One of the first major studies of the middle class in America was White Collar: The American Middle Classes, published in 1951 by sociologist C. Wright Mills. Later sociologists such as Dennis Gilbert of Hamilton College
commonly divide the middle class into two sub-groups. Constituting
roughly 15% to 20% of households is the upper or professional middle
class consisting of highly educated, salaried professionals and
managers. Constituting roughly one third of households is the lower middle class consisting mostly of semi-professionals, skilled craftsmen and lower-level management. Middle-class persons commonly have a comfortable standard of living, significant economic security, considerable work autonomy and rely on their expertise to sustain themselves.
Members of the middle class belong to diverse groups which overlap with each other. Overall, middle-class persons, especially upper-middle-class individuals, are characterized by conceptualizing, creating and consulting. Thus, college education is one of the main indicators of middle-class status. Largely attributed to the nature of middle-class occupations, middle class values tend to emphasize independence, adherence to intrinsic standards, valuing innovation and respecting non-conformity. Politically more active than other demographics, college educated middle class professionals are split between the two major parties.
Income varies considerably, from near the national median to well in excess of US$100,000. However, household income figures do not always reflect class status and standard of living as they are largely influenced by the number of income earners and fail to recognize household size. It is therefore possible for a large, dual-earner, lower middle class household to out-earn a small, one-earner, upper middle class household. The middle classes are very influential as they encompass the majority of voters, writers, teachers, journalists and editors. Most societal trends in the U.S. originate within the middle classes.
Members of the middle class belong to diverse groups which overlap with each other. Overall, middle-class persons, especially upper-middle-class individuals, are characterized by conceptualizing, creating and consulting. Thus, college education is one of the main indicators of middle-class status. Largely attributed to the nature of middle-class occupations, middle class values tend to emphasize independence, adherence to intrinsic standards, valuing innovation and respecting non-conformity. Politically more active than other demographics, college educated middle class professionals are split between the two major parties.
Income varies considerably, from near the national median to well in excess of US$100,000. However, household income figures do not always reflect class status and standard of living as they are largely influenced by the number of income earners and fail to recognize household size. It is therefore possible for a large, dual-earner, lower middle class household to out-earn a small, one-earner, upper middle class household. The middle classes are very influential as they encompass the majority of voters, writers, teachers, journalists and editors. Most societal trends in the U.S. originate within the middle classes.
History
Scholars have a variety of technical measures of who is
middle-class. By contrast public opinion has a variety of implicit
measures. The definitions seem to stretch quite a great deal depending
on the political cause that is being invoked or defended, as one
commentator noted:
Well, it depends on whom you ask. Everyone wants to believe they are middle class. For people on the bottom and the top of the wage scale the phrase connotes a certain Regular Joe cachet. But this eagerness to be part of the group has led the definition to be stretched like a bungee cord - used to defend/attack/describe everything from the Earned Income Tax Credit to the estate tax.
Sub-divisions
The middle class by one definition consists of an upper middle class, made up of professionals distinguished by exceptionally high educational attainment as well as high economic security; and a lower middle class,
consisting of semi-professionals. While the groups overlap, differences
between those at the center of both groups are considerable.
The lower middle class has lower educational attainment, considerably less workplace autonomy,
and lower incomes than the upper middle class. With the emergence of a
two-tier labor market, the economic benefits and life chances of upper
middle class professionals have grown considerably compared to those of
the lower middle class.
The lower middle class needs two income earners in order to
sustain a comfortable standard of living, while many upper middle class
households can maintain a similar standard of living with just one
income earner.
Professional/managerial middle class
The "professional class", also called the "upper middle class," consists mostly of highly educated white collar
salaried professionals, whose work is largely self-directed. In 2005,
these household incomes commonly exceed $100,000 per year.
Class members typically hold graduate degrees, with educational
attainment serving as the main distinguishing feature of this class.
These professionals typically conceptualize, create, consult, and
supervise. As a result, upper middle class employees enjoy great
autonomy in the work place and are more satisfied with their careers
than non-professional middle class individuals. In terms of financial
wealth income, the professional middle class fits in the top third, but seldom reach the top 5% of American society.
