Surprising Facts About Middle-Class Income in America

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Determining whether or not someone falls within the middle class doesn’t depend solely on how much money they make; it also depends on where they reside.

Pew’s latest report offers insight into this phenomenon. Their calculator allows you to enter information such as your state, metropolitan area, pre-tax household income and number of residents into its database in order to assess your status.

1. The Top 20% Makes More Money Than the Bottom 80%

The middle class is one of the most discussed groups in America. Politicians frequently mention them when discussing legislation or trying to persuade voters. So what exactly defines this group? Usually those earning between $50k-150k annually, such as teachers, lawyers and bankers. Many live in small or mid-sized cities while earning salaries that allow them to purchase homes and support families without incurring excessive debt.

These people tend to possess high-level assets that enable them to withstand economic storms and preserve their purchasing power. They save more than the average American and invest in rental properties, stocks or mutual funds; yet pay very minimal taxes due to higher incomes.

Lower-income families can take advantage of several key tax deductions available to them, including the Earned Income Tax Credit for working families with children, and mortgage interest deduction available to homeowners earning less than $245,000 a year.

When looking at America’s wealth distribution, it becomes evident that those at the top are faring much better than those at the bottom 80%. Indeed, the wealthiest families saw their net worth increase by an incredible 4% between 2007 and 2016, while those at the bottom saw theirs decrease by 39%!

Even pretax income illustrates this disparity in wealth. For example, the top 1% of Americans make approximately $1.3 Million annually and have seen their combined pretax income rise 17% since 1979; which equates to roughly 1.02 dollars of earnings since 1979.

Recent years have witnessed notable advances from certain demographic groups as they make strides up the economic ladder. Adults 65 years or older made the greatest strides upward, increasing their share of upper-class households by 25 percentage points; Black adults and married women saw increases of 13 and 14 percentage points respectively – likely as a result of greater labor force participation or education levels among these groups.

2. The Bottom 80% Are Getting Poorer

As the economy has progressed, middle-class families have found it increasingly challenging to keep pace. Incomes among the bottom 80% have increased more slowly than those of families in the top 20%; as a result, 61% of families considered middle class in 1971 have dropped down to 50% today while both lower- and upper-income brackets have expanded substantially.

Not to suggest that the newest middle class are poor, but rather that they struggle to afford necessities. According to a JP Morgan research note, housing, food, utilities, and health care account for 66% of American consumers’ household expenditures; among the lowest quintile of people earning under $26,000 annually this costs make up more than 50% of their income.

And this may explain why many middle-class Americans feel their earnings are falling behind the rising cost of living. A recent poll discovered that 72% of households surveyed believe their wages don’t keep pace with living expenses – up from 57% last year.

Housing prices have seen an average 45% jump since 2019, as have property taxes. Families struggling to make ends meet are finding it increasingly difficult to purchase homes – this phenomenon makes purchasing even harder to attain for those with children.

As a result, the bottom 80% have exhausted their extra savings and have less cash available than before the Covid-19 pandemic began. As such, many families that fall within this bracket have become more reliant on government assistance programs, especially since most of it used to go towards low-income families; now more of it goes toward middle-class households than before.

This can be both good and bad: on one hand it aids those struggling to survive while simultaneously contributing to an ever widening income gap. As time progresses, finding ways to help these families save enough to support themselves without needing state assistance may become necessary.

3. The Middle Class Is Getting Richer

Although middle-class Americans have experienced wage income decline, they are not experiencing the same economic regression as lower and upper income families; however, their growth rate is much slower when factoring in government transfers and taxes; by 2022 family income in the middle quintile grew roughly half as fast when taxes and transfer payments are considered.

This means that, over five decades, the numbers who comprised the middle class have remained roughly constant while their income progresses more slowly than those above them. This phenomenon has been an alarming development in America and some economists have noted it as evidence of decreased social mobility.

Others have taken this trend as evidence that the American Dream has become less of a reality for suburban dwellers, in particular. According to Lacy, these residents set the tone for how Americans see America; “these folks set the tone,” and these individuals tend to own both mortgage and car payments while also supporting policies which provide family-friendly workplaces and affordable child care options.

It is true that the upper middle class has grown, and members in this category are more likely to possess a bachelor’s degree or higher and enjoy higher net worths than other Americans. Some may even own two properties. But this kind of wealth doesn’t allow Americans to access top-quality education, start new businesses or advance in their jobs; only those in the top 1% own half of all stocks and mutual funds, with much of this wealth likely having come down through generations inherited from parents or relatives.

As noted above, those with at least a bachelor’s degree saw their share of middle class income increase between 1971 and 2021; those without this level of education saw income regression during this timeframe, suggesting it has become harder for low-income households to climb the income ladder without degrees.

4. The Middle Class Is Getting Older

American’s middle class has been steadily declining for four decades. Each decade since 1971 has seen a decreasing percentage of adults living in middle income households, without any single decade where this trend reversed itself. One factor may be that people are entering retirement at a time when prices are increasing faster than incomes; this phenomenon is especially problematic among lower middle-class populations where healthcare and housing costs are growing faster than incomes.

Definitions of middle class membership vary; for the purposes of this research we used one that includes anyone earning two-thirds to twice the national median household income – roughly $48,000 to $145,000 annually for a family of three. This group of Americans plays an essential role in our economy as they spend money on necessities like food and shelter as well as “luxury” items like vacations and cars; when these funds aren’t being spent elsewhere they negatively affect housing markets, small businesses, advanced degrees pursued and health care costs rise substantially.

Social mobility among this group translates into people believing they can improve their financial situation by moving up the income ladder, but in practice this is much less straightforward for those with less education compared to just five decades ago. Between 1971 and 2021, the share of those with high school diplomas who belong to the middle class declined from 60% to 50% while adults with some college education saw their share grow slightly from 31% to 34%.

Middle-class families require more income than they earn to maintain comfortable lives; even after accounting for inflation. This is primarily because housing, healthcare and education costs have skyrocketed more quickly than nominal incomes; saving has also become harder given the slow recovery from the Great Recession.