The rich and powerful have coined a name for them. They're called the Precariat
. These are blue and white collar workers who work full time for meagre wages that leave them in a state of constant precarious economic vulnerability. They're dependent on their next paycheque. It's all that keeps them from plunging, along with their family, into poverty. Noam Chomsky wrote about this growing class and their plight in Huffington Post.
The venerable, Brookings Institution
, no hotbed of pinko radicalism, has just published an essay entitled, "A Dozen Facts About America's Struggling Lower-Middle-Class.
1. More than half of families in the United States earn $60,000 or less per year.More than half of America’s working-age families with children under age eighteen (approximately 20.1 million families) have annual incomes of $60,000 or below. This is true whether we consider only earned wages and salary, or if we use a broader definition of pretax, pretransfer income, which also includes some unearned sources of income, such as investment income and alimony payments. Figure 1 shows the distributions for working-age families by (1) earned income, and (2) pretax, pretransfer income. (Neither of these measures includes taxes or transfer payments.).
The blue and green dotted lines in figure 1, corresponding to the right axis, show the cumulative share of families with income under various thresholds. Around 40 percent of families earn $40,000 or less each year, 54 percent of families earn $60,000 or less (demonstrated by the black dotted line), and 76 percent of working-age families earn $100,000 or less. For working-age families with children, earning over $100,000 is the exception, not the rule.
The vertical bars in figure 1, corresponding to the left axis, show the percent of families that fall within various income ranges. About 15 percent of working-age families (or approximately 5.6 million families) earn between $1 and $20,000 a year, while 19 percent of families (approximately 7.1 million families) earn between $20,001 and $40,000. On the opposite end of the distribution, fewer than 3 percent of families earn $260,001 or more.
2. Nearly half of families in the United States live below 250 percent of the federal poverty level. Nearly one in five American working-age families with children lives in poverty, officially defined as being below 100 percent of the federal poverty level (FPL). Approximately 30 percent of families have incomes that place them between 100 and 250 percent of the FPL. Federal poverty thresholds vary by family size and composition, meaning that families with the same income, but with different household compositions, can be in different positions relative to the FPL.
The U.S. Census Bureau defined the FPL in 2012 for a family made up of one adult and one child to be $15,825 (250 percent of the FPL for this family was therefore $39,563); for a family with two adults and one child, the FPL was $18,480 (250 percent of the FPL was $46,200); for a family with two adults and two children, the FPL was $23,283 (250 percent of the FPL was $58,208); and for a family with two adults and three children, the FPL was $28,087 (250 percent of the FPL was $70,218) (U.S. Census Bureau 2012).
These families’ proximity to the poverty line means that any unanticipated downturns in income could push them into poverty. For this reason, we could reasonably consider these families to be the struggling lower-middle class. Figure 2 illustrates the income distribution relative to the FPL for working-age families with children under age eighteen. Together, these statistics (represented by the dotted black line) reveal that nearly half of American families live either in poverty or in the struggling lower-middle class.
3. Struggling lower-middle-class families are almost equally headed by single parents and married couples.As illustrated in figure 3, household composition of families in the struggling lower-middle class varies substantially from the household composition of families in poverty. Of families with income below the federal poverty level (FPL) (approximately 7.1 million families), 70 percent are headed by a single parent (61 percent are single female parents), 24 percent are headed by a married couple with one or two earners, and 6 percent are headed by a married couple with no earners.
The composition of the struggling lower-middle class—defined here as working-age families with children under age eighteen whose income places them between 100 and 250 percent of the FPL—is markedly different from families in poverty in terms of marriage and presence of earners. Of families in the struggling lower-middle class (approximately 11.4 million families), 44 percent are headed by a single parent (34 percent are single female parents), 27 percent are headed by a single-earner married couple, another 27 percent are headed by a dual-earner married couple, and 2 percent are headed by a married couple with no earners.
4. Nearly one out of two families in the struggling lower-middle class is headed by an adult who has attended college.College attainment differs markedly by poverty status. As illustrated in figure 4, 33 percent of household family heads below 100 percent of the federal poverty level (FPL) attended at least some college, although just 6 percent of those family heads have a bachelor’s degree or higher. Among household family heads with income between 100 and 250 percent of the FPL, 48 percent have attended some college, and14 percent have a bachelor’s degree or higher.
