Middle class better off than previously thought

May 02, 2012 By Syl Kacapyr

Long portrayed as stagnant, the income growth of the U.S. middle class may be more than 10 times greater than previously suggested by some economists, according to a new study at Cornell.

"When we use traditional methods to measure the income of the median American [the person whose income places him/her midway in the distribution of Americans lined up from lowest to highest by reported income] we find that it rose by as much as 37 percent between 1979 and 2007," says Richard Burkhauser, Cornell's Sarah Gibson Blanding Professor of Policy Analysis. His study is published in the March issue of National Tax Journal.

But when Burkhauser and his colleagues use the methodology developed by such economists as Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California-Berkeley, they find that the income of an American living in the median tax unit (the person whose 1090 form, if sent to Uncle Sam each April 15, places him or her midway in the distribution of incomes reported on those forms) increased by only 3.2 percent between 1979 and 2007 -- a seeming contradiction.

Since much of the political debate about inequality, income stagnation and economic stratification -- the 1 percent versus the 99 percent -- depends on numbers developed using Piketty- and Saez-type measures, the dramatic difference in how these alternative ways to describe what is happening to the middle American is quite disturbing, Burkhauser says. Which number is right? Both, he says, depending on what the question is.

Burkhauser says that Piketty, Saez and their colleagues use Internal Revenue Service data to measure the before-tax market income (such as labor earnings, rents, interest and dividends) of tax units to reach their income-growth conclusions; whereas he and his colleagues analyzed both this measure and alternatives using the U.S. Census Bureau's Current Population Survey.

Burkhauser's analysis shows how much the growth in median income changes when federal taxes are taken into consideration. Taxes redistribute market income from higher to lower income households. For instance, the tax reforms of the 1980s and the broadening of the Earned Income Tax Credit in the 1990s resulted in a growing share of lower-income people not paying any federal income tax and some even get returns above what they paid in taxes. Incomes below the top 1 percent have also been disproportionally boosted by the growth in government benefits such as Social Security and Unemployment Insurance. He and his fellow researchers also adjusted for household size and the value of health insurance -- factors, Burkhauser says, that more accurately reflect financial resources available to all Americans.

"When we broaden our measure to include government taxes and transfers and look at households adjusted for size, the gains of middle-class Americans are 10 times larger than previously thought," Burkhauser says. "The gains are even more when we include the value of in-kind income such as employer- and government-provided health insurance."

The study shows how estimates of how the average American has fared over the last 30 years varies depending on what researchers decide to include when measuring income. Such insight can have implications for public-policy choices targeted at specific classes, says Burkhauser.

Burkhauser's co-authors are Jeff Larrimore of the Joint Committee of Taxation and Kosali Simon, professor of public and environmental affairs at Indiana University.

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User comments : 8

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Lurker2358
3.4 / 5 (5) May 02, 2012
we find that it rose by as much as 37 percent between 1979 and 2007


Yeah, you forgot to mention the price of housing has nearly tripled, and the price of gasoline has more than quintupled, and the price of automobiles has tripled. The price of food has more than doubled for groceries, and nearly tripled for fast food. The price of Gold has quintupled in the past 15 years alone (jewelry or engagement ring for the Fiance or Wife;) making Gold one of the best long term investments in the past 15 years.

I could list so many other things.

Wages around here haven't increased in 15 years, except minimum wage that is. Everything else has actually gone down in dollar amount, even as the dollar value went down.

You people should get real.
Squirrel
5 / 5 (1) May 02, 2012
The problem of including health insurance is that these costs in between 1979 and 2007 have risen so high. Thus if these costs are added to income they artificially inflate apparent income--people are no better off except that in 1979 the money they would have had to pay for health (and they did not have to pay out) were lower than those for health in 2007.
Vendicar_Decarian
4 / 5 (4) May 02, 2012
Richard Burkhauser

WHat his students have to say about him.

"Very opinionated, stubborn, and hypocritical. If you're a Libertarian who enjoys being told what to think, you'll love him. Almost every paper you read is his, and you'll be denied all opportunities to hear the other side."

"His lectures are generally incoherent, and tinted with libertarianism."

And another comment about the good professor's research funding....

"Took me about five seconds of link following to trace the money back to another right wing/libertarian think tank (The Liberty Fund in this instance)."
ormondotvos
1 / 5 (1) May 02, 2012
we find that it rose by as much as 37 percent between 1979 and 2007


Yeah, you forgot to mention the price of housing has nearly tripled, and the price of gasoline has more than quintupled, and the price of automobiles has tripled. The price of food has more than doubled for groceries, and nearly tripled for fast food. The price of Gold has quintupled in the past 15 years alone (jewelry or engagement ring for the Fiance or Wife;) making Gold one of the best long term investments in the past 15 years.

I could list so many other things.

Wages around here haven't increased in 15 years, except minimum wage that is. Everything else has actually gone down in dollar amount, even as the dollar value went down.

You people should get real.


The price of housing rose because so many speculated in housing, trying to get rich without working, just like the gold bugs. Cars are much better, and even bottom line cars like the Yaris are excellent buys. Fast food is overpriced junk.
bhiestand
not rated yet May 05, 2012
The price of housing rose because so many speculated in housing, trying to get rich without working, just like the gold bugs. Cars are much better, and even bottom line cars like the Yaris are excellent buys. Fast food is overpriced junk.

How does that refute the argument that the middle class is no better off because key expenses have outpaced income? Regardless of the causes, it's still harder for the median earner to afford to buy a house in most markets. Medical bankruptcy is still a very real concern, even for those with very expensive health insurance. Student loan debt is still out of control and will take much longer to pay off. Cars are better, but public transit is horrid and not suitable for many workers.

In short, after the basic needs are met (housing, transportation, food, medical), does the average American working the same number of hours have more expendable income? No.
kochevnik
5 / 5 (1) May 05, 2012
Middle class is doing so well Americans renounced their citizenship in record numbers in 2011 LOL
ryggesogn2
1 / 5 (2) May 05, 2012
And so the Obama campaign's media push begins trying to convince voters they don't have it so bad.
Vendicar_Decarian
5 / 5 (1) May 05, 2012
How sad that RyggTard's Libertarian ideology is behind the off-shoring of the American manufacturing sector.

"And so the Obama campaign's media push begins trying to convince voters they don't have it so bad." - RyggTard