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Jared Bernstein on Helping the Middle Class

June 23, 2011 at 11:00 AM
BY
Jared Bernstein

Senior Fellow Jared Bernstein testified at a hearing of the Senate Health, Education, Labor and Pension Committee today on how middle-class families are struggling to make ends meet. Here's an excerpt:

What Are the Policies That Could Help the Middle Class?

. . . Here, I briefly list a few policy areas that could make a difference. I offer few specifics and more generally just point out areas worthy of more policy research.

  • Retirement Security: Social Security, a guaranteed pension for retirees, is often the first line of defense in retirement security. Though it is often mistakenly thought to be unimportant to most seniors, in fact, for recipients age 65 and up on, Social Security is about two-thirds of their income and that share grows with age--for the old-elderly, it's closer to 70 percent of their income. For a third of those over 65, Social Security accounts for at least 90 percent of their income.So protecting Social Security benefits is a key component of a retirement security agenda. Beyond that, increasing access to pension savings through work would help future retirees. The Obama administration has put forth various proposals to encourage pension participation and incentivize employer participation. Also, with seniors living longer, presenting retirees with annuity options is also worth a close look.
  • Health Care: The Affordable Care Act was clearly targeted at helping to improve middle-class health care security, by lowering the growth of health care spending and premium costs relative to their expected trend. Analysis by the President's Council of Economic Advisors that by lowering the growth rate of health care costs, the real income of middle class families in 2020 will be $2,600 higher than would otherwise be the case.In the near-term debate, however, it is very important to the middle class to protect the Medicaid program against deep spending cuts. Though Medicaid coverage is generally thought of as serving the low-income population, the program is the primary payer for 64 percent of nursing home residents. With savings and other insurance, middle-class seniors may be able to initially pay for home health or nursing home services, but over time many spend their savings and eventually need Medicaid to step in, as Medicare provides limited coverage for these services.
  • Support for College Tuition: As noted above, college tuition has significantly outpaced inflation and middle-class income growth. But the large increase in government tuition assistance in recent years has helped offset these costs for both middle-class (American Opportunity Tax Credit) and lower-income students (Pell Grants). These measures can lower the net cost of tuition well below the "sticker price," and in doing so, help relieve income-strained families.
  • Jobs and Incomes: The ability of middle-income families to meet the challenges noted thus far, from saving for retirement, balancing work and family, paying for college and health care, and retirement security, will all depend on quantity and quality of jobs available to middle-class families. While it is beyond the scope of this testimony to discuss a jobs agenda policy set, the ideas that President Obama outlined in his "winning the future" agenda, including investments in new industries such as clean energy, infrastructure, and education should certainly help generate more opportunities.

But there is much more for policy makers to consider in this area, including manufacturing policy (including aggressive pushback against unfair trade practices), a strong, efficient public sector, a balanced playing field for union organizing, appropriate workplace regulation to protect workers' safety and basic rights, decent minimum wage levels, and consumer protections.

These types of ideas have the potential to form the basis of a new social contract, one that could once again give the American middle class a fighting chance to loosen the squeeze and regain their economic footing.

You can read the full testimony here.