According to sociologists such as Dennis Gilbert, James Henslin, Joseph
Hickey, and William Thompson, the upper middle class constitutes 15% of
the population.
The upper middle class has grown... and its composition has changed. Increasingly salaried managers and professionals have replaced individual business owners and independent professionals. The key to the success of the upper-middle-class is the growing importance of educational certification... its lifestyles and opinions are becoming increasingly normative for the whole society. It is in fact a porous class, open to people... who earn the right credentials.
— Dennis Gilbert, The American Class Structure, 1998.
Values and mannerisms are difficult to pinpoint for a group
encompassing millions of persons. Naturally, any large group of people
will feature social diversity to some extent. However, some
generalizations can be made using education and income as class defining
criteria. William Thompson and Joseph Hickey noted that upper middle
class individuals have a more direct and confident manner of speech. In her 1989 publication Effects of Social Class and Interactive Setting on Maternal Speech,
Erica Hoff-Ginsberg found that among her surveyed subjects,
"upper-middle class mothers talked more per unit of time and sustained
longer interactions with children". She also found that the speech of
upper middle-class mothers differs "in its functional, discourse, and
lexico-syntactic properties", from those in the working class.
Upper middle-class manners tend to require individuals to engage
in conversational discourse with rather distant associates and to
abstain from sharing excessive personal information. This contradicts
working-class speech patterns, which often include frequent mentions of
one's personal life. Further research also suggests that working-class parents emphasize conformity, traditional gender roles,
and the adherence to external standards in their children, such as
being neat and clean and "[believing] in strict leadership".
This contrasted with professional-class households, where gender roles
were more egalitarian and loosely defined. Upper middle class children
were largely taught to adhere to internal standards, with curiosity, individuality, self-direction, and openness to new ideas being emphasized.
While a recent Gallup survey showed mass affluent
households to be conservative on economic issues while liberal on
social issues, the upper middle class seems to be relatively politically
polarized. In the 2006 mid-term elections both Democrats and
Republicans received over 40% of the vote from those with advanced
degrees and those in households with six figure incomes. While
households with incomes exceeding $100,000 tend to favor Republicans
slightly, they are also the only income demographic where Ralph Nader
won more than 1% of the vote. Among those with graduate degrees, a
smaller group than those with six figure incomes, the majority tends to
vote Democratic with roughly 1% having voted for Nader in 2004.
Lower middle class
The
lower middle class is the second most populous according to both
Gilbert's as well as Thompson & Hickey's models, constituting
roughly one third of the population, the same percentage as the working
class. However, according to James M. Henslin, who also divides the
middle class into two sub-groups, the lower middle class is the most
populous, constituting 34% of the population.
In all three class models the lower middle class is said to consist of
"semi-professionals" and lower level white collar employees. An
adaptation by sociologists Brian K. William, Stacy C. Sawyer, and Carl
M. Wahlstrom of Dennis Gilbert's class model gave the following
description of the lower middle class:
The lower middle class... these are people in technical and lower-level management positions who work for those in the upper middle class as lower managers, craftspeople, and the like. They enjoy a reasonably comfortable standard of living, although it is constantly threatened by taxes and inflation. Generally, they have a Bachelor's and sometimes Master's college degree.
— Brian K. William, Stacy C. Sawyer and Carl M. Wahlstrom, Marriages, Families & Intimate Relationships, 2006 (Adapted from Dennis Gilbert 1997; and Joseph Kahl 1993)
Taking into account the percentages provided in the six-class model
by Gilbert, as well as the model of Thompson and Hickey, one can apply U.S. Census Bureau statistics regarding income.
According to these class models the lower middle class is located
roughly between the 52nd and 84th percentile of society. In terms of
personal income distribution in 2005, that would mean gross annual personal incomes from about $32,500 to $60,000.
