According to the 2018 report of Pew Research Center, about a third of American families belong to the classification of “lower class households.” In this group, the median annual income fell at about $25,624 in 2016.
Pew Research Center classifies households as a lower class if their yearly income falls two-thirds less than the national median, with values adjusted according to the size of the families.
The distribution of lower-class adults in the U.S. also varies upon location. “The metropolitan areas with the largest shares of lower-income adults are located primarily in the Southwest,” PRC cites. It was found that the metro with the most lower-class households is Laredo, Texas, with 49% of households placing in the lower class category.
On the other hand, 52% of U.S. households are classified into the middle-class category, while the remaining 19% are considered to be upper-class households. For middle-class households, the median income was $78,442 in 2016. As for upper-class households, the median income was $187,872.
In the report, Pew also stated that “the wealth gaps between upper-income families and lower- and middle-income families in 2016 were at the highest levels recorded.” The growing wealth gap between the upper class and the lower and middle class is a continuous trend that spans decades.
“In 1970, when it first analyzed income data in America, the median income of upper-income households was 6.3 times that of lower-income households. That ratio increased to 7.3 in 2016.”
In 2018, the gap between the rich and poor families hit a new record, according to data from the U.S. Census Bureau.
U.S. Billionaires are Part of the Problem
Billionaire Ray Dalio calls the United States’ recent income inequality as a national emergency. He proposes more taxes on rich people like him, which can be used for funding government projects like infrastructure and public education.
Bill Gates also shares the same sentiments. “I think you can make the tax system take a much higher portion from people with great wealth,” he said in his interview on “The Late Show” in which he appeared with his wife, Melinda Gates, last February.
“In terms of revenue collection, you wouldn’t want to just focus on the ordinary income rate, because people who are wealthy have a rounding error of ordinary income,” he said. “They have income that just is the value of their stock, which if they don’t sell it, it doesn’t show up as income at all. Or if it shows up, it shows over in the capital gains side.”
Instead of the government focusing on the top marginal rate, Gates believes that it would be better to pay attention to estate tax and tax on capital. “We can be more progressive without really threatening income generation,” he explains. Moreover, they don’t want lawmakers to waste time on arguments regarding the top marginal rate, which is at 37% currently.
In a discussion with New York high schoolers earlier this year, Bill and Melinda Gates talked about the estate tax. An estate tax is a tax applied to the assets inherited by one person from another at the event of death. This tax applies only to people inheriting more than $11.4 million from the original estate owner.
Melinda said that “you should be taxed at a very high rate for passing that on so that a lot of it goes to the government and some goes to your kids.”
While Bill added: “You can go long ways raising the estate tax, raising the capital gains tax and collecting more resources for the equity things we want government to be able to do.”