THE ATLANTIC FOUNDED IN 1857
by Robert L. Heilbroner
Some years ago, in a moment of serious levity, I wrote that there were only two nations in the world that refused to admit to the presence of an upper class—the United States and the Soviet Union. (I suppose I should have included China.) It is still next to impossible for an American to admit that he or she is “upper-class,” and almost as difficult to confess to being “workingclass.” But when it comes to the middle class, we are the most class-conscious nation on earth. A recent survey by Yankelovich, Skelly & White, one of the most sophisticated pollsters in the country, has come up with this profile, based partly on the judgment of the poll-taker (occupation, neighborhood) and partly on the feelings of the interviewee:
Prosperous upper middle class
Are Americans in fact a one-class society? Perhaps they are from the point of view of political orientation, or morality, or simply self-image. The Yankelovich poll is certainly not wrong when it tells us that 82 percent of Americans think of themselves as “middle-class.” That does not mean, however, that Americans see themselves clearly. We are great ones for playing up regional differences, but equally avid on playing down economic ones. The banker goes out of his way to talk baseball to the gas station attendant. The richer we are, the more we insist that we are just like everybody else (except that we pay more taxes).
In a word, a cloud of myth obscures the realities of American class structure. For example, it says that the middle class is by far the largest group in our society. Is it?
Nothing explodes myths like facts. My facts appear in the United States Statistical Abstract, 1975. You will not find a category called the Middle Class anywhere in the Statistical Abstract. Neither will you find an economic group called the Rich or one called the Working Class. But there is a useful category described as “125 percent of Low Income Level,” which is economic jargon for the Poor. That figure establishes an income of $6298 for a nonfarm family of four in 1974. If you round out to $6500 for convenience’ sake, 11 million families—one fifth of all the families in the nation—fell into this group.
A great divide separates the poor from the economic middle class, but the poor nonetheless affect middle-class prosperity in two ways. First, many of the amenities of middle-class existence are made possible because the bottom group includes large numbers of working poor. Here are the nation’s bellhops, porters, washroom attendants, shoeshine boys, hotel maids, parking lot attendants, restaurant kitchen help. It would be too much to say that the middle class lives off the low-cost services of the working poor. It is not too much to say that it enjoys them.
Second, the poor are the class that the economic middle class pays for. The poor are major beneficiaries of the taxes paid by the nation—almost a third of their income comes from public assistance. The middle class is not, to be sure, the only class that supports the nonworking poor. It shares that burden with the rich and the working class. It shares as well the mixed attitudes of pity, contempt, hatred, and fear with which upperand working-class America regards the bottom group.
The working class
Identifying the poor is statistically easy. It is not so easy to identify the working class. One way would be to add up all the families who have what we call “working-class” occupations—bricklayers, factory operatives, and so on. There are, very roughly, 25 million such blue-collar workers. The trouble is, some are not married (hence not “families”); a considerable number are low earners (hence already included in the working poor); a few are working-class by trade but certainly not by income (skilled craftsmen).
Therefore we will count up the working class by an easier method. We will simply include in it every family that earns more than a near-poverty income of $6500 and less than an income of $15,000. Forty percent of all families in the nation have incomes in this range.
The working class affects the economic middle class in a way that is different from what the poor does. The middle class feels that it is bled by the poor, but that it is challenged by the workingman. When a middle-class engineer making $20,000 reads about a building trades worker who pulls down $8.00 an hour, he feels pressured. He complains that “unions are pushing the country into bankruptcy.”
Well, maybe unions are pushing some parts of the country, especially the cities, into bankruptcy, but the hard facts of income distribution nonetheless draw a clear line between working-class incomes and middleor upper-class ones. Average annual earnings for male craft workers, the aristocracy of the working class, were just over $8000 in 1969—perhaps they are up to $10,000 today. Most working-class families who make it up to the $15,000 level do so because they have two earners in the family. But realities are often less important than perceptions. And there is no doubt that the middle class feels the union man breathing down its neck.
With the bottom three fifths of the nation tagged—one fifth poor, two fifths working class—we are almost ready to examine the true economic middle class. But first we must take a look at the rich.
Where do riches begin? A realistic answer is probably around $100,000 a year, that magic sixfigure number attached to major corporate responsibility. We can only guess how many $100,000 families there are. In 1972, slightly over one million taxpayers filed returns showing incomes of $50,000 or more. The number with $100,000 incomes was certainly less than half that number, probably fewer than 200,000. A separate estimate of taxable estates tells us that there are 250,000 households worth $1 million or more. There is obviously a lot of overlap between the two groups, but even if there were no overlap at all, only 450,000 families—less than one percent—would be rich.
Under the rich is a much larger group that we shall call the upper class. This is the top 5 percent of the nation, numbering some 2,750,000 families. In 1974 a family made it into this upper class wath an income of $32,000. Coincidentally, there are about the same number of families with estates ranging from $200,000 to $1 million.