As 42% of all households, and the majority of those in the top 40%, had two income earners, household income figures would be significantly higher, ranging from roughly $50,000 to $100,000 in 2005. In terms of educational attainment, 27% of persons had a Bachelor's degree or higher.
Working class majority
Seen from a sociological perspective based on class-cleavages, the majority of Americans can be described as members of the working class.
The use of the term "working class" is applicable if the position
of individuals, households and families in relation to the production
of goods and services is the main determinant of social class. Class
distinctions are seen in the distribution of individuals within society
whose influence and importance differ. The nature of a person's work and
the associated degrees of influence, responsibility, and complexity
determine a person's social class. The higher the degree of influence
and responsibility a person has or the more complex the work, the higher
his or her status in society.
As qualified personnel become scarce for relatively important, responsible, and complex occupations income
increases, following the economic theory of scarcity resulting in
value. According to this approach, occupation becomes more essential in
determining class than income.
Whereas professionals tend to create, conceptualize, consult and
instruct, most Americans do not enjoy a high degree of independence in
their work, as they merely follow set instructions.
Definitions of the working class are confusing. Defined in terms
of income, they may be split into middle-middle or statistical middle
class in order to speak to issues of class structure. Class models such
as Dennis Gilbert or Thompson and Hickey estimate that roughly 53% of
Americans are members of the working or lower classes.
Factors such as nature of work and lack of influence within their
jobs leads some theorists to the conclusion that most Americans are
working class. They have data that shows the majority of workers are not
paid to share their ideas. These workers are closely supervised and do
not enjoy independence in their jobs. Also, they are not paid to think.
For example: The median annual earnings of salaried dentists were
$136,960 in May 2006, indicating a high degree of scarcity for qualified
personnel. The opinions and thoughts of dentists, much like those of
other professionals, are sought after by their organizations and
clients. The dentist creates a diagnosis, consults the patient, and
conceptualizes a treatment. In 2009, Dental assistants
made roughly $14.40 an hour, about $32,000 annually. Unlike dentists,
dental assistants do not have much influence over the treatment of
patients. They carry out routine procedures and follow the dentists' instructions. Here we see that a dental assistant being classified as working class. Similar relationships can be observed in other occupations.
Weberian definition
Some modern theories of political economy
consider a large middle class to be a beneficial and stabilizing
influence on society because it has neither the possibly explosive
revolutionary tendencies of the lower class, nor the absolutist tendencies of an entrenched upper class. Most sociological definitions of middle class follow Max Weber.
Here, the middle class is defined as consisting of professionals or
business owners who share a culture of domesticity and sub-urbanity and a
level of relative security against social crisis in the form of
socially desired skill or wealth. Thus, the theory on the middle class
by Weber can be cited as one that supports the notion of the middle
class being composed of a quasi-elite of professionals and managers, who
are largely immune to economic downturns and trends such as
out-sourcing which affect the statistical middle class.
Income
Many social scientists including economist Michael Zweig and
sociologist Dennis Gilbert contend that middle class persons usually
have above median incomes. As social classes lack clear boundaries and
overlap there are no definite income thresholds as for what is
considered middle class. In 2004, sociologist Leonard Beeghley
identifies a male making $57,000 and a female making $40,000 with a
combined households income of $97,000 as a typical middle-class family.
In 2005, sociologists William Thompson and Joseph Hickey estimate an
income range of roughly $35,000 to $75,000 for the lower middle class
and $100,000 or more for the upper middle class.
| Bottom 10% | Bottom 20% | Bottom 25% | Middle 33% | Middle 20% | Top 25% | Top 20% | Top 5% | Top 1.5% | Top 1% |
|---|---|---|---|---|---|---|---|---|---|
| $0 to $10,500 | $0 to $18,500 | $0 to $22,500 | $30,000 to $62,500 | $35,000 to $55,000 | $77,500 and up | $92,000 and up | $167,000 and up | $250,000 and up | $350,000 and up |
| Source: US Census Bureau, 2006; income statistics for the year 2005 | |||||||||
Education and income
Educational attainment is one of the most prominent determinants of class status. As educational attainment
represents expertise, which is a necessary component of the capitalist
market system, its ownership may be seen as the ownership of one of the
factors of production. In other words, those with advanced degrees already own one of the essential buttresses of the economy: expertise. Additionally educational attainment
is basis for occupational selection. Those with higher educational
attainment tend to be positioned in occupations with greater autonomy,
influence over the organizational process, and better financial compensation.
While economic compensation
is merely the result of scarcity, educational attainment may be related
to that very economic principle as well. The attainment of a graduate degree
represents the acquisition of expertise (a factor of production) that
in itself may be scarce; thus leading to better financial compensation
for the owner. As stated above, the upper middle class features a strong reliance on educational attainment (the ownership of expertise) for much of its social and economic well-being.
The following chart further explains the strong correlation between
educational attainment and personal as well as household income.
Household income controversy
Percentage distribution of 2+ income households among the quintiles
Income is one of a household's attributes most commonly used to determine its class status. Yet, income may not always accurately reflect a household's position within society or the economy.
Unlike personal income, household income does not reflect occupational
achievement as much as it measures the number of income earners.
Sociologist Dennis Gilbert acknowledges that a working-class household
with two income earners may out-earn a single-income upper-middle-class
household, as the number of income earners has evolved into one of the
most important variables in determining household income. For example,
according to the US Department of Labor, two registered nurses could
quite easily command a household income of $126,000 in 2006, while the median income for a lawyer was $94,930.
Furthermore, household income fails to recognize household size.
For example, a single attorney, earning $95,000, may have a higher
standard of living than a family of four with an income of $120,000. Yet
household income is still a commonly used class indicator, as household
members share the same economic fate and class position.
The parade [of income earners with height representing income] suggest that [the] relationship between the distribution of income and the class structure is... blurred in the middle...we saw dual-income working class marchers looking down on single-income upper-middle-class marchers. In sum, the class structures as we have defined it...does not exactly match the distribution of household income.
— Dennis Gilbert, The American Class Structure, 1998
Influence
The influence of the middle class depends on which theory one utilizes. If the middle class is defined as a modern bourgeoisie,
the "middle class" has great influence. If middle class is used in a
manner that includes all persons who are at neither extreme of the social strata,
it might still be influential, as such definition may include the
"professional middle class", which is then commonly referred to as the
"upper middle class". Despite the fact that the professional (upper)
middle class is a privileged minority, it is the perhaps the most
influential class in the United States.
Most ideas that find their way into the cultural mainstream... are crafted by a relative elite: people who are well educated, reasonably well-paid, and who overlap, socially and through family ties, with at least the middling levels of the business community—in short, the professional middle class.
Several reasons can be cited as to why the professional middle class is so influential. One is that journalists, commentators, writers, professors, economists, and political scientists,
who are essential in shaping public opinion, are almost exclusively
members of the professional middle class. Considering the overwhelming
presence of professional middle-class persons in post secondary education, another essential instrument in regards to shaping public opinion,
it should come as no surprise that the lifestyle exclusive to this
quasi-elite has become indicative of the American mainstream itself. In
addition to setting trends, the professional middle class also holds
occupations which include managerial duties, meaning that middle-class
professionals spend much of their work-life directing others and
conceptualizing the workday for the average worker.
Yet another reason is the economic clout generated by this class. In 2005 according to U.S. Census statistics, the top third of society, excluding the top 5%, controlled the largest share of income in the United States.
Although some in the statistical middle class (for example, police
officers and fire fighters in the more affluent suburbs in the San
Francisco Bay Area) may have lifestyles as comfortable as those found
among the ranks of the professional middle class, only few have the same
degree of autonomy and influence over society as those in the
professional middle class. Other white-collar members of the statistical middle class may not only be unable to afford the middle-class lifestyle but also lack the influence found in the professional middle class.
Typical occupations
Office
buildings such as this are often the place of work for the vast
majority of middle-class Americans, whether they are upper-middle-class
professional or lower-middle-class secretaries
Note that according to the many different ways of sub-dividing the
middle class, some of the occupations indicative of the professional
middle class might be categorized as upper-middle or lower-middle.
