Paul L. Caron

Monday, April 28, 2008

Rising Taxes, Not Rising Mortgage Payments, Primary Cause of Middle-Class Squeeze

I previously blogged (here and here) Todd Zywicki's contention that in their book, The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke, Elizabeth Warren and her daughter Amelia Warren Tyagi wrongly blamed rising mortgage and health care costs for the increasing strain on family budgets despite the growing incomes earned by two-income couples.  Zywicki argues, using Warren and Tyagi's own figures, that increases in family tax burdens far outstripped increases in mortgage and health care costs.

In a Sunday Washington Post op-ed, Don't Blame All Borrowers,  Robert Frank resurrects The Two-Income Trap thesis in explaining the current mortgage and housing crisis:

Hints of how things began to go awry appeared in The Two-Income Trap, a 2003 book in which Elizabeth Warren and Amelia Warren Tyagi posed this intriguing question: Why could families easily meet their financial obligations in the 1950s and 1960s, when only one parent worked outside the home, yet have great difficulty today, when two-income families are the norm? The answer, they suggest, is that the second incomes fueled a bidding war for housing in better neighborhoods.

Zywicki takes Frank to task for ignoring the far greater influence of rising tax burdens on families:

Isolating just the mortgage burden, according to Warren & Tyagi's figures the percentage of family income dedicated to mortgage payments actually declined from the 1970s to 2000s, from 14% of household income ($5310 of $38,700) to 13% of household income ($9000 of $67,800). Again, this is using Warren & Tyagi's own figures.

I learned after writing the column that there is some dispute about the source of the rising tax burden. I followed Warren and Tyagi's lead from the book and attributed the growth in the tax burden primarily to the second-earner bias. Subsequently I found that there is some dispute about the extent to which the growth in the tax burden is attributable to income taxes rather than state and local taxes (including state income taxes). What has not been questioned is that Warren and Tyagi's own numbers show that the growth in the overall household tax burden overwhelms the growth in home mortgage expenses with respect to its impact on the household bottom line.

Update:  Frank Pasquale has more on Concurring Opinions.

News | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference Rising Taxes, Not Rising Mortgage Payments, Primary Cause of Middle-Class Squeeze: