Wealth, Poverty & The Middle Class

DavidGrace
Jul 11, 2016 · 8 min read

I recently posted an article (The Fundamental Change That Is Wrecking The Old Rules About Work & Poverty) on the topic of the increasing gap between the number of unskilled workers who need jobs and the number of living-wage unskilled jobs available.

My position was that we need to increase the number of living-wage unskilled jobs in order to rebuild the middle class.

After I wrote it I asked myself, “Today, what actually is the middle class?”

But First, About Me

Before anyone thinks that this article is designed to advocate any particular liberal or conservative political philosophy, let me say right up front: I don’t consider myself a “liberal” or a “conservative.”

I don’t believe that the poor are inherently noble or that the rich are inherently mean. I don’t think it’s morally wrong (or morally right) for people to be very wealthy.

Some people think spreading the wealth is fair. I don’t care. Some think that taxing the rich is unfair. I don’t care.

I don’t believe that a society should be governed by any rules that are based on somebody’s idea of what’s “fair.”

I think that a society should be governed by rules that result in a prosperous, low-crime, reasonably free, inventive and creative society for as many people as possible, and I don’t care if anarchists, libertarians, socialists or communists think that any of those rules are either fair or unfair.

So, if you’ve got me in a “bleeding heart liberal” or a “greedy capitalist” box, you’ve made a mistake.

Back To The Point Of The Article — Wealth & Poverty In The U.S.

When I finished writing about the loss of unskilled, living-wage jobs I started wondering about the actual numbers of households in the lower, middle and upper classes, so I did a little research.

I Wrongly Assumed That A Chart Of Income Distribution In The U.S. Would Be A Normal Curve

Given the application of the “normal curve” to many aspects of life I assumed that a chart of income distribution showing the number of households on the vertical axis and annual income on the horizontal axis would follow some kind of a rough normal curve distribution, though I assumed that it would be warped or squished in various ways.

I thought it would look like some variation of the following idealized normal-curve chart.

But a chart of U.S. income distribution isn’t like this at all.

The Actual U.S. Income Distribution Is Not A Normal Curve

The actual chart of income distribution in the United States is not a curve at all.

It is a “cup.”

The below chart of U.S. income distribution shows large numbers of very poor people on one end and large numbers of rich people on the other end and relatively few people in the middle.

The following chart of households vs. mean or average income distribution is based on U.S. Census data:

Explanation Of Terms

Some basic information — “Household Income” is the income of every resident in the home over the age of 15 and includes wages, salaries, unemployment insurance, disability payments, child support payments, regular rental receipts, as well as any personal business, investment, or other kinds of income received routinely.

The census data shows income ranges, e.g. $10K-$15K, the number of households whose income is within that range, e.g. 6,766,000, and the mean or average income of those households, e.g. $12.317 for the $10K to $15K bracket.

“Median income” is not the same as the “mean income” which is the average income earned by the households in that bracket. The data table I found shows mean or average average income in each bracket.

The Bottom 23.5% Of the Population’s Income

The number of households whose total gross annual income is from zero to $10,000 gross per year is 8,891,000 which represents approximately 7% of the country’s total of 124,587,000 households.

The number of households whose total gross annual income is from zero to $20,000/year is 22,436,000 which represents approximately 18% of all households.

The number of households whose total annual gross income is from zero to $25,000/year is 29,301,000 which represents approximately 23.5% of the total households in the United States.

Let’s think about that last one for a moment.

Almost 25% of all U.S. households — not just an individual’s gross income but BOTH a husband’s and a wife’s total gross income — is a gross (not net) of $25,000 per year OR LESS.

How would you and your wife and your children survive on a gross income of $25,000 (or less) per year? Almost one-fourth of all American families do.

What does that say about the health of the country?

What does that say about buying power, the ability to save, the ability to afford health care, the ability to buy a home, the ability to support your children while they are being trained for a decent job?

It says, in the words of Tony Soprano, “Forget about it!

The Top 5.6% Of The Population’s Income

The number of households with a gross income of $200,000 and above is 7,006,000 or about 5.6% of the population.