As mentioned above, typical occupations for members of the middle
class are those identified as being part of "the professions" and often
include managerial duties as well, with all being white collar.
There is great diversity among the occupations found among those living
the middle-class lifestyle, and the appropriateness of some occupations
being placed here will depend on each individual's personal outlook.
The following is a list of occupations one might expect to find among
this class: Accountants, Tenured Professors (Post-secondary educators), Physicians, Engineers, Lawyers, commissioned Military Officers, Architects, Journalists, Mid-level corporate managers, Writers, Economists, Political Scientists, Urban planners, Financial managers, High school teachers, Registered Nurses (RNs), Pharmacists and Analysts, etc...
Autonomy
is often seen as one of the greatest measurements of a person's class
status. Even though some working class employees might also enjoy
largely self-directed work, large degrees of autonomy in the work place,
as well as influence over the organizational process, which are
commonly the results of obtained expertise, these can still be seen as
hallmarks of upper-middle-class or professional-middle-class
professions.
As for the lower middle class, other less prestigious
occupations, many sales positions, entry-level management, secretaries,
etc., would be included.
In addition to professionals whose work is largely self-directed and
includes managerial duties, many other less privileged members of the
statistical middle class would find themselves in semi-independent to
independent white collar
positions. Many of those in the statistical middle class might work in
what are called the professional support fields. These fields include
occupations such as dental hygienists, and other professional and sales
support.
An upscale home in Salinas, California
Consumption
The American middle class, at least those living the lifestyle, has become known around the world for conspicuous consumption.
To this day, the professional middle class in the United States holds
the world record for having the largest homes, most appliances, and most
automobiles.
In 2005, the average new home had a square footage of 2,434 square feet
(roughly 226 square meters) with 58% of these homes having ceilings
with heights in excess of nine feet on the first floor. As new homes
only represent a small portion of the housing stock in the US, with most
suburban homes having been built in the 1970s when the average square footage was 1,600, it is fair to assume that these large new suburban homes will be inhabited by members of the professional middle class.
Overall, many social critics and intellectuals,
most of whom are members of the professional middle class themselves,
have commented on the extravagant consumption habits of the professional
middle class. It is also often pointed out that the suburban lifestyle
of the American professional middle class is a major reason for its
record consumption. The increasing materialism, even among such a highly educated
class, is also often claimed to be connected to the notion of rugged
individualism which gained popularity among the ranks of the
professional middle class in the 1970s and 1980s.
Academic models
| Dennis Gilbert, 2002 | William Thompson & Joseph Hickey, 2005 | Leonard Beeghley, 2004 | |||
|---|---|---|---|---|---|
| Class | Typical characteristics | Class | Typical characteristics | Class | Typical characteristics |
| Capitalist class (1%) | Top-level executives, high-rung politicians, heirs. Ivy League education common. | Upper class (1%) | Top-level executives, celebrities, heirs; income of $500,000+ common. Ivy league education common. | The super-rich (0.9%) | Multi-millionaires whose incomes commonly exceed $350,000; includes celebrities and powerful executives/politicians. Ivy League education common. |
| Upper middle class (15%) | Highly-educated (often with graduate degrees), most commonly salaried, professionals and middle management with large work autonomy. | Upper middle class (15%) | Highly-educated (often with graduate degrees) professionals & managers with household incomes varying from the high 5-figure range to commonly above $100,000. | The rich (5%) | Households with net worth of $1 million or more; largely in the form of home equity. Generally have college degrees. |
| Middle class (plurality/ majority?; ca. 46%) |
College-educated workers with considerably higher-than-average incomes and compensation; a man making $57,000 and a woman making $40,000 may be typical. | ||||
| Lower middle class (30%) | Semi-professionals and craftsmen with a roughly average standard of living. Most have some college education and are white-collar. | Lower middle class (32%) | Semi-professionals and craftsmen with some work autonomy; household incomes commonly range from $35,000 to $75,000. Typically, some college education. | ||
