FACT SHEET | September 7, 2007

Middle-Class Life Under Bush: Less Affordable and Less Secure

Revised

For millions of hard-working, middle-class families, life under the Bush presidency has grown less affordable and less secure. President Bush’s record of fiscal incompetence and mismanagement and Republicans’ close ties with special interests have helped lead to both lower wages and skyrocketing costs for basic necessities like gas, health care, and college tuition. Unfortunately, instead of producing solutions to the problems facing the middle class, Bush Republicans have ignored them and pushed for policies that would make matters even worse. 

In addition to tightening the squeeze on families, Republican policies have made our entire nation less financially secure. Republicans increased our debt to nearly $9 trillion and have insisted on spending billions of dollars every year on budget-busting tax breaks for special interests and multi-millionaires. The Bush Administration also continues to compromise our economic security by increasing our reliance on foreign investment from China,Japan, and Dubai. 

Middle-class families, and our nation, deserve better. Democrats are committed to protecting middle-class taxpayers, expanding educational opportunities, improving health and healthcare, providing more affordable and sustainable sources of energy, ensuring better pay and protections for working Americans, and restoring fiscal responsibility. Under Democratic leadership, the Senate has already passed legislation that would make college more affordable and accessible. In addition, the bipartisan America COMPETES Act,whichmakes important investments in our students and teachers, has been signed into law. Democrats have also approved a balanced budget to restore fiscal responsibility and help promote the type of economic growth that provided so many benefits to middle-class families during the 1990s. 

Middle-Class Families Squeezed By Skyrocketing Costs 

 

Health care premiums have increased by over 80 percent. The cost of family health insurance has skyrocketed 80.8 percent since 2000. Premiums are rising twice as fast as wages and inflation. The typical family health insurance premium in 2006 was $11,480 a year compared with $6,348 in 2000.[1] The number of uninsured Americans has increased every year since President Bush took office, from 39.8 million in 2000 to a record high of 47 million in 2006.[2]

 

The number of children without health insurance also increased between 2005 and 2006. The percentage of children who are uninsured grew from 10.9 percent in 2005 to 11.7 percent in 2006. This is the second year in a row that both the number and percentage of children without health insurance has increased. 

Gas prices have skyrocketed. Prices at the gas pump have jumped 90 percent from $1.47 per gallon the week President Bush took office in January 2001[3]to $2.96 in the latest week of energy price data.[4]The price for a barrel of oil has increased 129 percent during the Bush Administration from $30.63 in January 2001 to $70.19in August 2007.[5]The average household with children will spend about $3,915 on transportation fuel costs this year, an increase of 106 percent or $2,012 over 2001 costs.[6]

 

 

College education costs have risen by over 50 percent. Average tuition, fees, room, and board costs at four-year private universities have increased by $8,127 from $22,240 in the 2000-2001 academic year to $30,367 in the 2006-2007 academic year.[7] Tuition, fees, room, and board charges at four-year public colleges grew more rapidly between 2000-2001 and 2006-2007, after adjusting for inflation, than during any other five-year period since 1975. Total costs jumped from $8,439 for the 2000-2001 academic year to $12,796 for the 2006-2007academic year – an increase of $4,357, or 51.6 percent.[8]

The cost of a college education is rising faster than family income, but key federal tuition assistance programs such as the Pell Grant program have failed to keep pace with the rising cost of college. While the maximum Pell Grant covered 51 percent of the cost of tuition, fees, room and board at a public four-year college during the 1986-1987 school year, it covered only 35 percent of those costs in 2004-2005.[9]

 

Housing affordability remains pervasive problem. According to the Washington Post, “the scarcity of affordable housing is a deepening national crisis, and not just for inner-city families on welfare. The problem has climbed the income ladder and moved to the suburbs, where service workers cram their families into overcrowded apartments, college graduates have to crash with their parents, and firefighters, police officers and teachers can’t afford to live in the communities they serve.”[10]

