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Who really is part of the “middle class” these days?
Nov 26, 2013 @ 2:00 pm - 3:00 pm PST
Americans cannot agree on who actually qualifies as “middle class,” and this disconnect has profound implications for the political debate over who should pay what in taxes. Scott Hodge from the Tax Foundation joins Joe to discuss.
The Changing Demographics of American Taxpayers — Americans cannot agree on who actually qualifies as “middle class,” and this disconnect has profound implications for the political debate over who should pay what in taxes. When asked by pollsters what economic class they are part of, most Americans define themselves as middle class, including 98 percent of the top 20 percent of earners. According to a new study by the nonpartisan Tax Foundation, the misunderstanding of the middle class is driven by the dramatic changes in the demographics of the American taxpayer over the last fifty years.
Putting a Face on America’s Tax Returns: A Chart Book illustrates the three factors that have contributed to the confusion over how middle-class Americans are taxed: the increasing number of dual-earner households, the rising age of the average taxpayer, and the growing educational gap.
In 1960, married couples made up 65 percent of all tax filers. Today, they make up only 38 percent of taxpayers. Additionally, 47 percent of all married couples were dual earners in the 1960s, compared to 66 percent in 2010. Today, couples of married, middle-income earners are being forced into higher tax brackets due to their dual-earner status. 75 percent of households making $200,000 or more have two or more earners, while almost 50 percent of households making between $50,000 and $55,000 have just one earner.
“When we think of middle class families, we think of married couples with children such as June and Ward Cleaver from Leave It to Beaver,” says Tax Foundation President Scott Hodge. “But the majority of taxpayers are now single filers, so typical taxpayer today looks more like Phoebe or Joey from Friends. As a result, lawmakers’ efforts to use tax policy to help middle-income taxpayers are now missing their targets.”
The ages of American taxpayers are also shifting. In 1997, 39 percent of taxpayers were over 45, whereas today, nearly half are. Back then, those over the age of 45 earned just over half of all income, compared to 62 percent today. Accordingly, the percent of income taxes paid by those over 45 has jumped from 61 percent in 1997 to 74 percent in 2010. As the Baby Boomer generation continues to move into its peak earning years, it will assume an even larger share of the tax burden.
“Naturally this raises concerns over the ability of this older generation to save for their own retirement while financing the lion’s share of government,” says Tax Foundation President Scott Hodge, “especially as Washington continues to raise taxes on the ‘rich’ to close rising deficits.”
The education level of high- and low-income earners also affects the middle class demographic. Just 10 percent of Americans at the bottom end of the income scale have at bachelor’s degree or higher, compared to more than 75 percent of all high-income households. The income gap is really an education gap, and raising taxes on high-income taxpayers is not a solution to this disparity.
“It is important to understand how and why taxpayer demographics are changing, especially when debates about economic policy often begin with the premise that tax policies should either help, or at least protect, the middle class,” says Hodge. “With shifts in the number of married and single filers and dual-earner households, the rising age of the average taxpayer, and a widening education gap, it is sometimes hard to decide exactly who is in the middle class.”