By nearly every measure today, we are living in a magnificent time for the American economy. There is a booming stock market fueling trillions of dollars of wealth gains, record low unemployment, 3 percent to 5 percent wage gains, and seven million unfilled jobs. So the recent headline for a CBS report seemed to strain all credulity when it declared, “Two years after Trump tax cuts, middle class Americans are falling behind.” Huh?
This might be the most dishonest news story headline of recent times. As the author of columns that ran a few weeks ago in the Wall Street Journal and on these pages which clearly documented that the median household income, meaning the middle class, has gained about $5,000 of income in just three years, I knew this headline was fatuous. The undeniable success story of the American economy is the surge in middle class incomes since President Trump took office and his tax cuts took effect, with middle class incomes increasing at least five times faster than under President Obama.
So how in the world did CBS mangle the universally good news to come up with an opposite conclusion? It turns out that there is a classic head fake in the report. The middle class is “falling behind” only relative to the gains of the wealthiest 1 percent. Even though the middle class has had a bigger income boost under Trump than anytime in 20 years, the middle class is allegedly now suffering a decline since the rich saw even faster gains. This appears to be an intentional distortion of economic reality.
Even more misleading is that CBS based its figures on a Congressional Budget Office estimate of what will happen with incomes over the next two years. The Congressional Budget Office also projected three years ago that gross domestic product might be some $600 billion below what it actually is today. This is not exactly an agency with a stellar record at predicting things. Even the CBS figures contradict the headline because the story claims incomes are up at least $4,000 per household for the middle class, adjusted for inflation under Trump. That compares with a $1,000 per household gain in incomes under Obama over eight years.
One critical conclusion of the CBS report is that “income for middle class Americans is growing more slowly than for both top earners and the poor.” But this is only because the tight labor market under Trump has brought about sizable wage gains for those at the bottom. The lowest quintile of Americans have seen some of the biggest percentage gains in income, according to an analysis done by the Federal Reserve Bank of Atlanta.
Can someone please explain how these gains for those at the bottom of the income ladder are a bad thing? These complaints are coming from the same voices on the left who obsess about income inequality, which is now declining by some measures. The biggest story of the economy has been upward mobility. The middle class is not falling behind, it is getting richer. Meanwhile, the tax cuts have reduced liabilities each year for the average family with children by about $2,000 a year. Overall median household family incomes have risen by almost 8 percent in just three years under Trump, compared to almost no gains throughout the previous 16 years.
None of this even includes the dramatic increase in middle class wealth during the Trump boom with the stock market up more than 50 percent since his election. This means the 150 million or so Americans in homes with 401(k) plans and other stock holdings are wealthier than they were in 2016. MarketWatch seems to think a roaring stock market only helps the poor. But by the way, the folks who get crushed during a downturn are always the poor and the middle class, as we learned in 2008 and 2009.
Ultimately, there is no truth to the CBS statement that the middle class is falling behind or that the tax cuts under Trump have not worked to raise incomes. Most families are doing much better financially, with 76 percent rating the economy as “pretty good” or “great,” according to CNN. This is what prosperity looks like, and this tide of growth is lifting nearly all boats.
This piece originally appeared in The Hill on 01/06/20