Political rhetoric today is focused on the middle-class and its decline and uphill battle against inequality. The middle-class is typically defined by income in this rhetoric and it is framed so that it appears we are talking about a fixed population void of new entrants and departures to higher income ranks.
There is more to middle -class than income, it includes life styles, education, aspirations and more. Some people are perfectly content being middle-class; others have higher ambitions.
Listen to the likes of Old Bernie Sanders and you may believe the next rung above middle-class is millionaire. That simply is not true.
You will hear that the wealth and income of those above middle-class has grown faster than all others. We should ask why? The stock market growth is one significant reason, the competition from the global economy affecting middle-class jobs is another, an influx of people into the lowest range of middle-class lowers the average income of the group, etc. In other words, the higher growth in one income group over another is not because of some nefarious plot or a “rigged” system.
As you can see below middle-class income varies greatly. A family earning $150,000 in NJ is not wealthy. Retire to Mississippi and you may be wealthy.
If the concern is raising these numbers, what does it take to do so? Simply taxing the millionaires and billionaires more is no answer, that’s populist rhetoric. There are two challenges. Getting people to grow out of the middle-class and growing the income of the middle-class. From the numbers here you can see raising the minimum wage has little impact on this group. A tighter labor market will increase wages. Possessing sought after skills will help individuals climb the economic ladder. Simply growing the economy and higher inflation will help. Raising wages in a low inflation environment is difficult; just ask senior citizens and even federal government employees.
Then there is the matter of wealth. Wealth comes in many forms, especially for the middle-class and below. While the politicians rant about the wealth of millionaires and billionaires the wealth quietly accumulates for the middle-class in the form of growing value of such things as Social Security and Medicare funded not only by the individuals but mostly by general tax revenue and the taxes being paid by younger citizens. Here is an interesting assessment of this impact on wealth. In addition, as you can see below, many middle-class families pay no income tax.
Finally we have the overall perception of the middle-class beyond the stats and data; the real world so to speak. I was at a house party yesterday and in attendance was a good representation of the older middle-class. Among them were several retired teachers (all who retired long before age 60), a credit manager, a former salesmen, etc. Needless to say, sooner or later the discussion turned to Social Security and the lack of a COLA. The consensus was they were being ripped off, the numbers were being manipulated and all the rest. Two said their Social Security benefit had decreased by $10.00, which even if they were paying a supplemental Medicare premium (which they were not) was not possible. Let me also mention that these struggling middle-class seniors have condos in Florida where they spend their winters or they rent a place for the season, they travel frequently and take advantage of every discount they can get. One proudly explained how he “used” money from a part-time construction business he once owned. “I never lived off my salary as a school teacher.” he proclaimed. “I just took $500 from “petty cash” three times a week and we bought what we wanted.” I wonder how many other middle-class Americans have income that doesn’t find its way into the data bases? 😱
The fact is, the largest target for tax audits is the sole proprietorship business, the ones that deal mostly in cash, the middle-class.