The Incredible Disappearing Middle Class

August 30, 2012 | Economic Opportunity Institute

The Pew Research Center’s newest report is making waves with its findings: the American middle class is shrinking amidst one of its most difficult decades.

Over one-third of respondents to the Pew survey said hard work is no longer enough to get ahead in America, and 85% of those who self-identified as middle class say it is more difficult now than it was a decade ago to maintain their standard of living.

Perception, it seems, mirrors reality. The Pew report notes that for the first time since World War II, average family income has declined across the board, “but the middle-income tier…is the only one that also shrunk in size, a trend that has continued over the past four decades.”

Meanwhile, both top and effective tax rates for the wealthy have plummeted, while income gains have gone almost exclusively to those at the top. In 1970, upper-income households accounted for 29% of aggregate household income. Today, they account for 46%. Middle-income households, meanwhile, accounted for 62% of income in 1970, but now claim just 45%.

The damage to the middle class over the past ten years has been staggering. Median income fell 5%, but “median wealth (assets minus debt) declined by 28%, from $129,582 to $93,150.” Low income households took an even harder beating with median wealth falling 45% from $18,421 to $10,151.

pew-household-income

Only the wealthy escaped the past decades unscathed; the wealth of the top income group actually increased, albeit modestly, from a median of $569,905 to $574,788.

What are the reasons for the decline of the American middle class? The housing collapse, which wiped out over $10 trillion household wealth, is partly to blame. Other factors: a history of stagnant wages for the majority of Americans, rising education and healthcare costs, and a tax system riddled with loopholes that favor the very rich.

Reversing the trend of the middle class slide begins with public policies that invest in workers, families, education and American infrastructure. In the 1940-50s, the GI bill put millions of Americans through college and into well paying, middle class jobs. But today, the cost of higher education has never been higher – and good jobs for those without a degree are more limited than ever. Undoing the cuts to higher education is a good first step to restoring the ladder into the middle class.

At a time when low wage jobs are the fastest growing occupation in our economy, we can ensure good jobs are available to American workers, with policies like a strong minimum wage and the right paid leave and sick time. And to repair roads and bridges and restore our world class infrastructure, we can work toward a tax system that is fair and balanced. It won’t be easy, but we can set our country back on the path to middle class prosperity.

By EOI Intern Ashwin Warrior

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Posted in State Economy

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