These numbers have a certain shock effect. It takes much more money to be rich, and much less money to be upper class, than we think. Lots of families who picture themselves as middle classfamilies with incomes derived from modest positions in business or professional work—discover that they are actually upper class by economic standards. Indeed, what really separates upper class from middle class, at the $30,000 to $40,000 range, is not so much income as wealth. The successful middle-class family enters the upper-class income range during its peak earning years, and then slips back to middle-class levels on its retirement income. The true upper-class family stays there after retirement, because it has dividends and interest to supplement its retirement pay.
The economic middle class
All these investigations finally bring us to our target. The economic middle class is what is left, after we count up the working class and the poor, and after we exclude the upper class and the rich. It is by no means a small class—by our calculations it includes 35 percent of all the families in the nation. Its income ranges from $15,000, where the working class stops, to $32,000, where the upper class begins.
What occupations, what characteristics, mark this group? There is no simple answer to the question. Some professions—doctors, lawyers, airline pilots— are virtually all middle-class or higher. So are some broad occupational groups—managers and proprietors. But the category is more inclusive than that. In 1974, the average white couple, where both husband and wife worked, made $16,500. That was enough to put it just over the middleclass boundary.
Nonetheless, large as it is, the middle class is only about half as large as it appears in the Yankelovich survey, based on the standards of occupation or residence or self-perception. In addition, note that the upper class, defined as the top 5 percent of incomes, is only a quarter as large as the “prosperous upper middle class” of the survey. Hence the first great myth explodes. Eighty-two percent of Americans may think of themselves as middle-class or higher, but more than half of these families are kidding themselves.
The inflation squeeze
One thing emerges very clearly from this look at the economic realities. The economic middle class is a lot less rich (as well as a lot less large) than most people think. This delusion lends support to a second general myth about the middle class. It is that the middle class has been caught in a ferocious squeeze between rising prices and rising taxes.
Let us begin with inflation. Consumer prices have doubled since 1950, and have risen by two thirds since 1965. Hasn’t this inevitably taken its toll of middle-class well-being? The answer is that it hasn’t, because middle-class incomes have risen even faster than prices. In 1974, it required an income of $15,000 to enter the top 40 percent of families, where the middle class is found. Back in 1950, however, to get into the top 40 percent required an income of only $3822. An extraordinary fact, but true. In those days the poor included all families with incomes of less than $1661, and the upper class—the top 5 percent—began at a family income of only $8666. If we doubled those 1950 amounts, we would keep everyone approximately abreast of inflation. But actual incomes have far more than doubled. That marginal upper-class family of 1950 has not doubled its $8666 income, but has quadrupled it.
Thus, in “real” terms—that is, with full allowance for inflation—the middle class has fared very well. Then why does the middle class feel squeezed by rising prices?
Three answers suggest themselves. One is that the psychological costs of inflation are greater than its economic gains. Once every year or so, we get ahead of the inflationary spiral, when salaries are raised, promotions are won, year-end profits are shared. On that day there is a real sense of moving ahead, an acute moment of economic triumph. But the triumph is followed by 364 days of irritation as shopping bills rise. The small defeats of 364 experiences of inflation may actually amount to less than the victory on Getting Ahead Day, but the sense of loss far outweighs the memory of gain.
Second, there is the problem of property. Another testimony to the actual economic strength of the middle class is that the number of property owners with estates ranging from $60,000 to $200,000 rose from 2.3 million in 1958 to over 10 million in 1972. This is an enormous gain in the number of modestly propertied families. It is also an enormous increase in the number of households who watch with impotent alarm as their savings accounts melt, their life insurance policies lose value, their bonds deteriorate in purchasing power, and their stocks go nowhere (from 1965 until the present boom, stocks have essentially moved sideways, with no net gain at all).
Last, there is the fact that the two years of inflation and recession since 1974 have ground down on the economic middle class along with everyone else. The process of staying ahead of inflation has depended on economic growth. For almost two years, until very recently, our economic growth has been negligible or even negative. Probably the burden of recession has hurt families in the workingclass income brackets more severely than those in middle and upper brackets, but better-off families have also felt its impact, either in reduced incomes or in frozen ones, or even in unemployment.
Thus it is understandable that we believe in the myth of a killing inflationary experience for the middle class. Inflation is psychologically painful, hell on property, fierce when it is accompanied by recession. Nonetheless, inflation over the last twenty-five years has been more than matched by growth, in both income and property. Over this period, the middle class has not been killed—in fact, it has done extremely well.
The tax bite
The same surprising conclusion awaits us when we take a look at taxation. Is the middle class suffering under a growing burden of taxation? It thinks it is. There is a great rumble of tax revolt. Politicians are falling all over themselves to promise tax relief to the middle class. Yet, once again, realities differ from perceptions.