The Joint Centerfor Housing Studies of Harvard University recently reported that housing affordability will continue to be a “pervasive problem.”[11] Between 2004 and 2005, the number of households with housing cost burdens in excess of 30 percent climbed by 2.3 million, hitting a record 37.3 million in 2005.”[12]According to the Center,“five years of stagnating or declining incomes have added to housing affordability problems”[13] and “the need to address housing affordability problems is intensifying as the pressures grow more acute and spread up the income scale.”[14]

Meanwhile, there has been an alarming increase in foreclosures as subprime borrowers’ loans reset to higher rates.[15] Congressional Quarterly reported that“[o]ne of every 92 U.S.households faced foreclosure last year and the number is expected to get larger. Over the next two years, monthly payments on millions of loans will surge as their low introductory interest rates balloon by as much as 50 percent.”[16]An analysis by the Center for Responsible Lending estimates that, of subprime mortgages made in recent years, an alarming one out of every five (19 percent) will fail, resulting in a 2.4 million in projected foreclosures on homes purchased with subprime loans made during 1998-2006.[17] And “[d]ata is beginning to reveal that it was not only, not even mainly, the credit unworthy taking out exotic mortgages. Rather many middle- and upper-middle-class people with good credit took out exotic mortgages.”[18]

Middle-Class Families Squeezed By Declining Income and Fewer
Job Opportunities

While families work harder, their wages continue to decline. Middle-class families are working harder and earning less today than they were at the start of the Bush Administration. Median household income, adjusted for inflation, has declined $962 from $49,163 in 2000 to $48,201 in 2006.[19]

 

The real median earningsof both male and female full-time, full-year workers declined between 2005 and 2006 by 1.1 percent and 1.2 percent, respectively.[20]Between the first quarter of 2001 (when President Bush took office) and the second quarter of 2007 (the most recent period for which data is available), median weekly earnings (adjusted for inflation) fell 1.2 percent, compared with 7.1 percent growth between 1996 and 2000 under the Clinton Administration.[21]

Meanwhile, employment compensation has lagged behind productivity gains. While the productivity of the American worker (output per hour) rose by 17.5 percent between the first quarter of 2001 and the fourth quarter of 2006, average hourly compensation (wages plus benefits, adjusted for inflation) increased by only 8.7 percent during this period.[22]Between the first and second quarters of 2007, productivity in the non-farm business sector further improved by 1.8 percent, but real hourly compensation decreased by two percent.[23]In sum, Americans are working harder – and more productively – but are not receiving proportionally increased rewards for their hard work. 

 

This is counter to historical trends: “Economic theory holds that when output per worker rises, so should wages, and hence living standards. In practice, that’s what transpired so impressively in the United States during much of the last century. But recent data suggests that for many workers, the elixir has lost its potency…many observers contend that the link between productivity and pay is broken. Employees are working harder and smarter, they charge, but are reaping no reward for the extra effort.“[24]

So who has benefited from these productivity gains? The New York Times reported that: “an outsized share of productivity growth, which expands the nation’s total income, is going to Americans at the top of the income scale. In 2005…the top 1 percent of Americans – whose average annual income was $1.1 million – took in 21.8 percent of the nation’s income, their largest share since 1929.”[25] According to the Wall Street Journal, “[s]ince the end of the recession of 2001, a lot of the growth in GDP per person – that is, productivity – has gone to profits, not wages.”[26]Economists at the National Bureau of Economic Research concluded that: "[t]o the extent that the productivity growth ‘explosion’ of 2001–2004 was achieved by cost-cutting, layoffs, and abnormally slow employment growth...the historical link between productivity growth and higher living standards falls apart. Not only have the bottom 90 percent of American workers failed to keep up with productivity growth, many have been harmed by it."[27]

Earnings for workers with college degrees declining.TheNew York Times recently observed that “a college degree does not ensure a bigger share of the economic pie for many graduates.”[28] The Los Angeles Times has reported that:“[w]age stagnation, long the bane of blue-collar workers, is now hitting people with bachelor’s degrees for the first time in 30 years. Earnings for workers with four-year degrees fell 5.2 percent from 2000 to 2004 when adjusted for inflation, according to White House economists…Not since the 1970s have workers with bachelor’s degrees seen a prolonged slump in earnings during a time of economic growth…trends for people with master’s and other advanced degrees…have found that their inflation-adjusted wages were essentially flat between 2000 and 2004”[29]And, according to recent U.S. Census data, “the number of college graduates earning below the poverty line has more than doubled in the past 15 years to almost 6 million people.”[30]

Worst job creation record sinceHooverAdministration. A growing economy should be good news for those seeking jobs. But over the course of President Bush’s term in office, his Administration has the worst overall job creation record since Herbert Hoover more than 70 years ago. 

In August 2007, non-farm payroll employment dropped by 4,000 jobs.[31] In addition, job creation figures for June and July 2007 were revised down substantially from earlier estimates: total nonfarm payrolls now are estimated to have grown at a monthly rate of 44,000 jobs over the past three months, far lower than the approximately 150,000 jobs needed each month to keep up with population growth. It was not uncommon to see monthly job gains of 300,000 and even 400,000 during economic expansions under previous Administrations.[32]

Private sector job creation has been especially poor during the Bush presidency, with an average annual job growth rate of only 0.5 percent per year since 2001.[33]The Washington Times noted that this represents an increase of only 4.1 million private sector jobs under the “Bush era,”compared with the creation of more than 21 million private sector jobs during the Clinton presidency (a 23 percent increase).[34]The manufacturing sector, often the source of jobs with good pay and benefits, has lost three million jobs since the start of the Bush Administration.[35]

 

Given the turbulence and uncertainty in the economy today, the pace of private sector job creation is a bad sign for the prospects for future jobs for our middle-class families. 

Unemployment has increased 9.5 percent and long-term joblessness has nearly doubled. In part because of this failure to create a sufficient number of jobs, the national unemployment rate stands at 4.6 percent,[36]which is 9.5 percent higher than the 4.2 percent rate when President Bush took office. Unfortunately, once unemployed, America’s workers also are staying unemployed longer. In 2006, over one in six of the unemployed had been out of work for more than 26 weeks.[37]The number of long-term unemployed has increased by 61 percent since President Bush took office:[38]there were 2.598 million “continuing claims” by Americans staying on unemployment in the week of August 25.[39]

 Bush’s deficit-financed tax cuts have widened the income gap between millionaires and middle-class workers.In testimonybefore the Congress, Federal Reserve Chairman Ben Bernanke warned against rising income inequality: “[T]o the extent that incomes and wealth are spreading apart, I think that is not a good trend.”[40] Bernanke’s predecessor as Federal Reserve Chairman, Alan Greenspan, expressed similar concerns in congressional testimony in July 2004.[41]In January 2007, for the first time,President Bush finally acknowledged that “income inequality is real; it’s been rising for more than 25 years.”[42]The Wall Street Journal, however, has attributed the widening income gap to President Bush’s tax policies: “[I]t appears that the highest-salaried workers – executives, managers and professionals – are widening their lead on the typical worker…The Bush tax cuts appear to have widened the income gap, according to many analyses.”[43]The St. Louis Post Dispatch summed it up: “The Bush tax cuts for the wealthy have thrown the federal budget deeper into deficit while doing little for ordinary Americans.”[44]

In fact, President Bush’s capital gains and dividends tax cuts will cost $2.349 trillion billion over ten years,[45]with most of the benefits going to the richest one percent of Americans.[46]In an analysis by the Tax Policy Center, economists found that the immediate effect of the Bush tax cuts has been “skewed in favor of those with high incomes,” benefiting the most wealthy households the most.[47] In 2006, for example, “families making more than $1 million a year saw their after-tax income increase by 6 percent because of the tax cuts, while families making $40,000 to $75,000 saw after-tax income rise by about 2.5 percent.”[48]

More American families and children face severe financial problems. The average annual increase in the poverty rate during President Bush’s first term is second only to that during George H.W. Bush’s administration and contrasts sharply with the declines in the Clinton and Kennedy-Johnson Administrations.[49]

The poverty rate has increased 12 percent to 12.3 percent since 2000.[50]In 2006, 36.5 million Americans were living in poverty,[51]an increase of 4.9 million over the 2000 level, the year before President Bush took office.[52]