| Working class (30%) | Clerical and most blue-collar workers whose work is highly routinized. Standard of living varies depending on number of income earners, but is commonly just adequate. High school education. | ||||
| Working class (32%) | Clerical, pink- and blue-collar workers with often low job security; common household incomes range from $16,000 to $30,000. High school education. | Working class (ca. 40–45%) |
Blue-collar workers and those whose jobs are highly routinized with low economic security; a man making $40,000 and a woman making $26,000 may be typical. High school education. | ||
| Working poor (13%) | Service, low-rung clerical and some blue-collar workers. High economic insecurity and risk of poverty. Some high school education. | ||||
| Lower class (ca. 14–20%) | Those who occupy poorly-paid positions or rely on government transfers. Some high school education. | ||||
| Underclass (12%) | Those with limited or no participation in the labor force. Reliant on government transfers. Some high school education. | The poor (ca. 12%) | Those living below the poverty line with limited to no participation in the labor force; a household income of $18,000 may be typical. Some high school education. | ||
| |||||
Middle-class squeeze
Struggle for reemployment: downsizing and outsourcing
When
middle-class workers lose their jobs, they tend to be rehired but for a
lower rate of pay. More often than not, people seek out temporary
employment to make ends meet. About 4 percent of workforce, 11.4 million
workers, a year are temporary workers. Journalist Barbara Ehrenreich, found that people went from solid middle-class jobs to minimum-wage employment.
According to
Christopher B. Doob, outsourcing is companies' subcontracting of
services to other companies instead of continuing to provide those
services themselves. This takes away from jobs offered in the United
States and makes it more difficult to maintain and get jobs. Outsourcing
raises the unemployment rate, and while outsourcing has been steadily
increasing since the 1990s, data on the subject is limited by the power
elite. Companies like Apple and Nike outsource jobs overseas so they can have cheaper labor to make their products and keep from raising prices in the States.
The deliberate reduction of permanent employees in an effort to
provide an organization more efficient operations and to cut costs.
Large firms like IBM, AT&T, and GM are reducing their heavily middle
class workforce by 10 to 20 percent because of the advancement of
technology and the closing of work facilities. Downsizing has grown
significantly in the States due to the rising debt has forced companies
to downsize so they can remain open. According to Doob, between 2005 and
2007, 3.6 million workers with three or more years on the job lost
their positions because of company closings, moves, insufficient work,
or the elimination of their positions.
Increased inequality
Changes
as to inequality and poverty have not always been in the same
direction. Poverty rates increased early in the 1980s until late in the
1990s when they started to go back down. Since 2000, the percent of all
people living in poverty has risen from 11.3% to 15.1% in 2010.This
statistical measure of the poverty rate takes into account only a
household's current year's income, while ignoring the actual net worth
of the household.
Up to 2008
Inflation
adjusted percentage increase in after-tax household income for the top
1% and four of the five quintiles, between 1979 and 2005 (gains by top
1% are reflected by bottom bar; bottom quintile by top bar)
Income data indicate that the middle class, including the upper
middle class, have seen far slower income growth than the top 1% since
1980. While its income increased as fast as that of the rich in the years following World War II, it has since experienced far slower income gains than the top. According to economist Janet Yellen "the growth [in real income] was heavily concentrated at the very tip of the top, that is, the top 1 percent".
Between 1979 and 2005, the mean after-tax income of the top 1%
increased by an inflation adjusted 176% versus 69% for the top 20%
overall. The fourth quintile saw its mean net income increase by 29%,
the middle income quintile by 21%, the second quintile by 17% and the
bottom quintile by 6%, respectively.
The share of gross annual household income of the top 1% has increased to 19.4%, the largest share since the late 1920s. As the U.S. is home to a progressive tax
structure the share of net-income received by the top 1% is smaller,
and the share of the middle class consequently larger, than their shares
of gross pre-tax income. In 2004, the top percentile's share of net
income was 14%, 27.8% less than its share of gross income, but
nonetheless nearly twice as large as in 1979, when it was clocked at
7.5%.
