Census: Middle class shrinks to an all-time low

The Washington Post
By Carol Morello, Wednesday, September 12, 2012

The middle class lost ground again last year, falling to an all-time low in their share of how much income they take in, new census data released Wednesday showed.

People with incomes between $20,263 and $62,434 collectively earned less than 24 percent of all income in 2011, even though they made up 40 percent of the population. The dip was part of a long, steady decline dating back to at least the 1960s, when the middle class shared 29 percent of all income.

In contrast, the census data shows, the bottom fifth held its own as the poverty level flattened out, while the top fifth increased its share to half of all income. The top 5 percent gained the most income, rising almost 5 percent in a single year.

“This is a huge drop,” said Tim Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin in Madison. “It’s the working class. Their pay rate has gone down, the number of hours that everyone in the house works has gone down, their homes have lost value. These are the people really ravaged by the recession.”

As a snapshot of a nation recovering from one of its worst recessions, the census statistics showed an upper class that has more than regained its losses and a lower class that has found a floor to their fall.

The nation’s official poverty rate in 2011 was 15 percent, lower than many poverty experts were forecasting. The number of people living in poverty last year, 46.2 million, also was virtually unchanged from 2010. Since 2007, the last full year before the recession began, the poverty rate is up by 2.5 percentage points..

Despite an official recovery now entering its fourth year, the census said median household income declined by 1.5 percent, to $50,054.

The health insurance numbers showed the impact of a provision in the Obama Administration’s Affordable Care Act allowing parents parents to keep their children on family policies until they turn 26. The rate of young adults ages 19 to 25 without insurance went down 2 percent, a figure that census officials said was largely due to the new law.

The poverty and income statistics released just two months before the presidential election should feed the ongoing debate over the shrinking middle class, income inequality and a gnawing fear that for many, the American dream is receding out of reach. This week, the Pew Research Center said a third of Americans now identify themselves as lower class or lower middle class, up from a quarter four years ago. Among young adults, the percentage who see themselves as occupying the bottom of the heap is even higher.

The poverty rate is defined as having an income of less than $22,811 for a family of four.

Many of the poor are children — 16.1 million people under 18 lived in poverty in 2011, a decrease from 16.3 million in 2010.

The ranks of the new poor include people who have been jettisoned from the middle class after losing their jobs during the recession. Others are single mothers who have more trouble finding jobs in the weak economy.

Economists expressed surprise that the poverty rate was not worse. Many had predicted it would be higher than it was when President Johnson declared a War on Poverty in 1964.

“It looks as though we’ve sort of hit bottom,” said Peter Edelman of Georgetown University, the author of So Rich, So Poor: Why It’s So Hard to End Poverty in America.

“It’s still very very troubling, it’s a very serious picture. We’ve added 15 million people in poverty since the turn of the century, since Clinton left office, 6 million before the recession and 9 million more since. The fact it isn’t worse is at best the sound of one hand clapping.”

The declining household income statistics may not be as gloomy as they first appear.

Typically, median household income shows a decline for the first year of recovery after a recession. During the recovery from the latest recession, the worst downturn since the Great Depression, income declines have continued longer. The recession officially ended in 2009.

The impact, however, has been softened by government programs and tax breaks, like the 2 percent holiday on Social Security taxes, said Richard Burkhauser, an economist at Cornell University.

“The good news is the stimulus succeeded in cushioning the blow on income for the lowest through the middle classes,” he said. “But it has failed to stimulate the economy. It was successful as a safety net, but unsuccessful in what it was originally set to do, which is get the private sector growing again.”