Chasing the Vanishing Middle Class
Aug 08, 2011
Perhaps you noticed that this year’s back to school specials seemed to start a little earlier than you remembered. Instead of early to mid August, parents from coast to coast were being offered big discounts to start their back-to-school shopping in mid-July. There is a scary reason for this change in marketing strategy: Discretionary consumer spending has virtually dried up.
That is another way of saying that a whole lot people are broke. Marketers looked at their research numbers and concluded — correctly, it turns out — that many consumers were going to have to choose between paying their rent or mortgage and buying school supplies this August. Both of those are mandatory purchases, of course, but keeping a roof over your head is usually considered more mandatory, so a lot of retailers, notably our client Office Depot, started the back-to-school party early, in order to give parents more time to squeeze in those purchases. Office Depot put together some really compelling back-to-school value offers, because they knew that discretionary dollars were tight.
I mention this for two reasons. First, advertisers should know that this trend is likely to be a long-lasting one. A lot of people we used to identify as “middle class” are now having a hard time meeting their basic obligations, and are struggling to keep the lights on and make sure the the house is stocked with groceries. Advertising appeals must adapt to this new reality. Emphasizing value delivered (as Office Depot did with its back-to-school promotions) is now definitely the name of the game. Consider another one of our clients, the Papa John’s pizza chain: Their premise is that people are willing to pay a little bit more — not a lot more, mind you, but a little bit more — for a quality pizza to feed their families. For most families, pizza is already pretty affordable. But in the current environment, Papa John’s is upselling by very small increments. Household budgets are too tight for them to do anything else. The question Papa John’s is posing is: Are you willing to pay just a few bucks more for a better tasting, better ingredient pizza? You have a twenty-dollar bill in your hand. Would you be willing to spend twelve of those twenty bucks, rather than ten, for a significantly healthier, better-tasting pizza? People don’t mind paying a little bit more for a better pizza. They just don’t want to pay a lot more for a better pizza.
That kind of value proposition is the name of the game now. Get used to it.
The second reason I mention all this is to point out that something is seriously wrong in our country. What used to be a huge, aspiring middle class gets splintered into a batch of downwardly mobile sub-classes. In case you missed it, the middle class is collapsing. Many families who used to be the in the middle-class are now struggling in the lower-middle class (or below), and they are pissed. A couple of months ago, 60 Minutes ran a heartbreaking story about child poverty that suggested that one in four American kids are now living below the poverty line. That’s the largest generation of kids to be raised in hard times since the Great Depression. That sucks. It’s making a lot of people angry. And it’s got to change.
There’s an old saying that money makes the world go round, but actually that’s not quite accurate. In my industry, discretionary consumer dollars, meaning what’s left over after you pay your bills, are what make the world go ’round, and those dollars are now in short supply. All the more reason to give hurting consumers some tax relief — for instance, the no-bullshit, no-loopholes, no-exceptions 13% flat-tax rate I proposed here not long ago — and stop asking them to subsidize the tax burden of people and companies who can afford better accountants than they can.
Here’s why the flat tax is so important: It would put more money in virtually every consumer’s pocket. Whether you make $20,000 a year or $200,000 a year, you would be paying less in withholding to the Federal government, and you would hold on to more of your own money, which means it would be easier to take care of yourself and your family. That is exactly what our economy needs right now. A flat tax would get rid of loopholes, put everybody on a level playing field, and enable more consumers to pay their rent or mortgage, catch up on their electricity bill, buy the groceries … and still have enough money left at the end of the week to buy things like pizza and back-to-school supplies. If you think that’s a bad idea (like the President does), watch out. A constituency of pissed-off people is finally coalescing around this issue. And guess what? A growing number of advocates for the flat tax are economic refugees from the collapsing middle class.
Visit Fairtax.org to learn more.
The “Flat Tax” works on nearly every level. Would you advocate a flat tax for the business community as well? I mention this, having read that Microsoft dodged over $13 billion in corporate taxes due to the U.S. by running their profits through a subsidiary based in Ireland.
You know the summer is coming to an end when the hotel pools are over crowded with families and all local supermarkets, office supply and superstores have back to school signs and sales. I can’t help but to think of the days that I would receive my class schedule and the attached “required” back to school supply list. I have to admit, I always felt that I was going to be the next best business man if i had all the proper school equipment…
In this economy, companies also need to realize that every time they cut jobs so that someone higher up can take home more pay (or their already high rate), they lose the customer that will no longer have the excess money to purchase their products, go out to eat, or splurge shopping. This is the disappearing middle class. Workers may be replacable, but customers are irreplacable. I scratch your back, you scratch mine and vice versa. I make money here, I buy your stuff. Then you make more money. Downsizing ends up hurting the company, clearly as we see occurring all over the world at this very moment. The real answer would to be to cut EVERYONE’S (even the big guys’) pay by a percentage during hard times, but to keep the people working. However, there is no recession, just more greed for “bling” in today’s world (back then you could buy a better horse with your excess funds, now you can aim to buy a megayacht or private jet…it’s almost limitless). When someone has excess money laying around to purchase 3 cars or 3 houses or the next “toy,” and someone within that company is getting cut, who was already struggling to put food on the table, there lies a big problem that will persist into the future with insidious effects. The ones who get laid off, end up paying for someone else’s extra cars, houses, and “stuff.” But in the end, losing those “struggling yet hopeful” customers, kills the company completely. I’m not a socialist but we NEED a middle class and using others’ money so that that group struggles and others live in excess, is the problem that will end up causing a revolution in the future. It is obvious that the rich buy, the poor don’t buy. The middle class is the ONLY fluctuating force in the economy that is always on the fence. When we have hope or have a stable job, we buy. When we don’t, we don’t buy. If the fluctuating force can’t buy the stuff, what good is the company? A degree in economics is not needed to figure out what is common sense – the gap between salaries is too large. I did enjoy this blog about the middle class, it just made me think of all these other issues that need to be looked at.
