American middle class today resembles past’s poor?

Ex-president Jimmy Carter said that income gap in the US has increased to the point where members of the middle class resemble the Americans who lived in poverty when he occupied the White House.  But… Read few comment.

Gary BurtlessSenior Fellow, Economic Studies, The Brookings Institution

1) I respect Pres. Carter, but I believe his statement about inequality is misleading. In terms of real income and real living standards, the U.S. middle class has seen a real improvement since Mr. Carter left office — perhaps an increase of 15% – 25% depending on the price index and income or consumption measure you prefer to use. Of course, when Mr. Carter was President the middle class had higher incomes and living standards than those enjoyed by the poor. Perhaps Mr. Carter meant to say that the income gap between America’s very rich and the middle class is nowadays just as wide as the income gap between the very rich and the very poor back in 1977-1980, when he was President. This may or may not be true, but at least it does not have the implication that middle class Americans today have living standards that are comparable to those of poor Americans back in the late 1970s — a statement that is flatly wrong.

2) Inequality is a serious issue in the U.S., and it has increased by a noticeable amount since the last 1970s. Almost certainly, however, inequality has increased less in the bottom 95% of the income distribution than most statistics imply. The reason is that most statistics make two important omissions: First, they ignore the impact of income tax and payroll tax changes on the after-tax incomes of the bottom 95% of households. The tax system has become noticeably less burdensome on America’s poor. Second, most all statistics you see ignore the effects of the nation’s health insurance system. Health care has become much more expensive, and a smaller percentage of health care consumption is paid out of household’s own incomes. (More is financed by the government and by employer contributions to worker health plans.) As it happens, health care spending is much more equal up and down the income distribution than is any other kind of consumption: Poor Americans consume slightly more health care per person than do middle income and high income Americans, and poor Americans pay for a much smaller percentage of the health care they consume. Thus, the growing expense of health care and the increasing importance of government health insurance in paying for that care has increased the consumption and incomes of the poor by much larger percentage amounts than is reflected in most of the published statistics, which only show the distribution of money income (excluding insurance benefits).

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One Response

  1. Yes, Jimmy Carter’s malaise finally caught up with America.

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