The myth of the middle class.

The American middle class has disappeared. Despite frequent reference to "the middle class" by commentators and columnist, statistical evidence does not support the conventional wisdom of a vast middle class.

Downward pressures upon middle incomes began to appear in the 1970s when high inflation and a sluggish economy--stagflation--began to erode purchasing power. A trend was developing, but it was camouflaged by the growing number of two income families, an effective social safety net, and a two pronged corporate policy of loyalty to workers and support for community endeavors. A recent Census Bureau report (see Table I) provided conclusive proof that, beginning in 1969, the household income gap between the upper and middle quintiles began to accelerate, and the lowest fifth saw their incomes remain relatively flat.

[TABULAR DATA 1 OMITTED]

Another study, this one drawn from a 1991 House sub committee hearing and covering the period 1977 to 1989, documented a 5 percent decline in after-tax family income in the middle quintile and a 10 percent drop in the two lowest quintiles, representing 40 percent of all families.

During the period 1969 to 1994, mean (average) household income in the top quintile shot up S25 percent, whereas the middle average increase was 350 percent, reaching an average income of $32,385 in 1994. The disparity between the top and bottom quintiles is a staggering 1,376 percent (see Table I), and the gap continues to widen as increasing numbers of families slip through the social safety net. The Urban Institute, a conservative think tank, estimated that the recently enacted "welfare reform" bill will push another one million children into poverty. What we are witnessing is a complete reversal of economic policy, resulting in a kind of reverse Robin Hoodism or, more descriptively, socialism for the rich and capitalism for the poor.

The Corporate Equation

Any discussion of family income would not be complete with out an analysis of corporate policy vis a vis its central role in precipitating the demise of Middle America. Big corporations have historically extracted handouts from a compliant Congress, but the Reagan Bush regime raised corporate welfare to new heights. For example, President Reagan's misnamed 1986 Tax Reform Act included 600 separate corporate tax loopholes, most of which were either introduced or strongly supported by Senator Robert Dole. Other regressive actions since then have driven nine inch nails into the coffin of the middle-class:

* Offshore business investments doubled in just two years--from about $29 billion in 1991 to $58 billion in 1993.

* Despite being the most productive workers in the world, US. workers have been subjected to 40 million "job displace meets" since 1980.

* Temporary employment agencies are our number one growth industry.

* Federal Reserve Bank policy is predicated upon the assumption that 6 percent unemployment represents a "natural" or normal rate--a policy ratified by President Clinton when he reappointed Alan "the Grim Reaper" Greenspan as head of the Federal Reserve.

* Over the past decade, military weapons production has become increasingly capital-intensive, thus causing countless millions of high paying jobs to disappear.

This corporate hit on the middle class has been abetted by the Reaganesque Four Horsemen of union busting, rapid automation, downsizing, and the exponential growth of huge transnational corporations. In addition, the Gingrich Congress' Contract with America (some of which has already been signed into law) calls for gargantuan handouts to corporate and wealthy elites, all of them to be bought and paid for by those in the lower income brackets.

Professor Ralph Estes of American University, writing in the journal Public Interest Accounting, estimates that yearly corporate handouts and external costs imposed upon customers, employees, communities, and society are in excess of $2.6 trillion--a prodigous amount that makes total individual and family welfare costs of $50 billion seem trivial. Estes provices an extensive list of external costs that never show up in annual reports, including price-fixing, deaths from workplace-induced cancer, discrimination, white-collar crime, tax fraud, unsafe vehicles, health costs from pollution, and hazardous waste. He concludes: "A scorecard that ignores social costs presents a distorted picture of performance that can influence policymakers to be excessively generous with taxpayer-funded corporate benefits and overly lax in enforcing corporate regulations."

Congress is understandably reluctant to investigate this corporate gravy train, for it would call into question the power relationships that dominate political and regulatory decision making. When Representative John Kasich proposed a modest $25 billion cut in corporate welfare, he was thwarted by his own leadership: Gingrich, Armey &? Co. It becomes increasingly apparent that regressive corporate and legislative policies have driven a stake into the economic heart of the middle class.

The Middle Class Has Disappeared

In referring to a recent Census Bureau study measuring 1994 family income, newspaper headlines and columns reported that "the rich are getting richer," but the accounts conveniently ignored the most compelling data. In passing references to "the struggling middle class," hard-number facts are never cited. Hidden in the numerous tables are measurements that point to a startling conclusion: the middle class has already disappeared! Confirmation of this theory is contained in Table II, which measures 1994 household income, including capital gains and health insurance supplements minus Social Security taxes and government transfer payments. Using this yardstick, median household income is $29,193. Thirty-eight percent of households have incomes under $20,000, and another 24.6 percent have incomes under $10,000. In short, 57 percent of households have combined earnings under $35,000--clearly not a figure to inspire confidence in any middle-class economic model.