The number of households with a gross income of over $250,000/year is 3,757,000 or about 3% of the population.

The median income in the over $250,000/year bracket is about $402,500.

Income In The Middle

The median annual gross household income in the United States is about $55,000/year which means that half the households in the U.S. earn more than $55K/year gross and that half earn less than about $55K/year gross.

Theoretically, this is the heart of the middle class. A gross family income for a husband, wife and two children of about $55K/year.

Is that what you think of as being the middle of the middle class?

Income Versus The Percentage Of Population

Below is a graph that shows annual gross household income on the vertical axis and the percentage of the population earning that income on the horizontal axis.

If there were a relatively even distribution of income in the United States this chart would be a 45% angle straight line. But, it’s not.

The majority of the population has a relatively small income and smaller and smaller percentages of the population have increasingly larger incomes. The horizontal width of each of the red line plateaus is proportional to the percentage of the population in that income bracket.

For example the $12K median annual income red line represents the $10K-$15K bracket which is about 5 1/2% of all households.

The $102,500 median annual income red line represents the $100,000 to $105,000 bracket which is about 2.15% of all households.

Wealth Of The Top Half Versus The Bottom Half
Where The Money Is

Proportionally, the top 50% of the population earns almost four times (377%) more than the bottom half earns.

The household income for the top 20% approximately equals the total household income for the entire bottom 80%.

Supply Side (Tickle Down) Economics Was A Fraud

In the 1980’s President Reagan’s advisors advocated a “supply side” economic policy which claimed that tax cuts both increased tax revenues and made the country more prosperous. During his first term George Bush 43 signed additional massive tax cuts that especially benefited high-income households under the claim that they would make the country as a whole more prosperous.

Income Growth By Economic Class

Below is a chart showing annual income adjusted for inflation for the 0 to 20% bracket of households, 20% to 40%, 40% to 60%, 60% to 80%, 80% to 100% and the top 5% of households for the years 1967–2014.

Between 1980 and 2014 the income of the top 5% essentially doubled from about $180K to about $360K.

Between 1980 and 2014 the income of the top 20% increased from about $130K to about $195K, about a 150% increase.

Between 1980 and 2014 the income for the top 40% to the top 20% increased from about $70K to about $85K, about a 20% increase.

From 1980 to 2014 the annual income of the bottom 50% of the population did not increase at all

Note that through the period of all these tax cuts (1980–2014), the migration of U.S. manufacturing jobs overseas, and the ability of corporations to park hundreds of billions of dollars tax free in foreign countries, the income of the bottom 50% of the population increased not at all while the income of the top 5% doubled.

So much for the claim that tax cuts on the rich benefit anyone but the rich.

The Scorecard

So, where are we?

We are living in a society where:

  • The top 20% makes as much as the entire bottom 80%
  • The top 5.6% makes almost 57 times more than the bottom 7.1%
  • Approximately 13% of all American households live below the poverty line. (The poverty line for a two-person household is approximately $16,000/year gross household income.)
  • In 2015 approximately 13.4% of all households, approximately 45,800,000 Americans, were receiving food stamps.
  • Almost one-fourth (23.5%) of all U.S. households have a total family gross income of less than $25,000 per year.

Myths Revealed

Tax cuts for high-income earners and tax loopholes for corporations are not an answer to any question other than: “How can we make rich people much richer?”

The claim that increased corporate profits generated from shifting living-wage jobs off-shore would benefit the bulk of the American population is false.

Questions Raised

Some questions we need to ask ourselves are:

  • Are we living in a healthy society?
  • Is this a society whose economic structure is conducive to crime, drugs and violence?
  • Is this the kind of society I want my children to inherit?

And

  • How do we increase the income of the bottom half of the population?

My answers to the first three questions are: No, Yes, No.

My answer to the last question is contained in this post: The Fundamental Change That Is Wrecking The Old Rules About Work & Poverty

–David Grace

www.DavidGraceAuthor.com

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DavidGrace

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Graduate of Stanford University & U.C. Berkeley Law School. Author of 17 novels and over 200 Medium columns on Economics, Politics, Law, Humor & Satire.

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