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Wednesday

30

August 2006

Middle Class Shrinks

Written by , Posted in Economics & the Economy

The class-warfare artists have been out in force as of late. The usual cries of “rich getting richer while the poor get poorer” can be heard, often followed by moaning about “handouts and tax cuts for the rich”. They usually cap off this nonsense shake with a topping of “the middle class is shrinking”. As Cato-at-Liberty reports, it turns out they are right on that last point, though not in the manner they think.

If we define the middle class as households earning between $35,000 and $75,000 a year, the middle class in America remains a huge demographic group. According to the Census report, Table A-1, the middle class made up 33.3 percent of U.S. households in 2005. That share is indeed somewhat smaller than in 1980, when 38.2 percent of households earned between $35,000 and $75,000 a year in real (inflation-adjusted) 2005 dollars.

Aha, so the middle class really is shrinking if not exactly disappearing, the alarmists might respond. But the Census numbers also show that over the past 25 years, the share of U.S. households earning less than $35,000 a year has also shrunk, from 44.5 percent in 1980 to 38.4 percent in 2005. Meanwhile, the share of households earning more than $75,000 a year has jumped from 17.4 percent to 28.3 percent.

In other words, if the middle class in America has shrunk, it is only because so many formerly middle-class households have moved to the upper-income brackets, while a significant number of households previously in the lower brackets have moved up to the middle class and beyond.

Chalk up another victory for capitalism.