another round of the payroll tax cut, the President is aggressively arguing for preventing middle-class tax rates from going up on Jan 1. But the R’s are refusing to go along unless he also blocks the rate increases on the top 2% of households. So, between the two of these policies and the two of these parties, I ask you: which one is fighting to protect the middle-class?? That’s one of them there rhetorical questions.
[Ezra Klein and I had a good discussion of these points last night on the Lawrence O’Donnell Show—make sure you watch Ez’s excellent intro.]