Census shows middle class shrinking to an all-time low

Posted Sept. 12, 2012, at 8:55 p.m.

The vise on the middle class tightened last year, driving down its share of the income pie as the number of Americans in poverty leveled off and the most affluent households saw their portion grow, new census data released Wednesday showed.

Income inequality increased by 1.6 percent, the census said in its annual report on poverty, income and health insurance. This was the biggest one-year increase in almost two decades, and suggested that a trend in place since the late 1970s was picking up steam.

As a snapshot of a nation recovering from one of its worst recessions ever, the census report had both shadows and highlights. Median household income declined $777 to $50,054 before taxes. But the poverty rate, which many experts had predicted would rise to rates unseen in nearly half a century, inched down a hair to 15 percent, a decline of about 100,000 people. And fewer Americans were without health insurance, largely because a provision in the 2010 health care law allowing young adults to stay on their parents’ policies.

The new census statistics, coming out just two months before the presidential election, should fuel the debate over the shrinking middle class, income inequality and a gnawing fear that for many, the American dream is receding out of reach. This week, the Pew Research Center said a third of Americans now identify themselves as lower class or lower middle class, up from a quarter only four years ago. Among young adults, the percentage who see themselves as occupying the bottom of the heap is even higher.

For many economists, the most troubling statistics were those on income inequality underscoring the middle class squeeze.

The 60 percent of households earning between roughly $20,000 and $101,000 collectively earned 46.6 of all income, a 1.5 percent drop. In 1990, they shared more than 50 percent of income.

In contrast, the census data show, the top fifth rose 1.6 percent in 2011 after several years of decline during the recession.The biggest gains went to the top 5 percent, who earn more than $186,000; their share of income jumped almost 5 percent in a single year.

Scholars said the disparate numbers underscore the many prisms through which different groups of people view the anemic economic recovery.

“It explains the disconnect between the numbers saying there’s slow improvement and job growth, and the way people feel, because they haven’t recovered,” said Sarah Burd-Sharps, co-director of Measure of America at the Social Science Research Council. “It’s partly because the recovery has mostly been felt at the top.”

Tim Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin in Madison, said the the working class, whose pay tops out around $62,000, is bearing the brunt of the income squeeze.

“Their pay rate has gone down, the number of hours that everyone in the house works has gone down, their homes have lost value,” he said. “These are the people really ravaged by the recession.”

The political reaction to the census data was immediate.

The White House quickly posted a blog post urging Congress to extend middle class tax cuts and pass the administration’s job creation proposals. It said more recent data collected this year suggests median income is growing again.

Robert Rector, a Heritage Foundation scholar who specializes in poverty issues, faulted the White House for the falling income and high poverty rates.

“We still have a very high poverty rate, because Obama has been unable to generate jobs,” Rector said. “We have 11 million more adults who are completely without jobs than at the beginning of the recession, and about 8 million fewer adults with full time work. Those numbers will explain almost all the increase in poverty.”

The census report noted a small uptick in people holding full-time jobs, but said it appeared many had shifted from part-time work. That was enough to keep the poverty rate from increasing, said David Johnson, the census official in charge of the income statistics.

Academics debate the factors driving income inequality, but some of them have more to do with demographic changes than corporate salaries. The country has many more single parent families and people living alone, for example, driving down median household incomes.

In the height of the recession, the decades-long growth in income inequality essentially stalled as “everybody took a hit,” said Jane Waldfogel, a professor at Columbia University’s School of Social Work who studies poverty and inequality.

“What’s disconcerting is that inequality is going up post-recession and it’s happening because the top is starting to pull away again,” she said.

The increase in income inequality reflects the recovery’s unevenness, said Richard Burkhauser, an economist at Cornell University.

“It rose not so much because the top 10 percent saw a rise in income, but because virtually everyone below the 90th percentile is still falling,” he said.

Others saw a silver lining, and expressed measured relief that the poverty rate hadn’t worsened.

“It looks as though we’ve sort of hit bottom,” said Peter Edelman of Georgetown University, author of “So Rich, So Poor: Why It’s So Hard to End Poverty in America.”

“It’s still very, very troubling, it’s a very serious picture. We’ve added 15 million people in poverty since the turn of the century. The fact it isn’t worse is at best the sound of one hand clapping.”

Washington Post staff writer Annie Gowen contributed to this report.

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