In stark contrast to those living at or below 250 percent of the FPL, 77 percent of household family heads above 250 percent of the FPL attended at least some college, and about half have a bachelor’s degree or higher. Only a very small share of this group (4 percent) did not earn a high school diploma.
5. Nearly one-third of struggling lower-middle-class families rely on income support from a government program.6. Roughly 40 percent of children in the struggling lower-middle class experience food insecurity or obesity, or both.Children from low-income households have high rates of food insecurity or obesity, or both. The U.S. Department of Agriculture (USDA) classifies a household as food insecure when it has limited or uncertain availability of nutritionally adequate and safe foods or limited or uncertain ability to acquire acceptable foods in socially acceptable ways (USDA 2000).
Figure 6 illustrates the differing nutritional circumstances of children based on their family’s income. More than 10 percent of children in households below the federal poverty level (FPL) are both food insecure and obese, and more than 50 percent have at least one of these conditions. Unfortunately, children in the struggling lower-middle class—children whose family income places them between 100 and 250 percent of the FPL—more closely resemble children in poverty than they do children in higher-income groups (above 250 percent of the FPL). More than 24 percent of children (or approximately 1.7 million children) in the struggling lower-middle class are food insecure and approximately 23 percent are obese; almost 7 percent of these children simultaneously face both obesity and food insecurity. In stark contrast, approximately 85 percent of children (or more than 9.3 million children) living above 250 percent of the FPL face neither challenge. These statistics highlight the diverging nutritional conditions of children by socioeconomic status.
Food insecurity, especially among children, is particularly worrisome given the potential negative effects of hunger during childhood. Indeed, literature in economics and medicine has documented the importance of early-life events, such as nutrition, on adult outcomes such as earnings and mortality (Almond and Currie 2011). Almond, Hoynes, and Schanzenbach (2011) found that during the initial rollout of the program in the 1960s children whose families had access to food stamps while they were in utero and during their childhoods had higher birth weight overall. Recent academic research has also shown that individuals who had access to food stamps had markedly better long-run health (as measured by self-reported health status, obesity, and reported diagnoses of diabetes and other chronic conditions) than individuals who did not have access to food stamps (Hoynes, Schazenbach, and Almond 2012). Among women, this study also found that access to food stamps during childhood improved adult economic outcomes, ranging from increased likelihood of attaining a high school diploma and higher lifetime earnings, to reduced likelihood of being reliant on federal safety-net programs during adulthood.
7. More than one in five children faces food insecurity in thirty-seven states and the District of Columbia.Food insecurity exists everywhere in the United States, with more than 16 percent of individuals living in households reporting conditions indicating food insecurity. The share of children living in food-insecure households, approximately 22 percent, is even higher. The highest rates of child food insecurity in the country are found in New Mexico and Washington, DC, where roughly three out of ten children live in households that are food insecure. Even in North Dakota, the most food-secure state in the country, one in ten children is food insecure. Furthermore, in thirty-seven states and the District of Columbia more than one child in five is food insecure, as represented in figure 7.
There are regional patterns with regard to child food insecurity: the most food-insecure states are consistently located in the South and the West. Indeed, with the exception of Ohio, all of the states with child food insecurity rates above 25 percent are located in these two regions.
8. Nearly 90 percent of Supplemental Nutritional Assistance Program (SNAP) recipients live in a household with at least one child, one disabled individual, or one elderly individual.9. America’s tax and transfer system expands the middle class.In the United States the system of taxes and transfers plays an important role in determining the amount of income a family ultimately has at its disposal. Taxes (such as federal and state income taxes, payroll taxes, and property taxes) typically reduce family income, but the federal tax system also provides credits (such as the Earned Income Tax Credit [EITC] and the Child Tax Credit [CTC]) that can increase the cash income for qualifying families.
Transfer program and targeted tax benefits protect families against economic hardship and supplement low earnings, which for some families could be zero. Some transfer programs provide cash payments, such as Temporary Assistance for Needy Families (TANF), and Supplemental Security Income (SSI); others are in-kind programs, paying a nonmonetary benefit, such as a food voucher in the case of the Supplemental Nutrition Assistance Program (SNAP).