Table II

1994 Household Income Distribution:
A Two-Tiered Stratification Model
(includes capital gains and employee health insurance less
Social Security payroll taxes and government transfers)

     UPPER CLASS

Upper Upper      $100,000+              6.3%
Middle Upper     $60,000-$99,999        14.770
Lower Upper      $45,000-$59,999        11.8%

Percent of households over $45,000:     32%

     LOWER CLASS

Upper Lower      $35,000-$44,999        10.1%
Middle Lower     $20,000-$34,999        19.2%
Lower Lower      $0-$19,999             37.9%
Percent of households under $45,000:    67.2%

Source: U.S. Bureau of the Census Population Reports

After Bob Dole unveiled his tax package, one leading economist, in a radio interview, stated that "the large number of middle-class families earning $30,000 to $40,000 will not be helped." In fact, that income range represents a bare 11 percent of all households, and they will not come anywhere near the huge savings to be secured by those in the brackets above $75,000. Even if middle class is defined as families making $30,000 to $45,000, only 16 percent fall within this bracket--hardly a viable middle class. Using this definition also defies logic, since it is a statistical anomaly, skewed as it is entirely above the median.

Defining middle class is further complicated by the conventional wisdom, reinforced by the media, that most families are somehow in the middle. Representative Frederick Heineman (Republican--North Carolina) elevated the definition to new heights when he stated, "Middle class is someone who is making anywhere from $300,000 to $750,000 a year" and went on to opine that his income of $183,000 (congressional income of $133,600 and a $50,000 police pension) "makes me lower middle class" Such grandiose statements obfuscate the desperate conditions facing the majority of American families. With 67 percent of households earning under $4S,000, a strong case can be made for an upper-class/lower-class stratification model without a middle class.

Household income is only one side of the coin; net worth is the other side and more accurately reflects concentration of wealth at the top. Arthur Kinneckell, economist with the Federal Reserve Board of Governors, along with Douglas A. McManus and R. Louise Woodburn, released the results of a study on March 11, 1996, which showed the top 2 percent of households with 30.4 percent of total net worth; the top 10 percent held 67.2 percent. A similar Census Bureau study--the 1989 Survey of Consumer Finances--estimated that the top 20 percent of households controlled 85 percent of net worth. By any of these measures, the picture is clear. Despite protestations to the contrary, class warfare is alive and well and bodes ill for future generations.

The Upper-Class/Lower-Class Model

The two-tiered stratification model I've illustrated in Table II is based upon data contained in the 1996 Census Bureau Consumer Income Report. The rationale for using the capital gains/health insurance benefits income table is fourfold:

* It more accurately measures household income.

* It portrays the extent to which incomes are concentrated in the under $35,000 brackets (57 percent).

* Less than one-fourth of households (22 percent) are in the $3S,000 to $60,000 bracket.

* The bell-shaped curve cannot be used to define middle class (median: $29,193).

Several factors weighed heavily upon the decision to include $35,000 to $45,000 incomes in the lower class. Job surveys confirm that a majority of households require two incomes to reach this level, a full time equivalent of $17.50 to $22.50 per hour. With only 10 percent of households in this bracket, it is apparent that corporate downsizing, massive layoffs, hiring of temps, loss of health benefits, and wage reductions have all taken their toll. At least 75 percent of all newly created jobs are at or slightly above the minimum wage and are concentrated in dead end service occupations. Precious few entry level positions have the potential to reach $35,000, thereby increasing the likelihood that this bracket will be subject to further attrition. Also, wages in the under-$45,000 category have failed to keep pace with inflation during the past decade--the obvious result being an increasing number of households (57 percent) living on less than $35,000. Defining the middle class is like finding the proverbial needle in a haystack.

The Past Is Prologue

Deindustrialization has not only lengthened unemployment lines but has led countless families into an endless game of musical chairs--or is it a shell game with three empty shells? See the declining unemployment rate--5.8, 5.7, now only 5.5! Noted Massachusetts Institute of Technology economist Lester Thurow has revised it to 14 percent when involuntary part-time workers and discouraged job seekers are factored in. As if to add insult to injury, a recent Census Bureau report indicated that, during a 24-month period commencing January 1992, 48 percent of all chronically poverty stricken persons were children. Also, the Urban Institute estimated that the so-called welfare reform act will drop 3.5 million children from the rolls by the year 2001 and 4.9 million by 2005. Not to worry, though, for by that time Clinton, Dole, and Gingrich will most likely be history. New York Times reporter Bob Herbert, after revealing a steady decline in the average monthly Aid to Families with Dependent Children payment (which reached a low of $373 in 1993), concluded, "There is no welfare crisis in the United States, only welfare madness" So much for "family values" and individual responsibility. A sibility. A new idiosyncratic ethical norm has found its way into the socio-political lexicon: "tough love."

Can the middle class be reconstituted? Only if direct and targeted legislative action supplants the goal of satisfying corporate greed with the more worthy and humanistic goal of statisfying human need. In the current political climate, however, this is remote at best. The Republican mantra deprecates civic virtue and propounds a 1S percent tax cut as the path to economic nirvana, while Clinton and the "New Democrats" continue to dispense their own brand of corporate welfare (such as tax breaks to those philanthropic corporations that hire ex-welfare recipients). A viable middle class is possible if at least half of the households with incomes under $20,000 are able to move into higher brackets, thus raising the median to the $40,000 level. This scenario requires both a return to a progressive tax code without loopholes and the political will to challenge and scale back the influence of huge corporations.

Class warfare is here to stay, whether or not its existence is acknowledged by Congress, the president, or the media. And precisely because there has been so little debate concerning the actual demise of the middle class, the myth of the middle class persists and will not die an easy death.

Lynn H. Ehrle is a freelance writer currently researching consumer and environmental health issues. A retired social studies teacher, he was formerly vice president of the Consumer Alliance of Michigan