The Middle Class is Shrinking - Are You Still In It?

The middle class is shrinking as a result of several factors including surging inflation, an aging population, and the rise of remote work, according to a new report from ConsumerAffairs.

The federal poverty level for a family of four is $30,000 this year, according to the Department of Health and Human Services. Before taxes, the median (middle class) household income was $74,580 in 2022, according to the most recent U.S. Census Bureau data.This stands at a 2.3% decrease from the 2021 estimate of $76,330.

Some families that were considered middle class in 2020 may no longer be as inflation has surged, peaking at 9% in June 2020, according to ConsumerAffairs.

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Financial insecurity and rising debt are just some of the growing issues that U.S. households face.

Using the Pew Research Center’s income calculator that determines the minimum annual income required to be middle class in each state, ConsumerAffairs made some calculations based on 2018 data. 

ConsumerAffairs then put those findings into the inflation calculator of the U.S. Bureau of Labor Statistics to refine the data further to show the state-by-state minimum annual income required for a family of four to be considered middle class this year.

Lowest and highest numbers

From that list, here are the top-five states with the lowest minimum required income: Alabama ($51,798), Arkansas ($51,798), Arizona ($57,964), West Virginia ($59,197), and Mississippi ($60,431).

The top-five states with the highest minimum required income are: Hawaii ($82,630), the District of Columbia ($81,396), New York ($81,396), Connecticut ($80,163), and New Jersey ($80,163). 

ConsumerAffairs cites Oliver Rust, head of Product at independent inflation data aggregator Truflation, as saying that the middle class, which historically has been the engine of economic growth, now accounts for a lower share of income than it did from 1960 through 1980. Rust said this is partly because of demographic changes “as the population has seen a particularly steep increase at the extreme bottom and top of the economic spectrum” since the mid-2000s.

More changes may lie ahead, he said, as factors including the combination of an aging population, which usually lives off savings and generates little income, and an increased number of immigrants, tend to lower median incomes. 

Another factor, Rust said, is remote work wage-earners who relocate from one state to another where their dollars might stretch further.

To stretch dollars further

Another factor could also be that some wage-earners are looking to make their dollars go further by relocating to a state with a lower tax burden. Kiplinger recently looked at each state’s median annual salary and calculated the average annual tax spent for three main tax categories: state income tax, property tax and sales tax on essential items.

Check out the full report for details on why these states made the list: Wyoming, Nevada, Tennessee, Florida, North Dakota, Alaska, Arizona, Washington, South Dakota, and Louisiana.

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