Don't Mess With Taxes

 

Americans have always been aspirational. We strive to be better, especially financially. And while we’d all like to be millionaires (or richer), we’re also pretty pragmatic.

We want to do better than we did the year before, making progress as we continue our American Dream journey.

That’s why candidates for all offices this election year are making promises they say will help middle-class voters Americans.

Based on data gathered last year, those vote seekers better get to work. Fast. The United States’ middle class has been shrinking.

Economic stresses have increased: Independent inflation data aggregator Truflation reported that the number of middle-class families had remained fairly stable over the last decade, until now. Lately, these families have faced financial challenges, leading to them taking on more debt.

That’s not surprising. The COVID-19 pandemic rocked a lot of financial worlds, as job opportunities and pay were reduced or eliminated. Then when things started getting back to normal, supply chain issues led to historic inflation.

And an aging population has meant some former middle-class members dropped out of that category once they retired.

“Historically, the middle class has been the engine of American economic growth and prosperity,” Oliver Rust, Truflation’s Head of Product, told ConsumerAffairs last fall. “Yet we’re now seeing the middle class capturing a lower share of income than in the 60s, 70s and 80s. In the two decades since the mid-2000s, it has shrunk from roughly 60%, in part due to demographic changes as the population has seen a particularly steep increase at the extreme bottom and top of the economic spectrum.”

Crunching middle-class data: Pew Research Center agrees.

In 1971, 61 percent of Americans lived in middle-class households. By 2023, the share had fallen to 51 percent, according to a Pew Research Center analysis of government data released in May.

    
As the Pew graphic above shows, the middle-class is getting squeezed on both sides.

If you want to take an optimistic view, since the upper-income slice grew more than the lower-income demographic, maybe many former middle-class members are now in that 19 percent of higher earners.  

Defining middle-class: But since we're looking today at the middle-class, just what gets you into that 51 percent segment?

Pew’s analysts define middle-income Americans as those living in households with an annual income that is two-thirds to double the national median household income.

Using the U.S. Census Bureau’s Current Population Survey, Annual Social and Economic Supplement (CPS ASEC) and its American Community Survey (ACS) income report for 2022, middle-income households with three people have incomes ranging from about $61,000 to $183,000 annually.

That income range earns this weekend’s By the Numbers honor.

Lower-income households have incomes less than $61,000, and upper-income households have incomes greater than $183,000.

Of course, notes Pew, the income it takes to be middle income varies by household size, with smaller households requiring less to support the same lifestyle as larger households. It also varies by the local cost of living, with households in a more expensive area, such as Honolulu, needing a higher income than those in a less expensive area, such as Wichita, Kansas.

Finding your middle-or-other-class status: So, if you want to see if you’re among the American middle-class, you need to apply your own data. Lucky for us middle-class curious, Pew Research also has an income calculator that can tell us where we stand.

The online tool uses the latest data, which is from 2022, and lets you find out which group you are in. It also gives you the option to compare your income status with —

• Other adults in your metropolitan area,
• U.S. adults overall, and
• U.S. adults similar to you in education, age, race or ethnicity, and marital status.

For those wanting to wade into the weeds of how it does this, Pew Research Center says the calculator takes your household income, before taxes (thank you!), and adjusts it for the size of your household. The income is revised upward for households that are below average in size and downward for those of above-average size.

The adjustments are a way to make each household’s income equivalent to the income of a three-person household. Why three? Three is the whole number nearest to the average size of a U.S. household, which was 2.5 people in 2023.

And for those who are leery of sharing info online, Pew Research Center says it does not store or share any of the information you enter.

I put the hubby and my numbers into the calculator, and must say I was pretty pleased with where we are. But, being an aspirational American, I am going to put a few more dollars this year into our investments.

You also might find these items of interest:

• Taxes, wealth, and relativity
• Redefining 'wealthy' for tax purposes
• Are you rich? This interactive tool tells you
• Tax the rich efforts increasing, in U.S. and elsewhere

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