The Distribution of Household Income and the Middle Class

Source: Craig K. Elwell, Congressional Research Service (CRS), CRS Report, RS20811, March 10, 2014

Although not itself a subject of legislation, the shape of the income distribution enters Congress’s decision-making process concerning such policy issues as taxes, means-tested benefits, and social insurance programs. Congress also considers legislation specifically in the name of those in the middle class, which is variously defined as some income level or income range within the distribution of U.S. households with income. After briefly analyzing the distribution of household money income in 2012, the report attempts to put the term “middle class” into greater perspective.

The first key point of the report is that, although there are a variety of ways to describe the income distribution, all show that income is concentrated among high-income households. Of the 122,459,000 households with income in 2012, 2.3% had incomes of at least $250,000. (The Census Bureau does not disaggregate income within the $250,000-or-more income class.) In addition, a large share of total money income accrues to those at the upper end of the distribution. In 2012, the top 5% of U.S. households with income accounted for 22.3% of total income, and the top 20% of households (which includes the top 5%) had 51.0% of all money income. A broader definition of household income, incorporating capital gains, the value of non-cash benefits (e.g., Food Stamps, Medicare and Medicaid, and employer paid health insurance), and subtracting estimates of federal taxes, tends to make the income distribution slightly more equal.

The second major point is that there is no official government definition of who belongs to the middle class, and the term means different things to different people. The middle class may refer to a group with a common point of view or to those having similar incomes, for example. Third, absolute income appears to partly determine who belongs to the middle class. By combining money income data from the latest Annual Social and Economic Supplement to the Current Population Survey with results from surveys that asked people to identify their social class, the middle class may refer to households with income levels in 2012 that ranged from $39,736 (the bottom of the middle quintile, 20%, of households) and extended into the top quintile (households with income of $104,087 or more)—perhaps including households with incomes somewhat over $200,000.

Last, relative income may also be a defining characteristic of the middle class. In other words, the middle class appears to identify itself relative to the income of a reference group (e.g., their neighbors or coworkers). According to studies of self-reported well-being, those who constitute the middle class seemingly are of like minds with regard to their economic situation. Specifically, having incomes far above those at the lower end of the income distribution generally correlates with satisfaction to the middle class, but when those at the upper end of the distribution fare much better than they do, the level of middle-class satisfaction is generally lessened.