Figure 9 illustrates how the tax and transfer system changes the distribution of income for working-age families with children. Before taxes and transfers, about 5 percent of families have no income, but this share falls to about 1 percent after accounting for taxes and transfers. Similarly, the share of families with income between $1 and $20,000 falls from over 16 percent to about 12 percent. On the other end of the income distribution, there are fewer families in all of the income groups at $80,001 and above. The direct effect of the tax and transfer system is to expand the middle class by compressing the number of families located at either end of the income distribution and raising the number of families in the middle range.
10. Struggling lower-middle-class families depend on an array of tax and transfer benefits.Families living in poverty and among the struggling lower-middle class have access to a number of income-support programs. The nature and level of support of these programs changes throughout the income distribution. For families below the federal poverty level (FPL), the major transfer programs are designed to provide for basic needs such as food and health care. In addition, the Earned Income Tax Credit (EITC) is designed to subsidize earnings. At higher levels of income, families have access to child-related tax credits and health insurance exchange subsidies implemented by the Affordable Care Act (ACA).
As shown in figure 10, struggling lower-middle-class families benefit from the EITC, Medicaid, and the Supplemental Nutritional Assistance Program (SNAP), among other tax and transfer benefits. For the single-parent family with two children illustrated in the figure, the total value of benefits falls from about $14,000 just below the FPL to about $7,500 at 250 percent of the FPL.
While these programs undoubtedly improve the economic security of low-income families, the programs’ impacts are not included in the official measure of poverty. A family’s official poverty status is based on pretax income, and thus does not include benefits received through the EITC or the Child Tax Credit (CTC), nor does it include in-kind transfers, such as food stamp benefits, Medicaid, or housing assistance. Consequently, official poverty estimates produced by the U.S. Census Bureau reveal little to policymakers about the effect of these programs on poverty and near-poverty rates. Additional measures of poverty are needed to reveal the impact of the social safety net on economic well-being in the United States (see Blank and Greenberg 2008; and Meyer and Sullivan 2012).
11. A low-income, single parent can face a marginal tax rate as high as 95 percent.Marginal tax rates for low- and moderate-income families can be exceptionally high. Marginal tax rates are the taxes paid on additional work or investment. Effective marginal tax rates are determined by taxes paid, tax benefits received, and tax and transfer benefits lost due to extra income. For instance, as low- and moderate-income families see an increase in earnings, their transfer payments (such as Medicaid) and tax credits (such as the Earned Income Tax Credit [EITC]) are clawed back or phased out. This can raise effective marginal tax rates and make the after-tax return to additional earnings quite low.
In the absence of transfers, marginal tax rates tend to be low—and often negative—for low-income families. Through personal deductions or exemptions, the federal income tax code allows low-income families to exclude a substantial share of their income from taxation. In addition, refundable tax credits—tax credits that can drop a family’s tax bill below zero—often make marginal tax rates negative. For the hypothetical single parent with one child illustrated in figure 11, marginal tax rates including taxes, but not accounting for transfers, are around –40 percent, indicating that these taxpayers would receive an additional 40 cents for every extra dollar they earn. These marginal tax rates turn positive only at earnings of approximately $10,000.
The gap between the light and dark green lines in figure 11 shows the effects of transfer phase-outs on this particular taxpayer’s marginal tax rate. At the Medicaid limit, denoted by the first vertical black line, the phase-out of transfer benefits increases the taxpayer’s marginal tax rate by about 60 percentage points—from around –40 percent to about +20 percent. For this taxpayer, the impact of transfer phase-outs is dramatic and could discourage additional work that moves her earnings beyond roughly $8,000. Depending on family circumstances and program eligibility, there is a wide range of marginal tax rates facing low- and moderate-income households. As shown in this figure, a low-income, single parent can face a marginal tax rate as high as 95 percent.
Academic studies illustrate the complex impacts of tax and transfer programs on worker behavior. For example, the EITC has been shown to provide meaningful incentives for single parents with dependent children to work (Eissa and Liebman 1996; Meyer and Rosenbaum 2001). At the same time, however, the EITC tends to provide a disincentive for married mothers with children to work, since the combined income of a wife and husband reduces (and sometimes eliminates) a family’s EITC benefit (Eissa and Hoynes 2004a, 2004b).
12. The highest marginal tax rates tend to fall on the struggling lower-middle class.