Angry US middle classes feel the squeeze

By Prof Mechele Dickerson
University of Texas at Austin

image copyrightAP
image captionA college education is seen as a prerequisite to joining the middle class

Vociferous protests against a proposal to tax earnings on withdrawals from a popular college savings plan prompted a rapid U-turn by US President Barack Obama's administration.

It was a potent demonstration of the power of the middle class lobby in the US,

But who are the American middle classes, and why do they feel like they are getting a raw deal?

Who is middle class in the US?

In the US, the "middle class" is an oft-used but poorly understood category that increasingly seems to be defined by who is not included, rather than who should be.

The only people who clearly don't belong in the middle class are the very poor and the very rich.

The US has never had a rigid class system.

As a result, when people think of "class", they essentially divide people into three groups:

  • the poor (lower-class)
  • the very rich (upper-class)
  • everybody else (middle class)

Given these groupings, when people refer to the "middle class" they include both the "near poor" and the "barely rich."

The US Census Bureau sorts citizens by income quintile, not class.

The 2013 data shows that households with earnings that exceed $105,911 (approximately £70,000) fall in the highest income quintile.

Middle-income households (the third quintile) earn between $40,188 and $65,501, and the median income for US households is $53,000.

Despite the sizeable gap between earnings for top- and middle-income US households, many people who earn over $100,000 feel they are middle-class, not upper-class.

And, compared with the top 1% of US households, who by some estimates earn more than $663,000, the "barely rich" really aren't upper-class.

How are they coping financially, and socially?

Members of the middle class (as broadly defined) are struggling financially.

Despite an improving economy, job creation, and overall positive economic news, they remain worried about their financial future and their children's future.

Recent polls confirm how financially fragile most Americans feel.

image copyrightThinkstock
image captionWhite picket fence: The symbol of the US middle-class home

Almost two-thirds of those surveyed are still feeling the impact of the recession, most people who earn less than $75,000 feel like they are falling behind, and almost 50% of those polled feel the US is still in a recession.

Only 64% (the lowest in two decades) still believe in the American Dream that hard work will result in financial riches.

The middle class has reason to worry.

Income for all workers except the highest earners has been stagnant for about 30 years, and average family income (adjusted for inflation) has not changed much since 1995.

A Federal Reserve survey reports that most US families didn't have a wage increase between 2010 and 2013, while income and wealth for the top 3% of US families rose to historically high levels during that period.

In addition to worrying about themselves, middle-class parents worry that their children will not have a middle-class lifestyle.

While the highest earners (the top 1-3%) do not fret about how they will pay for their children's college education, middle-class parents do.

They are not confident they will be able to pay for their children's college education, and they do not want their children to be saddled with thousands of dollars of debt to secure their financial future.

How can they meet their aspirations?

A college degree has now become a prerequisite to joining the middle class, and even parents who earn as much as $150,000 struggle to pay for their children to attend college because tuition has been surging in the US for years, rising faster than incomes and financial aid.

image copyrightThinkstock
image captionTop colleges such as Harvard charge high fees

A college degree has become a necessity because college-educated workers in the US now earn about twice as much as high-school graduates.

Projections are that by the end of this decade two-thirds of new job openings will require at least some college education, and virtually all jobs will require some type of training after high school.

Middle-class Americans will not have confidence in their or their children's future until median income increases.

And, they will continue to be financially (and socially) stressed as long as income and wealth inequality in the US continues to grow.

The wealth and income gaps are staggering, and a recent study reports that wealth inequality is now at a record high level.

How do they feel about the way they are represented by politicians?

The middle class often feels neglected in political discussions, probably because we lack a workable definition for the category and Americans from different income groups all claim membership in the middle class.

With such an unwieldy definition of the middle class, it is has become increasingly hard for politicians to find politically palatable ways to target its true members.

If politicians propose benefits for the "near poor" (who are struggling just to make ends meet) they predictably anger the "barely rich" (who worry that they are losing economic ground to the enormous income and wealth held by the top 1%).

Is there a backlash?

The middle class is angry, and a recent proposal by the Obama administration involving college savings shows the depth of that anger.

The Obama administration's proposal was touted as relief for the middle class and would have ended a tax break for a popular college savings plan (commonly known as 529 college accounts) that disproportionately benefits upper-income families.

Savings from eliminating the tax breaks would have been diverted into tax credits for lower- and middle-income taxpayers.

The Obama administration had to abandon this proposal, barely days after it was floated, and appears to have been blindsided by the vociferous opposition from parents who had 529 college savings accounts.

Upper-income parents opposed the proposal because it taxed them to provide relief for lower- and middle-income families.

What are politicians trying to do to address the concerns?

Republican and Democratic politicians profess that their policies will best provide relief to the middle class.

Despite these professions, they do not agree on the best way to address the concerns of the middle class, probably because it's not clear who is in that category and also because neither political party seems willing to anger upper-income Americans by proposing policies that appear to ignore their economic concerns.

Prof Mechele Dickerson, a law professor at University of Texas at Austin, has written on this subject for The Conversation.

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