Let’s begin with federal tax rates. Everyone assumes they are much higher, because everyone is paying more money to the federal government. But tax rates are not higher, except for Social Security taxes. From 1954 to 1963, a married couple with two dependents making a taxable income of $20,000 paid $3800 to the government. By 1975 that tax liability had dropped to $2740. The tax rate on $20,000 has actually fallen from 19 percent in 1954-1963 to less than 14 percent today.
Of course state and local taxes have gone up. One cannot say how much, because they vary from locality to locality. State and local taxes from all sources, property, sales, and income, have roughly quadrupled over the last twenty years. Yet it seems doubtful that the total tax bill has risen on a given family income.
That brings us to the second complication. Family incomes are not “given.” They have risen sharply over the period. As a consequence, families have moved into higher tax brackets. Take a successful young couple with two infants in 1955, earning $ 10,000—enough to put it into the upper class (the top 5 percent) in that year. In 1955 our couple paid a federal income tax of $1372 plus a few hundred dollars in state and local taxes.
Now suppose that our couple prospered along with everyone else over the next twenty years. Its $10,000 income would today be about $35,000, At this level its federal taxes (still assuming two dependents) would be a little over $7000, and we will estimate very generously that it paid an additional $2000 in state and local income taxes. Thus it has left only $26,000 of its $35,000 income, and this $26,000 has to be cut in half to allow for the doubling of prices between 1950 and 1975.
Such a family may indeed feel burdened by taxation. Nine thousand dollars of taxes, where it used to pay $1500! The fact remains, however, that its income, after taxes and after allowing for inflation, is still about 50 percent higher today than its post-tax income of twenty years ago.
The crucial role of growth
All this presents a picture of the middle class very different from that to which we are accustomed. In fact it brings us to the last of our myths—the belief that the middle class is indestructible. The middle class, for all its anxieties and trials, has triumphed over adversity. It would not be difficult to project a future in which the middle class will go on forever, gaining economic strength and security.
Alas, I fear this too is a myth. The success of the middle class has been based on the process of economic growth. It is the steady expansion of output that has enabled the middle class to pay higher taxes and higher prices and still enjoy a higher real income. But growth is a process whose days are numbered, partly because of a shortage of resources, partly because of pollution dangers. Probably within our lifetime, certainly within that of our children, growth will have to be throttled back (as is already the case in Japan). When it does, the fate of the middle class may be decided.
For then we will finally have to face the problem that the myth of a one-class society has obscured. It is the problem of what to do about the working class, not to mention the poor, who have the temerity to ask for “more,” and to be discontented even after they get more. This is an attitude that the middle and upper classes celebrate in themselves, but deplore in others. It is, however, an attitude they can tolerate as long as everyone gets more, because growth sheds its benefits on all classes.
What happens when growth slows down? There is only one possible answer. The working class must come into conflict with the middle class. Of course it will also come into conflict with the upper class and the rich. But the top 5 percent get only 15 percent of all income. Even if we took all its surplus income and gave it to the working class, this would not be enough to bring the working class to parity with the middle class. And this still leaves us with the lower class, condemned to live on 5 percent of the nation’s income.
Thus, when growth slows down, we must expect a struggle of redistribution on a vast scale—a confrontation not just between a few rich and many poor, but between a relatively better-off upper third of the nation and a relatively less well-off, slightly larger working class. And fighting against both will be the bottom 20 percent—the group with the most to gain, the least to lose.
This struggle will not be confined to the United States. Although social and political differences are very great throughout the Western world, income structures are much alike. By and large, the middle classes of Europe and Japan have prospered during the last twenty years, thanks to the curative powers of growth. They too must face the prospect of a struggle for position when growth begins to peter out, ten or twenty years from now. In England, the victim of twenty years of sluggish growth, the contest is already joined. In Japan, reduced by energy scarcities and pollution damage from the fastest to one of the slowest growing industrial nations, the contest soon may surface. In the more fortunate nations, one of which is the United States, it is still a decade or two away.
Can the middle class survive this challenge? It is difficult to be hopeful in the face of the reluctance with which any class surrenders one inch of economic territory. I expect that in many nations the outcome will be the rise of authoritarian governments, some seeking to protect the income advantages of middle or upper groups, some trying to impose an egalitarian economic order on all. Certainly if an end to growth should come rapidly, authoritarian regimes of the Right or Left would seem very probable.
But we still have a breathing spell, perhaps even a whole generation if we are lucky. Hence there is time to try for another solution. This is the resolution of the problem by the gradual fashioning of a genuine social contract, a widely shared consensus as to what constitutes a “fair” distribution of income. Such a distribution would probably not be equal, although it would not tolerate extremes of either wealth or poverty. It would be, in fact, the realization of the myth of the one—“middle”—class society.