President Barack Obama's proposed tax on millionaires has brought the issue of "class warfare" back to the forefront of politics.

The new tax plan follows a week of intense campaigning by the President for his jobs bill, and of attention devoted to a Census Bureau finding that poverty was at a 17-year high.

Asking the wealthiest Americans to pay more, and taking new steps to help the least well-off - the jobless and the poor - is good policy.

But politically, and perhaps even economically, the President can't lose focus on a group often left on the sidelines of the political conflict over rich and poor - the long-suffering middle class.


Recent developments have driven home how urgently middle-class families need to be put front and centre in Washington.

First, there was bad news for middle-class households in the Census Bureau's study of poverty.

News reports focused on the finding that the average annual income of households at the bottom - those in 10th and 20th per centiles - had fallen by US$1000 and US$1500 ($1275 and $1915) a year, respectively, between 1998 and last year.

At the opposite end of the spectrum, households in the top 10 per cent had an annual income increase of US$3600 and those in the top 5 per cent had a US$4200 increase, over the same period.

But ignored in this story of the poor getting poorer and the rich getting richer was the less publicised - but equally important - finding of what happened to those in the middle of the economic distribution.

These middle-class families had an even bigger drop in annual income than the poor did over the past 12 years - a decline of more than US$2500.

Put another way, American households in the middle of the income spread - those making about US$50,000 a year - have lost more than US$200 in monthly income since 1998.

The dwindling of middle-class incomes is a sharp reversal of American tradition.

The earnings of middle-income families rose more than US$5000 over the 12 years from 1967 to 1979.

It edged up only slightly, by US$650, during the tough years between 1979 and 1992 period, then made another US$5000 jump between 1992 and 1998.

Thus, looking over the 31 years from 1967 to 1998, the middle class had periods of strong increases in annual income and some periods of lesser increases - but the trend was in one direction, upward.

One might even say the fundamental characteristic of middle-class life in America was a steadily increasing income.

All that changed over the past 12 years, as the incomes of those in the middle fell.

Moreover, this loss of annual income is compounded because these families have suffered more than those above them or below them a steep decline in savings because of the collapse of house prices.

The richest households have their wealth in diverse holdings - including stocks, which recovered after 2008 - and the poor have no savings at all, but middle-class families have their net worth concentrated in a single asset, equity in their homes.

Many families saw this "nest egg," wiped out when house prices plummeted in 2008.

The middle class was dealt a second blow last week when a report by the Washington research organisation Third Way revealed that schools serving this part of the population had vastly under- delivered for their students.

Falling incomes and floundering schools - that is what America's great middle class faces today.

Addressing the prosperity of this vast majority of US citizens is essential, because it is impossible to build a prosperous America without a strong middle class.

They are the workforce of today and their children are the workers of tomorrow. They are the consumers who power demand; they are the small-business people who create jobs and innovations.

They make the cars, build the homes and grow the food that are a huge part of US national output.

They also buy the cars, the homes and the groceries that make up a huge share of national consumption.

No economic recovery plan can work unless it lifts the middle class.

Politically, middle-class voters perennially believe Democrats care too much about the poor, and Republicans care too much about the rich.

As next year's election approaches, these voters are alienated from both parties, seeing little benefit for themselves in policies such as the banks bailout, state and local fiscal relief and extended unemployment insurance, all of which have consumed so much of Washington's time and money.

The President should continue to press for his new "Buffett Rule" to raise taxes on the wealthy, and his jobs bill to help the unemployed.

But he also needs to speak directly to the millions of middle-class families that have jobs, but are feeling the unprecedented income squeeze of the past decade, and are worried that their children may be in the first generation of Americans that didn't do better than the preceding one.

Demanding that the wealthiest shoulder the same tax burden as the middle class is only fair, but doesn't address middle-class anxieties.

Likewise, policies that provide jobs and healthcare to those who lack them is the right thing to do, but it may not lift incomes and reduce costs for those who are employed and who have health coverage.

Education policies need to focus not only on fixing the most broken schools and drawing the best teachers to the most troubled districts, but also on lifting up middle-class schools so those students can compete for the best opportunities.

It is often said that US elections are "won in the middle," a statement about ideology that reflects the centrist leanings of swing voters.

But next year, that is more likely to be a description of the economic profile of the voters up for grabs.

The party that can best address the needs and concerns of middle-class voters who have jobs, but are enduring flat incomes, under-performing schools and shrunken savings, is the one most likely to win next year.

- Bloomberg

* Ron Klain is a former chief of staff to Vice-President Joe Biden and a senior adviser to President Barack Obama on the Recovery Act.