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Solid middle class key to the recovery

Sep 19, 2012 - By The San Jose (Calif.) Mercury News

As if Americans needed more evidence that the middle class is in decline, last week's Census report piled on the data: Only those at the top of the income scale gained ground last year.

The Census showed that the top 20 percent of earners increased their share of income in 2011, to 51.1 percent, the highest proportion since record-keeping began in the 1960s. The share of income for the remaining 80 percent of earners declined.

This presents an economic conundrum: A thriving middle class always has been key to this country's prosperity. How can we return to real economic growth without strong consumer spending by upwardly mobile Americans?

New York Mayor Michael Bloomberg got at this in a speech last week. He decried Washington's fixation on tax rates, saying it's a small part of the calculation people make when considering a new venture.

"The first question most entrepreneurs ask is not can I afford the taxes -- it's not that. It is: Who are my customers, and where do I need to be to serve them, and how do I get up and running quickly?"

He added: "You show me a business person who cares about his federal tax rate more than his customers, and I'll show you Darwin at work."

The customers are harder to find these days.

Yes, over-regulation stunts business growth, and California is ground zero for that fight. But lack of demand is still the biggest problem facing most businesses, and the Census data shows why.

Median income for working-age households -- a category that excludes retirees -- declined 2.4 percent in 2011, to $55,600. Former White House economist Jared Bernstein points out that this is the same level as 1993.

And while poverty did not increase overall, it remains unacceptably high. Some 15.6 percent of Americans lived in poverty in 2011, defined as a family of four making less than about $23,000.

The Federal Reserve's decision last week to begin an open-ended series of bond purchases could help by keeping borrowing costs low, encouraging some businesses to expand and hire. But many large corporations have record amounts of cash on hand. What they need is more customers to justify expansion. And based on the Census data, those potential customers aren't prosperous enough to help out these days.

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