Middle Class

The Middle Class in America Isn’t Happy
by Kelly on July 23rd, 2008
There has been a lot of talk about which presidential candidate has the best tax plan for “middle class” America. It’s an interesting question because I’m not sure that anyone can actually define “middle class” anymore - my readers seem to feel that it’s all over the place.

Middle class - as it’s widely defined - is generally defined as those families who are in the middle of income brackets. That can be confusing. Based on 2005 Census Bureau reports, 40% of Americans earned less than $36,000 a year (the bottom 20% earn less than $19,000). The next 40% - the so-called middle class - reported betwen $36,000 and $91,705 of earnings. The top 20% of earners, making $91,705 or more, earned 50% of the income reported in the US.

[Kelly’s geeky note: From a math perspective, that’s pretty interesting: while the richest 20% took in nearly 50% of income, the middle class (representing 40% of Americans) earned a fairly representative proportion of total income (37.5%).]

So there you have it, statistically you are middle class if you earn between $36,000 and $91,705 (adjusted for inflation since 2005) per year. Easy, right?

Not so fast.

There are a lot of factors that pure numbers don’t take into consideration including the size of your family and the cost of living in your geographical location. Lots of folks who make more than $75,000 per year may live comfortably in some areas of the world - but that kind of money won’t take you very far in areas like New York City or San Francisco where housing costs alone can easily reach $1 million for relatively modest homes.

The reality is that almost everyone thinks that they’re middle class, though of course, you can’t be. And realistically, you don’t want to be right now. Here’s why.


Elizabeth Warren, professor at Harvard Law School, just testified before the Joint Economic Committee in Congress that the middle class is suffering. How much so? Adjusted for inflation, median household income for middle class families has dropped by $1,175 between 2000 and 2007 - that represents a significant decline. While income is dropping, expenses are rising. The average family is spending $4,655 more each year on basic expenses, such as gas, food and health insurance.

Let’s talk the bane of my existence (as most working parents): child care costs. Families with children under the age of 5 spend $1,508 a month more on child care costs (yes, do the math, that’s more than $18,000) - older children cost about half that much. You don’t escape during the teens, either: the cost of sending a child to college has more than doubled over the last 20 years, far outpacing increases in income.

Also in the news these days are those folks who cannot afford housing. The proportion of families who spend more than 35% of income on housing has quadrupled in a single generation - a disproportionate number of middle class families spend nearly half of their income on housing. Two “middle class” Americans earning an average salary could not afford to pay the mortgage of a median-priced home in 2/3 of the nation’s metropolitan areas including my own Philadelphia (which is reasonably priced, I might add). In addition to the increased costs of housing stock, real estate taxes have also increased. Most municipalities have not tweaked their systems to account for a disproportionate increase in property “value” (albeit somewhat artificial) - this means that taxpayers are often paying too much (for reassessed properties at historic rates) or too little (for properties that have not been reassessed) in real estate tax from neighbor to neighbor. The high costs, as much as $10,000 in some middle class neighborhoods, are hitting folks in the pocketbook.

According to Warren, if you include real estate taxes, along with Medicare and other taxes, the total tax burden for a two income family today is 38% more compared to one income families a generation ago. And yes, I realize in a progressive tax system, that was bound to happen. It’s not so much that it happened that’s surprising, it’s what it means. It means less money in the pockets of middle class Americans at the end of the day.

Income is decreasing and expenses - including taxes - are increasing. So what are people doing? Charging up a storm. Credit card debt for middle-income families rose 75% between 1989 and 2001, according to Demos, a non-partisan public policy organization. Warren’s report claims that 10% of total disposable income in the United States goes to paying off credit cards. This, of course, jives with much of what you told me you would do with your economic stimulus check.

There has been a clamoring for a second stimulus package to offer some relief. Despite the rumors to the contrary, no such package has yet been seriously proposed. Jared Bernstein, senior economist with the Economic Policy Institute, has advised that a package should rely on getting funds together for the states, particularly for infrastructure projects, and not into the hands of taxpayers. Infrastructure means jobs - this was made abundantly clear when Congress thought about tinkering with the gas tax.

Second stimulus package or not, it’s clear that something needs to change. What is the breaking point before the middle class is no longer middle class?

Tags: America, cost of living, Economic Policy Institute, economic stimulus, economy, Elizabeth Warren, gas-tax, middle-class, second stimulus package
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