The reduced size of the share of aggregate share of income, both
before and after tax, of the middle class has been attributed to the
reduced bargaining power of wage earning employees, caused by the
decline of unions; a lessening of government redistribution;
and technological changes which have created opportunities for certain
people to accumulate far greater relative wealth very quickly (including
larger markets due to globalization and Information Age technologies allowing faster and wider distribution of work product).
In 2006 households that earn between $25,000 and $75,000
represent approximately the middle half of the income distribution
tables provided by the U.S. Census Bureau.
Over the past two decades, the number of households in those brackets
decreased by 3.9%, from 48.2% to 44.3%. During the same time period, the
number of households with incomes below $25,000 decreased 3.5%, from
28.7% to 25.2%, while the number of households with incomes above
$75,000 increased over 7%, from 23.2% to 30.4%. A possible explanation for the increase in the higher earnings categories is that more households now have two wage earners. However, a closer analysis reveals all of the 7% increase can be found in households who earn over $100,000.
A study by Brookings Institution
in June 2006 revealed that Middle-income neighborhoods as a proportion
of all metropolitan neighborhoods declined from 58 percent in 1970 to 41
percent in 2000. As housing costs increase, the middle class is
squeezed and forced to live in less desirable areas making upward
mobility more difficult. Safety, school systems, and even jobs are all
linked to neighborhood types.
The statistics used to track the share of income going to the top
1% have been criticized by Alan Reynolds. He points out that the Tax
Reform Act of 1986 changed the way that income is defined on tax
returns, which is the primary source of data utilized to compile income
shares.
Among these changes includes the fact that beginning in the 1980s, many
C-Corporations switched to S-Corporations, which changed the way that
their income is reported on income tax returns. S-Corporations report
all income on the individual income tax returns of the owners, while
C-Corporations file a separate tax return and corporate profits are not
allocated to any individuals. Prior to 1986, approximately one fourth of
all American corporations were S-Corporations, but by 1997 this share
had risen to more than half. In addition, by 2001 S-Corporations were
responsible for about 25% of before-tax profits.
This shift to S-Corporations means that income previously not
included on personal income tax returns appeared there during this
change, as S-Corporation investors directly pay taxes on corporate
profit regardless of whether it is distributed or not. Furthermore,
Reynolds points out in the same literature that tax-deferred savings
accounts grew substantially from the 1980s onward, so that investment
income to these accounts was not included as personal income in the
years which it accrued. The CBO noted that at the end of 2002, $10.1
trillion was in tax-deferred retirement plans, and that $9 trillion of
that was taxable upon withdrawal.
These numbers amount to potentially large amounts of investment income
to middle-class families that are no longer reported on tax returns each
year, but were reported prior to the widespread growth of tax-deferred
retirement plans.
Panel data that track the same individuals over time are much
more informative than statistical categories that do not correspond to
specific people. The Treasury did a study in 2007 that tracked the same
individual taxpayers over the age of 25 from 1996 to 2005 and found
differing results from what the graph above shows.
The results showed that during those years, half of taxpayers moved to a
different income quintile, with half of those in the bottom quintile
moving to a higher one. About 60% of taxpayers in the top 1% in 1996 no
longer stayed in that category by 2005.
On an absolute scale, the lowest incomes saw the greatest gains
in percentage terms and the highest incomes actually declined. Half of
those in the bottom 20% in 1996 saw their income at least double during
these years, and the median income of the top 1996 top 1% declined by
25.8%. The reason that the results are so inconsistent with household
income statistics is that household statistics do not track the same
people over time; it is important to specify how many of the households
in the top 1% in a given year were still there when looking at that
category years later and gauging income gains.
2008 and after
After the financial crisis of 2007–08, inequality between social classes has further increased. As William Lazonick puts it:
- Five years after the official end of the Great Recession, corporate profits are high, and the stock markets are booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients – which include most of the highest-ranking corporate executives – reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid.