 

Poverty has hit America’s children particularly hard. According to the latest Census report, almost one out of every six American children lives in poverty.[53] The number of children living in poverty increased 9.1 percent during the Bush Administration.[54]
 

Middle-Class Families Squeezed By Record Levels of Debt

Bush Republicans turned record budget surpluses into record deficits. President Bush inherited a unified budget surplus of $236 billion from President Clinton, the largest surplus in American history.[55]Budget surpluses were expected to continue for another ten years when President Bush took office in January 2001.[56]By 2002, however, the unified federal budget had returned to a deficit of $158 billion and has reached historic highs. Last year, the budget deficit was $248 billion, or 1.9 percent of GDP.[57]

 

Bush Republicans, addicted to borrowing, increased the national debt by $3 trillion. President Bush is the most fiscally irresponsible American president, having presided over the largest explosion of debt in our nation’s history. Every year since taking office, President Bush asked Congress to increase the statutory debt limit, resulting in a $3 trillion, or 51 percent, increase.[58]At the end of 2006, the federal debt

totaled $8.68 trillion.[59]By 2012, the President’s budget would increase the public debt to 12.2 trillion.[60]

Enormous trade deficit is undermining U.S.competitiveness.In 2006, the U.S. trade deficit was at an alarming record high of $765.262 billion – twice the size of the trade deficit in 2001.[61]As troubling, our trade in Advanced Technology Products, a strong indicator of U.S.competitiveness, which was in surplus as recently as 2001, experienced a deficit of more than $38 billion in 2006.[62]

Debt owed to foreigners climbs to record levels. In order to finance record budget deficits, the United States has had to borrow at unprecedented rates from foreigners. As of February 2007, the United Stateshad accumulated $1.1 trillion more in debt to foreigners than this country had accumulated in its first 224 years.[63]By contrast, during the last three years of the Clinton Administration, the United States paid off more than $200 billion in debt to foreigners.[64]

Record government and personal debt levels threaten economic future. Record federal deficits and debt create record interest costs for Americans. In 2006, interest costs on the federal debt amounted to $405.9 billion and this figure will grow to $614.9 billion by 2016.[65]Personal debt levels have reached a modern record. “Flat wages and rising debt nationally have converged to leave millions of middle-class households feeling acutely vulnerable to bumps in their financial planning.”[66]According to the Federal Reserve, last year the ratio of financial obligations to disposable personal income reached an all-time high since the data was first collected in 1980.[67]The ratio, which accounts for mortgage, consumer, and other obligations, has remained high. In the first quarter of 2007, 19.18 percent of disposable income was spent on debt.[68]

Average student loan debt soared to more than $19,000. Interest rates for Stafford student loans have risen substantially over the past three years, from 3.4 percent to 7.14 percent for outstanding loans and 6.8 percent on new loans.[69] As a result, loan payments will be considerably higher for students taking out new loans and for those who did not consolidate loans in recent years. Without adequate federal grants funding, students and their parents must rely more on student loans to finance their college educations. More than 60 percent of undergraduates at four-year colleges have to take out loans, and the average amount of federal student loan debt upon graduation has increased from $7,650 in 1992-1993 to $17,400 in 2003-2004. When private loans are factored in as well, average student loan debt in 2003-2004 was more than $19,000. [70]

Erosion of employer-provided pensions threatens Americans’ retirement security.Workers should be able to count on the retirement promises made by their employers. Increasingly, that is not the case. An analysis by the Pension Benefit Guaranty Corporation (PBGC), the federal entity created by Congress to protect employee pensions, determined that nearly 10 percent of pension plans halted benefit accruals in 2003 alone, the latest year for which complete data is available. According to PBGC Executive Director Bradley Belt, anecdotal evidence suggests that this number has been even higher since then. A recent study by the Employee Benefit Research Institute found that in the past two years, over one-third of surveyed companies froze their pensions and another one-third will be looking to close or freeze their pensions in the next two years.[71]Unfortunately, Bush Administration proposals to expand tax-favored savings accounts that primarily benefit the wealthy risk further pension plan erosion.[72]

DPC