Capital gains tax among the measures suggested by OECD to ease the plight of the middle classes

Forget about the poor people, at least for the next few minutes while you digest this post, and consider the plight of the middle classes.

Correction:  let’s not forget about the poor people but, rather, think about the extent to which the middle classes are becoming impoverished.

These musings were triggered by a press release we received today headed governments must act to help struggling middle class, says OECD.  

The press statement draws attention to a new OECD report which says Governments need to do more to support middle-class households who are struggling to maintain their economic weight and lifestyles as their stagnating incomes fail to keep up with the rising costs of housing and education.

Among the actions recommended – shifting the tax burden from labour income to income from capital and capital gains, property and inheritance, as well as making income taxes more progressive and fair.

Under Pressure: The Squeezed Middle Class says that the middle class has shrunk in most OECD countries as it has become more difficult for younger generations to make it to the middle class, defined as earning between 75% and 200% of the median national income. While almost 70% of baby boomers were part of middle-income households in their twenties, only 60% of millennials are today.

The economic influence of the middle class has also dropped sharply. Across the OECD area, except for a few countries, middle incomes are barely higher today than they were ten years ago, increasing by just 0.3% per year, a third less than the average income of the richest 10%.

OECD Secretary-General Angel Gurría launched the report in New York with Luis Felipe Lopéz-Calva, Assistant Secretary General, Latin America and the Caribbean, United Nations Development Programme.

She said:

“Today the middle class looks increasingly like a boat in rocky waters.

 “Governments must listen to people’s concerns and protect and promote middle class living standards. This will help drive economic inclusive and sustainable growth and create a more cohesive and stable social fabric.” 

The cost of a middle class lifestyle has increased faster than inflation. Housing, for example, makes up the largest single spending item for middle-income households, at around one third of disposable income, up from a quarter in the 1990s.

House prices have been growing three times faster than household median income over the last two decades.

More than one-in-five middle-income households spend more than they earn and over-indebtedness is higher for them than for both low-income and high-income households.

Labour market prospects have become increasingly uncertain: one in six middle-income workers are in jobs that are at high risk of automation, compared to one in five low-income and one in ten high-income workers.

To help the middle class, a comprehensive action plan is needed, according to the OECD.  Governments should improve access to high-quality public services and ensure better social protection coverage.

To tackle cost of living issues, policies should encourage the supply of affordable housing. Targeted grants, financial support for loans and tax relief for home buyers would help lower middle-income households.

In countries with acute levels of housing-related debt, mortgage relief would help overburdened households get back on track.

Temporary or unstable jobs – often offering lower wages and job security – increasingly are replacing traditional middle-class jobs.  This calls for more investment in vocational education and training systems.

Social insurance and collective bargaining coverage for non-standard workers, such as part-time or temporary employees or self-employed, should be extended.

And to foster fairness of the socio-economic system, policies need to consider shifting the tax burden from labour income to income from capital and capital gains, property and inheritance, as well as making income taxes more progressive and fair.

Among the nuggets in the report:

  •  In most countries, average house prices grew considerably faster than median incomes.

In Denmark, France, New Zealand, Norway, Sweden and the United Kingdom, they increased at least 60% more than median incomes.

In all those countries, house prices increased sharply between 1995 and 2007, plummeted during the global financial crisis and then
recovered. The one exception was France, where house prices have remained somewhat stable since 2010, despite recently booming in Paris and other large French cities (Les

  • In most OECD countries, over-indebtedness is more widespread among middle-income households than in the overall population.

    In Canada, Luxembourg, New Zealand and Portugal, it is at least 5 percentage points higher.

Under Pressure: The Squeezed Middle Class is the latest in a series of OECD reports that have documented over the past decade how inequalities have increased in our societies, making it harder for many citizens to make ends meet.  It can be found here. 


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