The problem, as with so many of our problems, rests in DC. We are playing out old myths. The Democrats are actaully the party of the “non-wworking class.” Everyone not working or on the government dole, or a hack politician barely working, have to vote Democrat. The Republicans actually better represent working tax payers. At least they are not trying to KILL business. We are getting to the tipping point in the revenue equation of tax payers verse non tax payers. We desperately need a flat tax. Let the country and business run on real competition, not who has the best tax accountant and tax attorney. I am ready to fire mine! We also badly need term limits. It’s our only hope of ending the insnanity in DC and the never ending election cycles.
So most people agree. Why won’t this happen? The people that have to pass this legislation are the people most negatively affected by it…Congress. A bunch of lawyers and lobbyist-driven respresentatives. Hacks. Those who benefit from the confusion.
Unless the people demand it, and that means a significant mahority, forget about it. But as long as the administration keeps telling people that the kids and old people are going to die if they don’t give out more money, we’re doomed. Fear works unfortunately. And our governement leadership has no shame.
I agree but I also think that another way to solve some of our country’s financial crisis would be to forgive student loan debt to stimulate the economy. You should check out http://www.forgivestudentloandebt.com/ and see what you think about it. Kind of an interesting concept when you really consider its benefits.
Whether I’d call myself being naive or just oblivious with everything that has to do with this country and taxes but, the flat tax movement sounds like a logical solution to me. We’ve always just “tried” things in the past…
This is quite the compelling article. Like most Americans who are big dreamers, I wish to believe in your “pie in the sky” notion of solving the economic crisis we are now facing by imposing a flat tax. No loopholes, just an honest way for the middle class to stay afloat. The only problem I see with this article is that there’s only mention of the world going round with consumer dollars. Are business corporations planning to contribute to this or are they just going to take consumer’s dollars and later expect the consumers to bail them out when the yearly bonuses and perks outweigh the profits they actually make? The sad reality is that you, like all businessmen, only see one side of the coin. The reality is, consumers spend more so that business tycoons can get more. Perhaps the solution doesn’t lie in this flat tax, but more in flipping that shiny coin so that greedy businessmen can see their own reflection and realize they are the cause of the problem. It is indeed tragic that so many hard-working American citizens are struggling to keep a dream alive, to feed their children, to simply—survive. But the greater shame is that the wealthy waste time spewing so-called solutions with no intent on resolve. It seems, sadly, that no one gives without expecting something in return. The wealthy pat themselves on the back for their endeavors to give to charity and to give back to the community. That’s great—many impoverished individuals do benefit—but the wealthy do as well, greatly, at the end of the fiscal year when they get their tax break. It’s quite comical, that you would endorse the solution to this great economic crisis and fall of the American middle class to be as simple as a flat tax. The lesson I’ve learned by reading your article: yes, money does make the world go round, and though it may be this fragile piece of paper, it carries more weight than your soul.
Michelle –
Thanks for sharing your views on the flat tax.
Point one, and probably most important of all: As a consumer, you would have significantly more disposable income on hand to buy back-to-school items or take a vacation or do anything else you wanted to do under a flat tax system. That is definitely not “pie in the sky.” It is what our economy and our country need right now, for you and me to be able to keep more of our own money as individual taxpayers. It is our money, after all.
As for the yearly bonuses situation, you should know we agree on many of the points there. I think the bailout of the banking industry, followed as it was by huge executive bonuses, was obscene. That showed deep contempt for the American taxpayer, and there was no excuse for it. I happen to be one of those taxpayers, by the way, just like you.
I believe bonuses should be based on positive company performance. If a company has to borrow one single penny to finish the year, then in my view that’s not positive performance from the company, and all bets are off. No one should get a bonus.
When it comes to corporate tax, companies typically pay much more in taxes than an individual does. I know our company pays a hell of a lot more in corporate taxes than the average American would dream of paying (or be able to pay).
By the way, as a business owner, I can tell you from personal experience that a corporation does not make the decision to give to charity in order to get a deduction. The math just doesn’t work. Say the deduction is 30%. If our company makes a $100,000 donation, we only get a $30,000 deduction off our taxes. But we “lose” seventy grand. Actually, though, it’s not a loss. We give to charity because it’s the right thing to do, not because it’s a net financial gain for the company.
Some people give away a lot of money because they feel they have a responsibility to help others who aren’t as lucky as they are, and because they’re grateful for the opportunity to work their asses off and get rewarded for doing so. But, this is not just about money. It’s also about giving your time.
If you’re interested (and I realize you may not be) I have worked extensively with the University of South Florida to build up its advertising school, to revamp its curriculum, and to make sure talented advertising professionals are available to teach the classes. It takes time to produce the best and brightest students. Believe me, there’s no tax credit for that. You do it because you have a passion. I sit on USF’s Board of Trustees at no pay because I want that school to be the best. I want the curriculum to be relevant. I want the graduates to be employable. In total, I sit on over a half dozen boards. That’s time I could be spending with my company, with my clients, with my family. At the end of the day, I’m proud of what I give back in terms of dollars, and proud of what I give back in terms of time.
On a personal note, I have to say that I think your snarky remarks about the weight of my soul are way out of line. If you disagree with me about Washington being out of control, I have no problem with that … but you are apparently projecting anger onto me that has been produced by past interactions with someone or something else, and I do take exception to that. My advice to you is to focus on the ideas we are discussing here, and save the personal insults for whatever socially irresponsible moron from your own life experience you have apparently confused me with.