The middle class tighten their belts

It seems like nobody will admit that losing the middle class can crush the economy. Signs clearly show that a shrinking and weaker middle class has stalled the recovery. All the financial measures that the government has taken have affected this portion of society, which pays the most in taxes and social security contributions.

An increase to the Social Security rate on non-monetary salary, which Congress is expected to approve today, will also affect middle and lower class citizens. For the highest income band that earns more than 3,597 euros per month, an increase to the max contribution will not have an effect because the amount above this cap will be exempt. The people earning less than the cap will pay a rate adjusted to their cash and non-cash income. A middle class worker, for example, will pay Social Security on all the food and transportation benefits that he receives. Meanwhile, the managers at his company might not have to pay the tax on pension plans if they get them from their company. The measure will ultimately hurt spending in an economy that is trying to recover.

It will also have an adverse effect on jobs by increasing the costs associating with employing workers and feed the underground economy. Businesses are not hiding their disapproval of the government for not only breaking its promise to lower social security contribution rates, but raising them. The measure was approved and implemented so quickly that it is threatening the fair and just application of Spanish law. The government?s eagerness reveals it anxiety about the annual deficit for the national government accounts and Social Security system. Both accounts will need a lot of engineering to meet agreed-upon levels. Increasing taxes and Social Security contributions for the middle class won?t be enough.